Company Name: Int'l. Business Machines Corp.
Public Availability Date: January 26, 2006
Document Sections:INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER
[INQUIRY LETTER]
December 14, 2005 Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, NE
Washington, D.C. 20549 Subject: IBM Stockholder Proposal of Ms. Virginia M. Brown Ladies and Gentlemen: Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am enclosing six copies of this request letter together with a stockholder proposal (the "Proposal"), attached as Exhibit A hereto, which was submitted to the International Business Machines Corporation (the "Company" or "IBM") by Ms. Virginia M. Brown (the "Proponent"). The Proposal seeks for the company to "amend its written equal employment opportunity policy to explicitly exclude reference to any matters related to sexual interests, activities or orientation." (Exhibit A; emphasis added) IBM believes that the Proposal can properly be omitted from the proxy materials for IBM's annual meeting of stockholders scheduled to be held on April 25, 2006 (the "2006 Annual Meeting") for the reasons discussed below. To the extent that the reasons for omission stated in this letter are based on matters of law, these reasons are the opinion of the undersigned as an attorney licensed and admitted to practice in the State of New York. The Company recognizes that other stockholder proposals on this general subject have already been addressed in staff letters. See, e.g., The Coca Cola Company (February 25, 2003); The Boeing Company (February 13, 2002); compare Eastman Kodak Company (February 7, 1994). However, there are multiple sui generis defects in the instant Proposal which require the Company to file this letter. THE PROPOSAL MAY BE OMITTED AS VAGUE AND INDEFINITE UNDER RULE 14a-8(i)(3), AND CONTRARY TO THE PROXY RULES, INCLUDING RULE 14a-9, WHICH AMONG OTHER THINGS, PROHIBITS MATERIALLY FALSE AND MISLEADING STATEMENTS IN PROXY SOLICITING MATERIALS. Rule 14a-8(i)(3) permits a company to exclude a proposal if either the proposal or the supporting statement violates the proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. Note (b) to Rule 14a-9 cites as an example of misleading statements "[m]aterial which directly or indirectly impugns character, integrity or personal reputation, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation." The staff has permitted registrants to use Rule 14a-8(i)(3) to exclude proposals or portions of proposals from proxy statements if the proposal is determined to be either vague and indefinite or materially false and misleading. See, e.g., State Street Corporation (March 1, 2005); International Business Machines Corporation (February 2, 2005); Joseph Schlitz Brewing Company (March 21, 1977). As described below, the instant Proposal suffers from a variety of defects which warrant its exclusion. The Company believes the "Resolved" section of the Proposal and the introductory "Whereas" clauses contain a variety of deficiencies and inaccuracies that would require such detailed and extensive editing to eliminate or revise its defective and irrelevant elements that the submission must be excluded in its entirety under Rule 14a-8(i)(3). For example, The "Resolved" section of the instant Proposal, by its terms, seeks for the Company to "amend its written equal employment opportunity policy to explicitly exclude reference to any matters related to sexual interests, activities or orientation." Notwithstanding the Proposal's stated desire to amend our equal employment opportunity ("EEO") policy, there is nothing in any of the clauses preceding the "Resolved" section of the Proposal which specifically relate to our EEO policy. Instead, the "Whereas" clauses contain a variety of disjointed and wholly unrelated statements on the topics of charity, contributions, homosexuality, religion, and sexually transmitted diseases. Indeed, the only thing which is clear is that the Proponent undertook no specific review of IBM's EEO policy before submitting this Proposal to amend it. IBM's EEO policy is a matter of public record, and is readily available on our Internet website.
1 A copy of IBM's EEO policy is attached for the convenience of the staff as Exhibit B hereto. Although the Proposal seeks for IBM to amend our EEO policy to "explicitly exclude reference to any matters related to sexual interests, activities or orientation," we have difficulty understanding just what the Proponent would have the Company exclude from our EEO policy. In making this determination, what does the clause "any matters related to" mean? We don't know, and do not want to speculate upon, the intent of the clause "any matters related to sexual interests, activities or orientation." Furthermore, although the term "sexual orientation" is found in our EEO policy, we don't know whether the Proponent wants us to exclude this term, or only to exclude unknown matters which may be "related to" sexual orientation. In short, we do not know what matters in our EEO policy the Proponent believes are "related to sexual interests, activities or orientation" and the remaining portions of the submission do not aid us in making this determination. More importantly, the Proponent's own terms "sexual interests [and sexual] activities" appear nowhere at all in our EEO policy. Since neither "sexual interests" nor "sexual activities" can be found anywhere in our EEO policy, it would be an impossible exercise for IBM either "to explicitly exclude reference to" such non-existent terms, or, for that matter, "to explicitly exclude reference to any matters related to" such non-existent terms.
2 Given the vague and indefinite nature of the Proponent's request, and our own collective inability to discern what it is the Proponent wants IBM "to explicitly exclude reference to," it would also be utterly inappropriate to foist such an interpretative task on IBM stockholders at large, as our stockholders are not in any better position to understand, or speculate upon, what the Proponent would have us do. Where an experienced stockholder proponent such as Ms. Brown
3 requests that IBM make specific amendments to our well-established EEO policy, it should be expected that Ms. Brown articulate with some reasonable degree of specificity: (i) what it is she wants the Company to amend in our EEO policy, and (ii) provide some coherent rationale why she believes the amendment(s) should be made. Not only don't we know what the Proponent wants us to amend within our EEO policy, the Proponent has failed to provide us with any cogent rationale which could aid us (or our stockholders) in understanding what we should change within our EEO policy. Indeed, had the Proponent undertaken a review of our EEO policy before filing the Proposal, and told us what she wanted to modify, much, if not all, of this confusion might well have been avoided. Moreover, if IBM staff personnel most familiar with our own EEO policy are confused with the incongruity of the Proponent's request, we believe that IBM stockholders at largeunfamiliar with the Proponent and the subject matter of her Proposalwould be even more confused. The introductory "Whereas" provisionswhich should be helpful to aid in an understanding of what a proponent is looking foralso fail in the instant case to provide any meaningful assistance. These "Whereas" clauses focus on charity, contributions, homosexuality, religion, and sexually transmitted diseases, which are simply irrelevant to a consideration of a Proposal that otherwise seeks to make scrivener's changes to the text of our Company's EEO policy. The "Whereas" clauses only further obfuscate what could otherwise have been an understandable "Resolved" clauseif only the Proponent had taken the time to read our EEO policy and make clear what it was she wanted IBM "to explicitly exclude reference to." She did not do so, and should not be permitted to redraft her Proposal at this time. For example, the first "Whereas" clause contains three paragraphs relating solely to charitable contributions and charitable organizations. Yet, the Resolved section of the Proposal purports to address the Company's EEO policy, not to provide historical and philosophical snippets relating to charity and charitable contributions. Notably, 2 years ago, Ms. Brown filed a different proposal with IBM. That earlier proposal related to charitable contributions. (Exhibit C) Although this Proposal has nothing to do with charitable contributions, the Proponent continues to misquote
4 Thomas Jefferson in the same way she did in the earlier proposal. And, while her preamble 2 years ago may have had some relevance when the proposal addressed charitable contributions, recycling this same information here is utterly irrelevant and confusing, and would be materially misleading to stockholders as it purports to relate to a Proposal suggesting specific amendments to IBM's EEO policy containing nothing on that subject (Exhibit B). In addition, the Proponent's attempt to link IBM's EEO policy to the laundry listing of sexual practices in the 5th paragraph under the first "Whereas" clause is also violative of Rules 14a-8(i)(3) and 14a-9. Aside from the fact that IBM stockholders at large may not be familiar with such sexual practices, it is entirely irrelevant to an EEO Proposal to cite survey statistics from a 25 year old book describing the practices of unknown persons who sought clinical treatment for sexually transmitted diseases.
5 Such persons had no connection to IBM or to the EEO policy which the Proponent now seeks to amend. Since the Proposal, by its terms, purports to seek modification of IBM's EEO policy, and since the Proponent's references in this paragraph serve to falsely impute similar practices and diseases to our employees, not only does this fail to add any clarity or substance to the Proposal, it serves to impugn the character, integrity and personal reputation of all IBM employees who are subject to the EEO policy the Proponent seeks to have the Company amend. For these very same reasons, the sixth paragraph under the first "Whereas" clause, and the second "Whereas" clause, are utterly irrelevant to any understanding of what the Proposal seeks to accomplish and should be omitted. We will not further address other problems we have with the Proponent's submission, in accordance with the position of the staff as articulated in Staff Legal Bulletin 14B. Suffice it to state that the entire submission is fatally flawed under Rules 14a-8(i)(3) and 14a-9. Under Staff Legal Bulletin 14B, we believe the Proposal and the supporting statement, when read together, is so inherently vague and indefinite that neither the stockholders voting on the proposal nor the company, in implementing the proposal (if adopted) would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. Indeed, only "detailed and extensive editing" throughout the submission could bring this Proposal into compliance with the proxy rules, which renders it excludable in its entirety. In this light, the staff's recent decision in FirstEnergy Corp. (February 19, 2004) is instructive. There, the staff recently permitted the exclusion of a proposal which requested that the board amend the company's code of regulations (i.e., its by-laws) to "eliminate the double standard" and change the requirement to pass a shareholder proposal to a "plurality" of shares represented. Because the company's code of regulations did not, in fact, set forth any "supermajority" requirement regarding the approval of shareholder proposals, as the stockholder had alleged, the registrant maintained it would be impossible for the company to amend provisions of its code that did not exist, and that neither the voting shareholders nor the board of directors would be able to determine, with any reasonable amount of certainty, what action would need to be taken if that proposal were adopted. The staff concurred that the registrant could omit that proposal as vague and indefinite under Rule 14a-8(i)(3). The same result should apply here. The instant Proposal, asking us to "explicitly exclude reference to matters related to" terms not found anywhere within our EEO policy, is even more vague and indefinite, and should be subject to outright exclusion under Rule 14a-8(i)(3) under the same rationale employed in FirstEnergy. See also Procter and Gamble (June 30, 2005)(proposal to rescind a merger excluded in its entirety under Rule 14a-8(i)(3)); State Street Corporation (March 1, 2005); International Business Machines Corporation (February 2, 2005); see Staff Legal Bulletin No. 14, at E.1 ("[w]hen a proposal and supporting statement will require detailed and extensive editing in order to bring them into compliance with the proxy rules, we may find it appropriate for companies to exclude the entire proposal, supporting statement, or both, as materially false or misleading."); General Electric Company (February 5, 2003)(proposal that would have required shareholder approval for compensation of senior executives and board members not to exceed more than 25 times the average wage of hourly working employees was properly excluded as vague and indefinite under Rule 14a-8(i)(3)). Here, after having studied the text of the "Resolved" section of the Proposal together with the "Whereas" provisions, and in light of the above staff precedent, we conclude that the Proposal cannot pass muster under Rules 14a-8(i)(3) and Rule 14a-9. Clearly, neither IBM stockholders nor the Company should have to wonder how the text of the instant Proposal ought to be interpreted or implemented. Over the years, there have been many situations in which the staff has granted no-action relief to registrants with proposals which were similarly infirm. In this connection, the Commission has found that proposals may be excluded where they are so inherently vague and indefinite that neither the shareholders voting on the proposal, nor the Company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. See Philadelphia Electric Company (July 30, 1992). The staff's response in Philadelphia Electric Company applies with full force to the instant Proposal. The courts have also supported such a view, quoting the Commission's rationale: it appears to us that the proposal, as drafted and submitted to the company, is so vague and indefinite as to make it impossible for either the board of directors or the stockholders at large to comprehend precisely what the proposal would entail. Dyer v. Securities and Exchange Commission, 287 F. 2d 773, 781 (8th Cir. 1961). In the case of NYC Employees' Retirement System v. Brunswick Corp., 789 F. Supp. 144, 146 (S.D.N.Y. 1992)("NYCERS"), the court stated: the Proposal as drafted lacks the clarity required of a proper shareholder proposal. Shareholders are entitled to know precisely the breadth of the proposal on which they are asked to vote. We do not believe the NYCERS standard has been met in this case. As such, we believe the Proposal is subject to omission in its entirety under Rules 14a-8(i)(3) and 14a-9. In summary, for the reasons and on the basis of the authorities cited above, IBM respectfully requests your advice that you will not recommend any enforcement action to the Commission if the Proposal is omitted from IBM's proxy materials for our 2006 Annual Meeting. We are sending the Proponent a copy of this submission, thus advising her of our intent to exclude the Proposal from the proxy materials for our Annual Meeting. The Proponent is respectfully requested to provide a copy of any response she may elect to submit to the staff. If there are any questions relating to this submission, please do not hesitate to contact me at 914-499-6148. Thank you for your attention and interest in this matter. Very truly yours, /s/ Stuart S. Moskowitz
Senior Counsel Attachments cc: Ms. Virginia M. Brown
581 Oregon Avenue
Port Allen, LA 70767 -----FOOTNOTES-----
1 See http://www-306.ibm.com/employment/us/diverse/equal opportunity.shtml
2 See discussion of FirstEnergy Corp. (February 19, 2004), at pp. 5-6, infra.
3 Our research reveals that in addition to filing two (2) different proposals with IBM, the Proponent has also filed at least 3 other proposals with Bank of America Corporation in connection with their 2003, 2004 and 2005 proxy statements. See Bank of America Corporation (January 24, 2003); Bank of America Corporation (March 8, 2004) and Bank of America Corporation (February 25, 2005).
4 See Exhibit C. Proponent's last stockholder proposal on charitable contributions was properly excluded under Rule 14a-8(f). See International Business Machines Corporation (January 7, 2004). The full and correct quote from Thomas Jefferson's Draft for a Bill for Establishing Religious Freedom (1779), can be found at: http://ahp.gatech.edu/rel freedom 1779.html
5 An abstract of a 1981 article from the American Journal of Public Health, found on the U.S. Department of Health and Human Services' National Institutes of Health website, reported that like most studies of sexually transmitted diseases in homosexual men, the cited data was taken by surveying gay men seeking clinical treatment for such diseases. These statistics are hardly representative of the population at large, let alone IBM's employee population. See http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list uids=6895004&dopt=Abstract
[APPENDIX]
October 15, 2005 Daniel E. O'Donnell, Vice President & Secretary
International Business Machines
1 New Orchard Road
Armonk, NY 10504 Dear Mr. O'Donnell: I am the owner of 152 shares of International Business Machines common stock. I have continuously owned the shares more than one year and intend to hold them through the date of the next annual meeting. At that meeting, I wish to propose the following resolution. Whereas: Thomas Jefferson said in A Bill for Establishing Religious Freedom, "To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical." Charitable contributions come from the fruit of our employee's labor and belong to all shareholders as a group. While there are thousands of charitable organizations, some charitable groups focus on shared sexual interests, especially the sexual interests of homosexuals, bisexuals and those persons who feel the sexual identity they were born with does not comport with their preferred "gender expression" or "gender identity." Individuals in this later group are sometimes referred to as "transgendered." A large number of our employees and shareholders probably come from Jewish, Christian or Moslem religious traditions. These faiths have condemned the practice of homosexuality for a thousand years or more. According to Karla Jay and Allen Young in their book, "The Gay Report (Summit Books, 1979)," 99% of homosexual males engage in oral sex, 91% engage in anal sex, 82% engage in "rimming," 22% engage in "fisting" and 23% engage in "golden showers." According to a 1999 Medical Institute of Sexual Health report, "Homosexual men are at significantly increased risk of HIV/AIDS, hepatitis, anal cancer, gonorrhea, and gastrointestinal infections as a result of their sexual practices." Whereas, those who engage in homosexual sex are at a significantly higher risk for HIV/AIDS and sexually transmitted diseases. Whereas, marriage between heterosexuals has been protected and encouraged by a wide range of societies, cultures and faiths for ages. Resolved: the shareholders request that our company amend its written equal employment opportunity policy to explicitly exclude reference to any matters related to sexual interests, activities or orientation. Statement: While the legal institution of marriage should be protected, the sexual interests, inclinations and activities of all employees should be a private matter, not a corporate concern. Sincerely, /s/ Virginia M. Brown
[STAFF REPLY LETTER]
January 26, 2006 Response of the Office of Chief Counsel Division of Corporation Finance Re: International Business Machines Corporation Incoming letter dated December 14, 2005 The proposal requests an amendment to IBM's written equal employment opportunity policy to explicitly exclude reference to any matters related to sexual interests, activities or orientation. We are unable to concur in your view that IBM may exclude the entire proposal under rule 14a-8(i)(3). There appears to be some basis for your view, however, that portions of the supporting statement may be materially false or misleading under rule 14a-9. In our view, of the ten paragraphs comprising the proposal and supporting statement, the following portions must be deleted: the entire first paragraph that begins "Whereas: Thomas Jefferson said ..."; the entire second paragraph that begins "Charitable contributions come from ..."; the entire third paragraph that begins "While there are thousands ..."; the entire fifth paragraph that begins "According to Karla Jay ..."; the entire sixth paragraph that begins "According to a 1999 ..."; and the entire seventh paragraph that begins "Whereas, those who engage...." Accordingly, we will not recommend enforcement action to the Commission if IBM omits only these portions of the supporting statement from its proxy materials in reliance on rule 14a-8(i)(3). Sincerely, /s/ Amanda McManus
Attorney-Adviser | 
