Company Name: Hewlett-Packard Co.
Public Availability Date: December 12, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
November 3, 2006
VIA HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Stockholder Proposal of the Free Enterprise Action Fund Securities Exchange
Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, Hewlett-Packard Company ("HP"),
intends to omit from its proxy statement and form of proxy for its 2007 Annual
Stockholders Meeting (collectively, the "2007 Proxy Materials") a stockholder
proposal and supporting statement thereof (the "Proposal") received from the
Free Enterprise Action Fund (the "Proponent"). The Proposal and related
correspondence are attached hereto as Exhibit A.
On behalf of our client, we hereby respectfully request that the staff of the
Division of Corporation Finance (the "Staff") concur in our view that the
Proposal may be excluded from the 2007 Proxy Materials pursuant to Rule
14a-8(i)(7) because the Proposal pertains to HP's ordinary business operations.
Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter
and its exhibits. Also, in accordance with Rule 14a-8(j), we are mailing on this
date a copy of this letter and its exhibits to the Proponents, informing them of
HP's intention to exclude the Proposal from the 2007 Proxy Materials. Pursuant
to Rule 14a-8(j), this letter is being filed with the Securities and Exchange
Commission (the "Commission") no later than eighty (80) calendar days before HP
files its definitive 2007 Proxy Materials with the Commission. On behalf of HP,
we hereby agree to promptly forward to the Proponents any Staff response to this
no-action request that the Staff transmits by facsimile to HP only.
Consistent with the provisions of Rule 14a-8(j), we are concurrently providing
copies of this correspondence to the Proponent. We understand that the Staff has
not interpreted Rule 14a-8 to require proponents to provide HP and its counsel a
copy of any correspondence that the proponent submits to the Staff. Therefore,
in the interest of a fair and balanced process, we request that the Staff notify
the undersigned if it receives any correspondence on the Proposal from the
Proponent or other persons, unless specifically confirmed to the Staff that HP
or its undersigned counsel have timely been provided with a copy of the
correspondence.
THE PROPOSAL
The Proposal asks HP's Board of Directors "to report on the development of HPQ's
policy concerning greenhouse gas (GHG) emissions, omitting proprietary
information and at reasonable cost." The Proposal further states that such
report should discuss the "[s]cientific, economic and other relevant
information, and internal corporate procedure involved in formulating HPQ's GHG
policy" and "[c]osts and benefits to HPQ of its GHG policy." The Proposal
includes a supporting statement that alleges that HP's policy of voluntarily
disclosing its greenhouse gas emissions "may increase the likelihood that a GHG
lawsuit will be filed against the company" and "may harm the company's defense
in the event a lawsuit is filed."
ANALYSIS
Rule 14a-8(i)(7) permits the omission of a stockholder proposal dealing with
matters relating to a company's "ordinary business" operations. According to the
Commission's Release accompanying the 1998 amendments to Rule 14a-8, the
underlying policy of the ordinary business exclusion is "to confine the
resolution of ordinary business problems to management and the board of
directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." Release No. 34-40018 (May 21,
1998) (the "1998 Release").
In the 1998 Release, the Commission described the two "central considerations"
for the ordinary business exclusion. The first was that certain tasks were "so
fundamental to management's ability to run a company on a day to day basis" that
they could not be subject to direct stockholder oversight. Examples of such
tasks cited by the Commission were "management of the workforce, such as the
hiring, promotion, and termination of employees, decisions on production quality
and quantity, and the retention of suppliers." The second consideration related
to "the degree to which the proposal seeks to `micro-manage' the company by
probing too deeply into matters of a complex nature upon which shareholders, as
a group, would not be in a position to make an informed judgment."
The Staff has also stated that a proposal requesting the dissemination of a
report may be excludable under Rule 14a-8(i)(7) if the substance of the report
is within the ordinary business of the issuer. See Release No. 34-20091 (Aug.
16, 1983). In addition, the Staff has indicated, "[where] the subject matter of
the additional disclosure sought in a particular proposal involves a matter of
ordinary business ... it may be excluded under rule 14a-8(i)(7)." Johnson Controls, Inc. (avail. Oct. 26, 1999).
We believe that the Proposal is excludable under the ordinary business exclusion
in Rule 14a-8(i)(7) because it requests an internal assessment of the "[c]osts
and benefits" of "HPQ's policy concerning greenhouse gas (GHG) emissions" and
emphasizes HP's litigation risks and HP's "internal corporate procedure" in this
regard. Thus, under established Staff precedent, the Proposal is excludable as
it relates to a company's assessment of the risks and benefits of aspects of its
business operations.
A. The Proposal Involves Ordinary Business Matters Because It Relates to the
Assessment of Risk.
The Proposal is clearly and directly focused on HP's internal risk review
process: it requests a report on "the development of" HP's policies, states that
the requested report should discuss the "[c]osts and benefits to HPQ of its GHG
policy" and focuses heavily on whether HP has assessed the possible litigation
risks that the Proponent suggests may arise from the HP's actions. Thus, the
Proposal does not address any significant policy issue or request HP to change
its operations to address a significant policy issue, but instead implicates
only the internal considerations, financial consequences, risks and benefits
arising from HP's greenhouse gas reporting policy. Thus, the Proposal is
excludable because the subject of the report relates to HP's ordinary business
operations.
A long and well-established line of no-action letters demonstrates that
proposals seeking detailed information on a company's assessment of the risks
and benefits of aspects of its business operations do not raise significant
policy issues and instead delve into the minutiae and details of the ordinary
conduct of business. In The Dow Chemical Co. (avail. Feb. 23, 2005), the Staff
concurred that the company could exclude a proposal requesting a report
describing the reputational and financial impact of an environmental policy on
Rule 14a-8(i)(7) grounds because it related to the company's ordinary business
operations (i.e., evaluation of risks and liabilities). In The Dow Chemical Co.
(avail. Feb. 13, 2004), the Staff concurred that the company could exclude under
Rule 14a-8(i)(7) a proposal requesting a report related to certain toxic
substances, including "the reasonable range of projected costs of remediation or
liability." In concurring with the exclusion of the proposal, the Staff noted
that it related to an evaluation of risks and liabilities. See also Willamette
Industries, Inc. (avail. Mar. 20, 2001) (excluding a proposal related to a
request for a report on environmental problems, including "an estimate of worst
case financial exposure due to environmental issues for the next ten years");
Boeing Co. (avail. Feb. 25, 2005) (excluding a proposal related to a request for
estimated or anticipated cost savings associated with job elimination or
relocation actions taken by the company over the past five years); Potlatch
Corp. (avail. Feb. 13, 2001) (excluding a proposal related to a request for a
report that was to include an assessment of environmental risks).
This line of precedents was summarized in Staff Legal Bulletin 14C (June 28,
2005). There, the Staff stated, "To the extent that a proposal and supporting
statement focus on the company engaging in an internal assessment of the risks
or liabilities that the company faces as a result of its operations that may
adversely affect the environment or the public's health, we concur with the
company's view that there is a basis for it to exclude the proposal under Rule
14a-8(i)(7) as relating to an evaluation of risk." Here, the Proposal is clearly
seeking a report on HP's internal assessment of the risks (including possible
litigation risks) and benefits it considered in deciding to disclose the
possible environmental effects of particular aspects of its business, and thus
is excludable under the foregoing precedent.
The Proposal seeks a report that includes an assessment of "internal corporate
procedure" and the "[c]osts and benefits to HPQ" of a policy that the Proposal
describes as relating to greenhouse gas emissions. In this regard, the Proposal
is substantially similar to the proposal at issue in The Dow Chemical Co.
(avail. Feb. 13, 2004), which requested a report on the "range of projected
costs of remediation or liability" for certain company facilities. The Staff
concurred that the proposal was excludable under Rule 14a-8(i)(7) because it
related to an evaluation of risks and liabilities. Moreover, although the
Proposal discusses greenhouse gas emissions, the supporting statement makes
clear that its principal focus is an internal assessment of economic risk,
including potential liability HP could face as a result of litigation. In this
regard, the Staff has concurred in the exclusion of proposals under Rule
14a-8(i)(7) that call for a company to prepare a report discussing the risks it
could face as a result of litigation stemming from the company's practices. In
Xcel Energy, Inc., discussed above, the Staff permitted exclusion of a proposal
that called for a report on the economic risks associated with the company's
greenhouse gas emissions. The recitals outlined those risks as including
"reputation and brand damage, and regulatory and litigation risk." Similar to
the situation in Xcel Energy, here the Proposal seeks a report on the economic
risks of the company's decision to seek to reduce its greenhouse gas emissions.
The same kind of proposal was considered in Eli Lilly & Co. (avail. Jan. 11,
2006) where the Staff granted no action relief with respect to a proposal
seeking a report on the "the risks of liability to legal claims that arise from
the company's policy of limiting the availability of the company's products to
Canadian wholesalers." See also Merck & Co., Inc. (avail. Jan. 11, 2006)
(granting no action relief with respect to a similar proposal). Whether the
issue is a decision to limit sales of a particular drug or to limit operations
that produce greenhouse gases, proposals seeking reports on the development of
the company's policy and the factors considered by the company in assessing
risks and liabilities are excludable. Similarly, in The Dow Chemical Co. (avail.
Feb. 23, 2005), referenced above, the Staff concurred that the company could
exclude, based on evaluation of risks and liabilities, a proposal requesting
that the company prepare a report on the risk to "the company, its reputation,
its finances and its expansion" from various litigation issues stemming from the
company's environmental policy. See also Pfizer, Inc. (avail. Jan. 13, 2006)
(granting no action relief under Rule 14a-8(i)(7) with respect to a proposal
seeking a report on the "long-term economic stability of the company" and "the
risks of liability to legal claims that arise from the company's policy of
limiting the availability of the company's products to Canadian wholesalers");
Newmont Mining Corp. (avail. Jan. 12, 2006) (concurring in the exclusion of a
proposal asking management to report on the financial and reputational risks
faced by the company as a result of its operations in Indonesia, including the
company's involvement in a civil lawsuit); The Dow Chemical Co. (avail. Feb. 13,
2004) (permitting exclusion of a proposal asking the company to issue a report
discussing, among other things, the projected costs of liability for producing
hazardous chemicals, where the Proposal discussed the potential of lawsuits).
Like the proposals at issue in the letters cited above, the Proposal requests
that HP report on the "development of" its policy and on its internal assessment
of the "[c]osts and benefits to HPQ of its GHG policy." From the supporting
statement it is clear that among the risks and costs that the Proponent is
asking HP to assess includes the threat of litigation and any attendant costs
and alleged resulting loss in stockholder value. Under the foregoing precedent,
the Proposal is excludable because it focuses on HP engaging in an internal
assessment of the risks and liabilities of "its GHG policy."
It is important to note that the Proposal is different from the proposal
considered in General Electric Co. (avail. Jan. 17, 2006). First, the proposal
in General Electric Co. did not seek a report on GE's internal assessment of
potential benefits and risks (including litigation risks) of its policy, but
instead sought a report on information that was relevant to an assessment of
GE's policies. In contrast, the Proposal clearly addresses HP's "development of"
and "internal corporate procedure involved in formulating" HP's position and the
thrust and focus of the supporting statement emphasizes HP's exposure to
litigation. The Proponent states, among other things, that "HPQ may be the
subject of a future lawsuit based on its disclosed GHG emissions" and that HP's
voluntary disclosure of its emissions "may harm the company's defense in the
event a lawsuit is filed." In contrast, the GE proposal makes no mention of the
threat of litigation. Based on the precedent cited above, the discussion of
litigation risks in the Proposal renders it excludable because it calls for an
evaluation of risk. In addition, the Proposal requests a review of HP's
"internal corporate procedure involved in formulating" its greenhouse gas
policy, whereas the GE proposal makes no such request. In Wells Fargo & Co.
(avail. Feb. 16, 2006) the Staff concurred in the exclusion of a proposal
requesting a report on the "effect on our company's business strategy" of the
"public and regulatory pressures to limit the emission of greenhouse gasses"
because it related to the company's ordinary business operations as an
evaluation of risk. Similarly, by asking HP to report on the internal procedures
involved in formulating its greenhouse gas policy and perform a cost-benefit
analysis of that policy, the Proposal intrudes on HP's ordinary business
operations.
For the same reason, this Proposal differs from the one considered by the Staff
in Exxon Mobil Corp. (avail. Mar. 19, 2004) and Exxon Mobil Corp. (avail. Mar.
15, 2005). In each of those letters, the company was asked to make available to
stockholders the research data relevant to Exxon Mobil's stated position on the
science of climate change, including the related costs. Here, the Proposal seeks
an analysis of "[c]osts and benefits" which necessarily involves management
conducting an internal assessment as to what results of HP's disclosures are
advantageous. Therefore, because the Proposal seeks an internal assessment of
risk, it is excludable under Rule 14a-8(i)(7).
B. Regardless of Whether the Proposal Touches Upon Significant Social Policy
Issues, the Entire Proposal is Excludable Due to the Fact That It Directly
Addresses Ordinary Business Matters.
The precedents set forth above support our conclusion that the Proposal
addresses ordinary business matters and therefore is excludable under Rule
14a-8(i)(7). The Staff has consistently concurred that a proposal may be
excluded in its entirety when it addresses ordinary business matters, even if it
also touches upon a significant social policy issue. For example, in Wal-Mart
Stores, Inc. (avail. Mar. 15, 1999), the Staff concurred that a company could
exclude a proposal requesting a report to ensure that the company did not
purchase goods from suppliers using forced labor, convict labor and child labor,
because the proposal also requested that the report address ordinary business
matters. In General Electric Co. (avail. Feb. 10, 2000), the Staff concurred
that the entire proposal was excludable under Rule 14a-8(i)(7) because a portion
of the proposal related to ordinary business matters (i.e., the choice of
accounting methods). Similarly, in Medallion Financial Corp. (avail. May 11,
2004), in reviewing a proposal requesting that the company engage an investment
bank to evaluate alternatives to enhance stockholder value, the Staff stated, "[w]e
note that the proposal appears to relate to both extraordinary transactions and
non-extraordinary transactions. Accordingly, we will not recommend enforcement
action to the Commission if Medallion omits the proposal from its proxy
materials in reliance on 14a-8(i)(7)." We also note that the Staff has
previously concurred that stockholder proposals relating to greenhouse gas
emissions do not involve a significant social policy. See, e.g., Wachovia Corp.
(avail. Jan. 28, 2005), the Staff concurred that a proposal requesting a report
"on the effect on Wachovia's business strategy of the risks created by global
climate change" was within Wachovia's ordinary business operations as an
evaluation of risk and was excludable. In Chubb Corp. (avail. Jan. 25, 2004),
the Staff concurred that a proposal requesting a report "providing a
comprehensive assessment of Chubb's strategies to address the impacts of climate
change on its business" was within Chubb's ordinary business operations as it
would require an evaluation of risks and benefits and therefore was excludable.
In both Xcel Energy Inc. (avail. Apr. 1, 2003) and Cinergy Corp. (avail. Feb. 5, 2003), the Staff concurred with the exclusion of proposals that requested a
report disclosing "the economic risks associated with the [c]ompany's past,
present and future emissions" of various greenhouse gases, and "the economic
benefits of committing to a substantial reduction of those emissions related to
its current business activities."
Here, the information specifically called for by the Proposal "[c]osts and
benefits to HPQ of its GHG policy" includes information relating to ordinary
business matters. Although the Proposal discusses greenhouse gas emissions, it
neither requests that HP change its policies nor claims that the production of
the report itself would address an important social policy. Rather, the Proposal
directs HP to undertake an internal cost-benefit analysis of the economic risks,
including litigation risks, HP faces as a result of its greenhouse gas policy.
Thus, the Proposal focuses on the Proponent's concern that HP's practices may
expose it to the risk of litigation, liability, and consequently, decreasing
stockholder value. As noted above, a proposal may be excluded in its entirety
when it addresses ordinary business matters even if it also touches upon a
policy matter. The fact that the proposal mentions greenhouse gas policy does
not remove it from the scope of Rule 14a-8(i)(7) because the Proposal
fundamentally addresses the risks and liabilities HP faces as a result of it
greenhouse gas reporting policy. Accordingly, based on the precedents described
above, we believe that the Proposal properly may be excluded from the 2007 Proxy
Materials under Rule 14a-8(i)(7), and request that the Staff concur in our
conclusion.
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff take
no action if HP excludes the Proposal from its 2007 Proxy Materials. We would be
happy to provide you with any additional information and answer any questions
that you may have regarding this subject. If we can be of any further assistance
in this matter, please do not hesitate to call me at (202) 955-8653, or Lynda M.
Ruiz, HP's Legal Counsel, at (650) 857-3760.
Sincerely,
/s/
Amy L. Goodman
ALG/smw
Enclosures
cc: Lynda M. Ruiz, Hewlett-Packard Company
David Ritenour, Hewlett-Packard Company
Steven J. Milloy, Action Fund Management, LLC
Thomas J. Borelli, Action Fund Management, LLC
[INQUIRY LETTER]
BY FAX
September 26, 2006
Corporate Secretary
Hcwlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Dear Mr. Secretary:
I hereby submit the enclosed shareholder proposal ("Proposal") for inclusion in
the Hewlett-Packard Company's (the "Company") proxy statement to be circulated
to Company shareholders in conjunction with the next annual meeting of
shareholders. The Proposal is submitted under Rule 14(a)-8 (Proposals of
Security Holders) of the U.S. Securities and Exchange Commission's proxy
regulations.
The Free Enterprise Action Fund (the "Fund") is the beneficial owner of
approximately 1082 shares of the Company's common stock, 977 shares of which
have been held continuously for more than a year prior to this date of
submission. The Fund intends to hold the shares through the date of the
Company's next annual meeting of sharcholders. We will promptly submit the
record holder's appropriatc verification of the Fund's beneficial ownership of
the afore-mentioned Company stock.
The Fund's designated representatives on this matter are Mr. Steven J. Milloy
and Dr. Thomas J. Borelli, both of Action Fund Management, LLC, 12309 Briarbush
Lane, Potomac, MD 20854. Action Fund Management, LLC is the investment adviser
to the Free Enterprise Action Fund. Either Mr. Milloy or Dr. Borelli will
present the Proposal for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact Mr.
Milloy at 301-258-2852. Copics of correspondence or a request for a "no-action"
letter should be forwarded to Mr. Milloy c/o Action Fund Management, LLC, 12309
Briarbush Lane, Potomac, MD 20854.
Sincerely,
/s/
Steven J. Milloy
Managing Partner
Investment Adviser to the Free Enterprise Action Fund, Owner of Hewlett-Packard
Company
Common Stock
[APPENDIX]
Global Warming Policy
Resolved: The shareholders request the Board of Directors to report on the
development of HPQ's policy concerning greenhouse gas (GHG) emissions, omitting
proprietary information and at reasonable cost.
This report should discuss the:
1. Scientific, economic and other relevant information, and internal corporate
procedure involved in formulating HPQ's GHG policy.
2. Costs and benefits to HPQ of its GHG policy.
Supporting Statement:
HPQ supports policies for reducing GHG emissions. HPQ supports activist groups
that promote mandatory GHG emission reductions.
HPQ voluntarily discloses its annual GHG emissions to an activist group called
the Carbon Disclosure Project. According to this disclosure, HPQ emitted at
least 1.8 million tones of carbon dioxide during 2005equivalent to about one
year's GHG emissions from 382,500 cars.
In September 2006, the state of California sued six automobile manufacturers
charging that their GHG emission caused billions of dollars of damage and
seeking tens or hundreds of millions of dollars from the companies.
HPQ is headquartered in California.
HPQ may be the subject of a future lawsuit based on its disclosed GHG emissions.
HPQ's support for GHG policies and activist groups that promote alarm over GHG
emissions may increase the likelihood that a GHG lawsuit will be filed against
the company.
HPQ's disclosure of its GHG emissions and other information to the Carbon
Disclosure project may harm the company's defense in the event a lawsuit is
filed.
HPQ's main responsibility is to create and protect shareholder value. Company
policy should be based on sound scientific, economic and legal analysesnot
"feel good" public relations. Policy based on faulty analyses or "greenwash" may
harm shareholder value.
Alarm over manmade global warming relies on suppositions that manmade GHG
emissions significantly impact global climate; that such climate change will
necessarily be undesirable; and that cost-effective action can mitigate
undesirable climate change.
But according to reports from the National Academy of Sciences:
Climate varies significantly because of natural causes;
Twentieth century temperature trends do not correlate well with concurrent
trends in manmade GHG emissions;
Mathematical models attempting to forecast climate change resulting from
manmade GHG emissions have not been validated against historical climate data;
No existing model forecasts climate with certainty; and
Warm periods are associated with human development and prosperity. The Vikings
thrived in Greenland until the 14\th/ century cold period called the "Little Ice
Age," when they abandoned settlements because of encroaching sea ice. The Little
Ice Age persisted until the 19\th/ Century and immediately preceded the current
warming trend.
The Kyoto Protocol's mandatory GHG emission reductions may "avoid" just 0.07
degrees Centigrade of warming through 2050 at an estimated cost of as much as 2%
of GDP per year, according to the United Nations.
The U.S. Senate has rejected mandatory limits on manmade GHG emissions as being
too costly relative to uncertain benefits.
HPQ's support for GHG policies could significantly harm shareholder value
without providing any benefit to the environment.
[INQUIRY LETTER]
November 13, 2006
BY OVERNIGHT DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Hewlett-Packard Company; Shareowner Proposal of the Free Enterprise Action
Fund; Securities Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentleman,
On behalf of the Free Enterprise Action Fund ("FEAF"), enclosed please find six
(6) copies of the FEAF's response to a November 3, 2006 request by the
Hewlett-Packard Company for a no-action letter from the Staff in connection with
the above-captioned shareowner proposal.
Action Fund Management, LLC is the investment adviser to the FEAF and is
authorized to act on behalf of the FEAF.
Sincerely,
/s/
Steven J. Milloy
Managing Partner
FEAF Portfolio Manager
Enclosure: 6 copies of FEAF's response to Hewlett-Packard's "no-action" request
[INQUIRY LETTER]
November 13, 2006
BY OVERNIGHT DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Hewlett-Packard Company; Shareowner Proposal of the Free Enterprise Action
Fund; Securities Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentleman,
This letter is on behalf of the Free Enterprise Action Fund (the "FEAF") in
response to the November 3, 2006 request by the Hewlett-Packard Company ("HP" or
"HPQ") for a letter from the staff of the Division of Corporate Finance (the
"Staff") concurring with HP's view that the above-referenced Shareowner Proposal
(the "Proposal") is excludable pursuant to Rule 14a-8. Action Fund Management,
LLC is the investment adviser for the FEAF.
We believe the Proposal is not excludable for any of the reasons claimed by HP.
THE PROPOSAL
The Proposal states in its entirety:
Global Warming Policy
Resolved: The shareholders request the Board of Directors to report on the
development of HPQ's policy concerning greenhouse gas (GHG) emissions, omitting
proprietary information and at reasonable cost.
This report should discuss the:
1. Scientific, economic and other relevant information, and internal corporate
procedure involved in formulating HPQ's GHG policy.
2. Costs and benefits to HPQ of its GHG policy.
Supporting Statement:
HPQ supports policies for reducing GHG emissions. HPQ supports activist groups
that promote mandatory GHG emission reductions.
HPQ voluntarily discloses its annual GHG emissions to an activist group called
the Carbon Disclosure Project. According to this disclosure, HPQ emitted at
least 1.8 million tones of carbon dioxide during 2005equivalent to about one
year's GHG emissions from 382,500 cars.
In September 2006, the state of California sued six automobile manufacturers
charging that their GHG emission caused billions of dollars of damage and
seeking tens or hundreds of millions of dollars from the companies.
HPQ is headquartered in California.
HPQ may be the subject of a future lawsuit based on its disclosed GHG emissions.
HPQ's support for GHG policies and activist groups that promote alarm over GHG
emissions may increase the likelihood that a GHG lawsuit will be filed against
the company.
HPQ's disclosure of its GHG emissions and other information to the Carbon
Disclosure project may harm the company's defense in the event a lawsuit is
filed.
HPQ's main responsibility is to create and protect shareholder value. Company
policy should be based on sound scientific, economic and legal analysesnot
"feel good" public relations. Policy based on faulty analyses or "greenwash" may
harm shareholder value.
Alarm over manmade global warming relies on suppositions that manmade GHG
emissions significantly impact global climate; that such climate change will
necessarily be undesirable; and that cost-effective action can mitigate
undesirable climate change.
But according to reports from the National Academy of Sciences:
Climate varies significantly because of natural causes;
Twentieth century temperature trends do not correlate well with concurrent
trends in manmade GHG emissions;
Mathematical models attempting to forecast climate change resulting from
manmade GHG emissions have not been validated against historical climate data;
No existing model forecasts climate with certainty; and
Warm periods are associated with human development and prosperity. The Vikings
thrived in Greenland until the 14\th/ century cold period called the "Little Ice
Age," when they abandoned settlements because of encroaching sea ice. The Little
Ice Age persisted until the 19\th/ Century and immediately preceded the current
warming trend.
The Kyoto Protocol's mandatory GHG emission reductions may "avoid" just 0.07
degrees Centigrade of warming through 2050 at an estimated cost of as much as 2%
of GDP per year, according to the United Nations.
The U.S. Senate has rejected mandatory limits on manmade GHG emissions as being
too costly relative to uncertain benefits.
HPQ's support for GHG policies could significantly harm shareholder value
without providing any benefit to the environment.
RESPONSES TO HP's CLAIMS
I. The Proposal is not excludable as pertaining to "ordinary business
operations" because it concerns a "significant social policy issue" that the
Staff previously ruled is not excludable.
HP claims that the Proposal is excludable as "ordinary business." But Exchange
Act Release No. 40,018 (May 21, 1998) provides that shareholder proposals may
focus on sufficiently significant social policy issues so as to preclude
exclusion in certain circumstances.
The Staff has previously determined that global warming (also referred to as
"climate change," "greenhouse gas" or "GHG" policy) is a non-excludable,
significant social policy issuesee, e.g., General Electric Co. (January 17,
2006) and ExxonMobil Corp. (March 15, 2005).
The Proposal is substantially the same as the proposal in General Electric Co.
in that both request a report to shareholders disclosing the company's
decision-making process and cost-benefit analysis concerning its global warming
policy.
There is no substantive or material difference between the Proposal and the
proposal in General Electric Co.
II. The Proposal's cost/benefit analysis request is not grounds for exclusion.
HP claims that the Proposal is excludable because it requests a report on the
"costs and benefits to HP of its GHG policy."
But the Staff has previously ruled that such a request is not excludable. The
proposal in General Electric (January 17, 2006) stated, in relevant part:
... This report should discuss the...
3. Estimates of costs and benefits to GE of its climate change policy.
With respect to "costs and benefits", the Proposal relies on the same language
and intent as that in General Electric.
Contrary to HP's claim, the Proposal does not involve an assessment of "risks"
and/or "liabilities" terms that do not even appear in the Proposal. Moreover,
"costs and benefits" are not the same as "risks" and "liabilities." "Costs" and
"benefits" are actual events that are typically the subject of disclosure while
"risks" and "liabilities" are hypothetical projections that may or may not be
subject to disclosure.
Because the Proposal's "cost/benefit" language has been previously been
determined by the Staff not to be excludable and because the Proposal does not
request an evaluation of risks/liabilities, the prior Staff determinations cited
by HPincluding The Dow Chemical Co. (February 23, 2005), The Dow Chemical
Company (February 13, 2004), Willamette Industries, Inc. (March 20, 2001),
Boeing Co. (February 25, 2005) and Potlatch Corp. (February 13, 2001)are not
relevant to the Proposal and do not support HP's request to exclude the
Proposal.
III. The Proposal is not excludable because it requests a report on the
"internal corporate procedure" related to the formulation of HP's GHG policy.
The Proposal states in relevant part,
This report should discuss the:
1. Scientific, economic and other relevant information, and internal corporate
procedure involved in formulating HPQ's GHG policy.
2. Costs and benefits to HPQ of its GHG policy.
HP claims that the Proposal's request for a report discussing the "internal
corporate procedure involved in formulating HP's GHG policy" and the "costs and
benefits to HPQ of its GHG policy" equate to an excludable request for an
evaluation of HP's risks and liabilities, based on Dow Chemical (February 13,
2004).
But in Dow Chemical, the requested report involved a "range of projected costs
of remediation or liability" for certain company facilities. The FEAF's Proposal
does not request an assessment of any "projected ... liability" merely actual
costs and benefits of its GHG policy (See Section II, supra).
HP claims that "internal corporate procedure" refers to an internal assessment
of risk. This claim is without foundation.
The Proposal requests, among other things, a report on HP's process and
procedure for determining its GHG policythat is, how did HP go about executing
its due diligence responsibilities with respect to the adoption of its GHG
policy? Did HP staff formulate the policy? Were outside experts or activist
groups involved? Did the board of directors approve the policy? These questions
are procedural in nature and do not address any sort of "internal assessment of
risk."
HP asserts that the Proposal's supporting statement makes clear that it is
focused on HP's internal assessment of risk and legal liabilities. This claim is
also unfounded.
The supporting statement merely recounts facts, circumstances and considerations
that may be relevant to shareholders in deciding whether to vote for the
Proposal. All the statements in the supporting statement are true. HP has not
claimed that any are false. The supporting statement does not shift the nature
of the Proposal from "costs and benefits" to "risks and liabilities."
The prior staff decisions cited by HPincluding Xcel Energy Inc., Eli Lilly &
Co. (January 11, 2006), Merck & Co., Inc. (January 11, 2006), The Dow Chemical
Co. (February 23, 2005), Pfizer Inc. (January 13, 2006), Newmont Mining Corp.
(January 12, 2006), The Dow Chemical Co. (February 13, 2004)all deal with
"risk" and "liability," and are therefore irrelevant to the Proposal.
The Proposal only deals with "costs and benefits," areas of inquiry that the
Staff has already deemed appropriate for shareholder proposals (see General
Electric Co., January 17, 2006).
IV. The Proposal is not excludable as addressing "ordinary business operations."
As discussed in Section I, supra, the Proposal address a "significant social
policy issue" i.e., global warmingin the same manner as in General Electric
Co. (January 17, 2006).
In relevant part, the proposal in General Electric stated,
Resolved: That, by the 2006 annual shareholder meeting, the Board of Directors
report to shareholders on the scientific and economic analyses relevant to GE's
climate change policy, omitting proprietary information and at reasonable cost.
This report should discuss the:
1. Specific scientific data and studies relied on to formulate GE's climate
change policy.
2. Extent to which GE believes human activity will significantly alter global
climate, whether such change is necessarily undesirable and whether a
cost-effective strategy for mitigating any undesirable change is practical.
3. Estimates of costs and benefits to GE of its climate change policy.
In relevant part, the instant Proposal states,
Resolved: The shareholders request the Board of Directors to report on the
development of HPQ's policy concerning greenhouse gas (GHG) emissions, omitting
proprietary information and at reasonable cost.
This report should discuss the:
1. Scientific, economic and other relevant information, and internal corporate
procedure involved in formulating HPQ's GHG policy.
2. Costs and benefits to HPQ of its GHG policy.
The two Proposals are substantially the same in that they ask for the companies
to explain to shareholders the bases for their global warming/climate change/GHG
policies.
Because General Electric is the most recent Staff determination on this matter
(dated January 17, 2006), the prior Staff determinations cited by HPincluding
Wal-Mart Stores, Inc. (March 15, 1999), General Electric Co. (February 10,
2000), Medallion Financial Corp. (May 11, 2004), Wachovia Corp. (January 28,
2005). Chubb Corp. (January 25, 2004). Xcel Energy Inc. (April 1, 2003) and
Cinergy Corp. (February 5, 2003)have all been superceded. HP's citations are
also not relevant to the extent they concern "risks" and "liabilities." The
Proposal is specifically limited to "costs and benefits."
Moreover, it is somewhat disturbing that HP would attempt to cite prior Staff
decisions i.e., Wachovia, Chubb, Xcel and Cinergyfor the proposition that
shareholder proposals related to global warming are not a significant social
policy issue. The Staff clearly deemed global warming to be a significant social
policy issue in General Electric Co. (January 17, 2006) and ExxonMobil (March
15, 2005).
CONCLUSION
Based upon the forgoing analysis, we respectfully request that the Staff reject
HP's request for a "no-action" letter concerning the Proposal.
Pursuant to Rule 14a-8(j), enclosed herewith are six copies of this letter. A
copy of this correspondence has been timely provided to HP and its counsel. In
the interest of a fair and balanced process, we request that the Staff notify
the undersigned if it receives any correspondence on the Proposal from HP or
other persons, unless that correspondence has specifically confirmed to the
Staff that the Proponent or the undersigned have timely been provided with a
copy of the correspondence. If we can provide additional correspondence to
address any questions that the Staff may have with respect to this
correspondence or HP's no-action request, please do not hesitate to call me at
301-258-2852.
Sincerely,
/s/
Steven J. Milloy
Cc: Lynda M. Ruiz, Hewlett-Packard Company
David Ritenour, Hewlett-Packard Company
Amy L. Goodman, Gibson, Dunn & Crutcher, LLP
[STAFF REPLY LETTER]
December 12, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Hewlett-Packard Company Incoming letter dated November 3, 2006
The proposal requests the board to report on the development of HP's policy
concerning greenhouse gas emissions.
There appears to be some basis for your view that HP may exclude the proposal
under rule 14a-8(i)(7), as relating to HP's ordinary business operations (i.e.,
evaluation of risk). Accordingly, we will not recommend enforcement action to
the Commission if HP omits the proposal from its proxy materials in reliance on
rule 14a-8(i)(7).
Sincerely,
/s/
Ted Yu
Special Counsel
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