Company Name: Verizon Communications Inc.
Public Availability Date: February 20, 2006
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2005
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Verizon Communications Inc. 2006 Annual Meeting Shareholder Proposal of
Richard A. Dee
Ladies and Gentlemen:
This letter is submitted on behalf of Verizon Communications Inc., a Delaware
corporation ("Verizon"), pursuant to Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended. Verizon has received a shareholder proposal and
supporting statement (the "Proposal") from Richard A. Dee (the "Proponent"), for
inclusion in the proxy materials to be distributed by Verizon in connection with
its 2006 annual meeting of shareholders (the "2006 proxy materials"). A copy of
the Proposal is attached as Exhibit A. For the reasons stated below, Verizon
intends to omit the Proposal from its 2006 proxy materials.
Pursuant to Rule 14a-8(j)(2), enclosed are six copies of this letter and the
accompanying attachments. A copy of this letter is also being sent to the
Proponent as notice of Verizon's intent to omit the Proposal from Verizon's 2006
proxy materials.
I. Introduction.
On November 21, 2005, Verizon received a letter from the Proponent containing
the following proposal:
"Verizon Stockholders hereby request that without delay the Board of Directors
form a Corporate Responsibility Committee charged with auditing continuously the
extent to which Verizon products and services live up to the claims made for
them, and with auditing the extent to which the company lives up to its
commitment to the highest standards of business conduct."
Verizon believes that the Proposal may be properly omitted from its 2006 proxy
materials on the following grounds, each of which is discussed in detail below:
The Proposal may be excluded under Rule 14a-8(i)(7) because it deals with a
matter relating to the company's ordinary business operations; and
The Proposal may be excluded under Rule 14a-8(i)(10) because Verizon has
substantially implemented it.
II. Bases for Excluding the Proposal.
A. The Proposal May be Excluded Under Rule 14a-8(i)(7) Because it Deals with a
Matter Relating to the Company's Ordinary Business Operations.
Rule 14a-8(i)(7) permits a company to omit a shareholder proposal from its proxy
materials if it deals with a matter relating to the company's ordinary business
operations. The general policy underlying 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." Exchange Act Release No.
34-40018 (May 21, 1998). This general policy reflects two central
considerations: (i) "[c]ertain tasks are so fundamental to management's ability
to run a company on a day-to-day basis that they could not, as a practical
matter, be subject to direct shareholder oversight"; and (ii) 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." Exchange Act Release No.
34-40018 (May 21, 1998). Verizon believes that the Proposal may properly be
excluded under Rule 14a-8(i)(7) because both matters covered by the
Proposalmonitoring customer satisfaction with Verizon's products and services
and monitoring compliance with its code of business conductfall squarely within
the scope of Verizon's day-to-day business operations.
The Proposal requests that the Verizon Board establish a committee to monitor
customer satisfaction with the company's products and services. The Staff has
long recognized that proposals concerning quality, service and support matters,
including the handling of customer issues with respect to a Company's products
and services, relate to the ordinary business operations of a corporation and,
accordingly, may be excluded under Rule 14a-8(i)(7). The Staff's no-action
letters make clear that a wide spectrum of issues are viewed as customer
relations matters, including the establishment of committees or departments to
deal with customer relations issues. See, e.g., Bank of America Corporation
(March 3, 2005) (proposal to adopt a "Customer Bill of Rights" and create a
position of "Customer Advocate"); Deere & Company (November 30, 2000) (proposal
relating to the creation of a "Customer Satisfaction Review Committee" comprised
of shareholders); The Chase Manhattan Corporation (February 14, 2000) (proposal
to establish an ad hoc independent committee to study credit card operations,
financial reporting and customer service); American Telephone and Telegraph
Company (January 25, 1993) (proposal to initiate audit procedures to track
customer correspondence to rectify lack of response by company); and The
Goodyear Tire and Rubber Company (January 28, 1991) (proposal to establish
independent board committee to study the handling of customer and shareholder
complaints).
Monitoring customer satisfaction with services and products is a basic
management function and an integral part of Verizon's day-to day business
operations. Customer satisfaction assurance, which involves administration of
complex business processes and systems, is beyond the reasonable scope of
responsibilities of the Board of Directors. . In each of Verizon's lines of
businesswireline and wirelessthe company's management teams oversee extensive
nationwide customer service networks. Both Verizon and Verizon Wireless provide
their employees with extensive ongoing training in all aspects of the business
from customer service delivery to advanced technology. In addition, Verizon
tracks customer perception of its service using an independent market research
firm to conduct monthly surveys of 40,000 customers who have recently interacted
with the wireline business. Similarly, Verizon Wireless consistently runs
extensive quality checks to ensure its customer service best practices are
working. For example, more than 300,000 trial calls are conducted monthly to
assess network reliability, company executives visit Verizon Wireless Stores to
evaluate the customer service experience, and similar types of quality checks
are done across its call center operations.
The Proposal also requests that the Verizon Board establish a committee for the
purpose of monitoring compliance with the Verizon Code of Business Conduct. The
Staff has consistently determined that proposals that relate to the promulgation
of, and monitoring of compliance with, codes of ethics may be excluded pursuant
to Rule 14a-8(i)(7) because they relate to matters involving ordinary business
operations. See, e.g., Chrysler Corp. (February 18, 1998) (proposal requesting
that the board of directors review or amend Chrysler's code of standards for its
international operations and present a report to Chrysler's shareholders);
Lockheed Martin Corp. (January 29, 1997) (proposal requesting the audit and
ethics committee to determine whether the company has an adequate legal
compliance program and prepare a report); AT&T Corp. (January 16, 1996)
(ordinary business operations exception applied to a proposal requesting that
the company's board of directors initiate a review of certain employment
practices in light of the company's code of ethics); and NYNEX Corp. (February
1, 1989) (proposal related to the formation of a special committee of the
registrant's board of directors to revise the existing code of corporate
conduct).
Assuring compliance with legal and regulatory requirements, as well the
company's internal policies, is a fundamental management function. As discussed
in more detail on the company's website at http://multimedia.verizon.com/responsibility/ethics/practice.aspx,
Verizon has a stated goal to operate its business with the highest level of
integrity and accountability and to continue to build on the trust it has earned
over the years. To that end, Verizon has established an Office of Ethics and
Business Conduct headed by an executive responsible for compliance. This office
oversees the training and certification of all Verizon employees on the Verizon
Code of Business Conduct. It also operates a confidential hotline that
employees, suppliers and the public can call 24 hours a day, seven days a week,
to ask questions, seek clarification or report alleged misconduct or violations
of the Code. Finally, as noted below, the independent Audit and Finance
Committee of the Verizon Board has oversight responsibility for this critical
management function.
For the foregoing reasons, Verizon believes that the Proposal may be omitted
from its 2006 proxy materials because it deals with matters relating to
Verizon's ordinary business operations.
B. The Proposal May Be Omitted Under Rule 14a-8(i)(10), Because Verizon Has
Substantially Implemented the Proposal.
Verizon also believes that it may exclude the proposal under Rule 14a-8(i)(10)
because it has substantially implemented the Proposal. The "substantially
implemented" standard reflects the Staff's interpretation of the predecessor
rule (allowing omission of a proposal that was "moot") that a proposal need not
be "fully effected" by the company to meet the mootness test so long as it was
"substantially implemented." See SEC Release No. 34-20091 (August 16, 1983).
Pursuant to the 1983 interpretation, the Staff has stated that "a determination
that the company has substantially implemented the proposal depends upon whether
its particular policies, practices and procedures compare favorably with the
guidelines of the proposal." Texaco, Inc. (March 28, 1991). See, also, Nordstrom
Inc. (February 8, 1995 (proposal that company commit to code of for overseas
suppliers that was substantially covered by existing company guidelines) and The
Gap, Inc. (March 8, 1996) (same). Other Staff no-action letters have established
that a company need not comply with every detail of a proposal in order to
exclude it under Rule 14a-8(i)(10). Differences between a company's actions and
a proposal are permitted so long as a company's actions satisfactorily address
the proposal's underlying concerns. See Masco Corporation (March 29, 1999)
(permitting exclusion because the company adopted a version of the proposal with
slight modification and a clarification as to one of its terms). In addition,
proposals have been considered "substantially implemented" where the company has
implemented part but not all of a multi-faceted proposal. See Columbia/HCA
Healthcare Corp. (February 18, 1998) (permitting exclusion of proposal after
company took steps to partially implement three of four actions requested by the
proposal).
Verizon believes that its policies, practices and procedures compare favorably
with the guidelines of the Proposal. The Proposal calls for the Verizon Board of
Directors to establish a committee that would oversee two aspects of Verizon's
business: (1) compliance with Verizon's Code of Business Conduct and (2)
customer satisfaction with Verizon's products and services. As noted in the
Audit and Finance Committee Charter which is attached hereto as Exhibit B, the
Verizon Board has appointed the Audit and Finance Committee to oversee certain
key management responsibilities, including compliance with legal and regulatory
requirements, as well as the Verizon Code of Business Conduct. The Committee
receives regular reports from management, including the General Counsel and
members of his staff, as well as senior human resources and compliance
executives, to assess Verizon's processes for compliance and to review any
significant business conduct issues. Verizon's senior internal auditing
executive also provides the Committee with regular updates regarding internal
audits of Verizon's business and system of internal controls, including
compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Verizon believes
that the establishment of a separate "corporate responsibility committee" would
be redundant to Verizon's existing governance structure and policies.
As noted above, there is no Verizon Board Committee that is specifically charged
with oversight of the company's customer service function, and Verizon believes
that such oversight is a fundamental management function. The Board does,
however, receive regular "state of the business" reports from the executives
that are responsible for each line of business. As discussed earlier, management
has established extensive policies and processes for the purpose of assuring
that its products and services meet customer expectations. Verizon believes that
these management policies and processes, which are subject to the Board's
general oversight, address the underlying concern expressed by the Proposal and,
therefore, substantially implement the Proposal.
III. Conclusion.
Verizon believes that the Proposal may be omitted from its 2006 proxy materials
(1) under Rule 14a-8(i)(7) because it deals with matters relating to Verizon's
ordinary business operations, and (2) under Rule 14a-8(i)(10) because Verizon
has already substantially implemented the Proposal. Accordingly, Verizon
respectfully requests the concurrence of the Staff that it will not recommend
enforcement action against Verizon if Verizon omits the Proposal in its entirety
from Verizon's 2006 proxy materials.
Kindly acknowledge receipt of this letter by stamping and returning the extra
enclosed copy of this letter in the enclosed self-addressed, stamped envelope.
If you have any questions with respect to this matter, please telephone me at
(908) 559-5636.
Very truly yours,
Mary Louise Weber
Assistant General Counsel
Enclosures
cc: Mr. Richard A. Dee
115 East 89th Street
New York, NY 10128
[APPENDIX]
"Verizon Stockholders hereby request that without delay the Board of Directors
form a Corporate Responsibility Committee charged with auditing continuously the
extent to which Verizon products and services live up to the claims made for
them, and with auditing the extent to which the company lives up to its
commitment to the highest standards of business conduct."
"Recent instances of massive corporate corruption continue to be reported upon
and litigated, and the consequences of these events continue to upset and
concern investors significantly. In my opinion, such stockholder concerns have
contributed mightily to extensive efforts by many companies, including Verizon,
to assure their stockholders and the public as to their integrity, and to assure
stockholders in particular that they have instituted checks and balances that
will prevent such events from occurring and damaging their interests.
"Verizon spends a great deal of time and money trying to convince its
stockholders, its customers and prospects, and the public, of its integrity,
trustwortiness, reliability - and vision. Verizon directors are charged by law
and by stockholders to oversee the company's operations and its management - and
therefore they are responsible for monitoring the extent to which the company
and its affiliates comply with ethical business practices and with what Verizon
terms its "Code of Business Conduct".
"It is imperative that Verizon form a Committee of Directors who meet regularly
and devote considerable undivided attention specifically to matters of Corporate
Responsibility - and to Verizon's compliance therewith. These matters are so
vital to the company's future viability that they cannot be relegated to
sideways glances by the Board as a whole, or by other Committees. Corporate
Responsibility has come of age as a separate, specific area - and one that
deserves, and requires, careful and continual attention by directors who are
particularly focused on its importance.
"In connection with ethical business practices, Verizon Chairman Seidenberg has
stated: 'Our strong commitment to outstanding corporate governance doesn't stop
with the Board of Directors. It is reinforced with our employees worldwide
through a rigorous and comprehensive Code of Business Conduct that supports
Verizon's commitment to the highest standards of business conduct.' Mr.
Seidenberg has stated further: 'Simply put, our goal is to operate our business
and to continue to build on the trust that we have earned over the years.'
"In my opinion, a strong commitment to 'outstanding corporate governance'
doesn't stop with the Board of Directors' - such a commitment should START with
the Board. And to assure that Verizon's 'rigorous and comprehensive Code of
Business Conduct' is supported properly and effectively, the Board must be in a
position to make sure that the company and its affiliates are practicing what is
being preached.
"This Proposal calls upon Verizon's Board of Directors to take immediate steps
to assure stockholders that it is monitoring corporate deeds carefully and
continuously - to make sure that such deeds live up to corporate words. And to
make sure that Verizon operates with "the highest level of integrity,
responsibility and accountability."
"Please vote FOR this Proposal.
[INQUIRY LETTER]
January 24, 2006
By Fax to (202) 772-9201
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Washington, DC 20549
Re: Verizon Communications Inc.2006 Stockholder Proposal
Ladies and Gentlemen:
Verizon Communications Inc. has informed both the Commission and me of its
intention to omit the Proposal that I submitted to it pertaining to the
establishment by its Board of Directors of a committee of Directors designated
as the "Corporate Responsibility Committee".
I have read carefully Verizon's letter of intent to omit, and I disagree
completely with its contention that provisions of Rule 14a-8 would permit the
company to exclude my proposal from its 2006 proxy materials. Please do not
mistake the brevity of this response for a lack of consideration and concern. I
do not believe that lengthy arguments supporting inclusion of my proposal are
called for as responses to the lengthy and overreaching effort by Verizon to
make the Commission believe that my proposal "Deals with a Matter Relating to
the Company's Ordinary Business Operations." and/or that Verizon "Has
Substantially Implemented the Proposal". It does not, and Verizon has not.
Corporate Governance is not Ordinary Business - and I do not recall the
Commission ever stating or agreeing that it was. This proposal calls upon the
highest level of a corporation's government, its board of diretors, to establish
a formal means by which that board can try to assure itself, and the
shareholders whose interests it is charged by law to protect, that claims and
promises pertaining to corporate ethics and responsibility live up to the
corporate policies on which they are based. The making of corporate policy is
not ordinary business, nor is the monitoring and auditing of compliance.
Verizon has spent considerable shareholder money trying to convince "its
customers, its communities, its shareholders, and its employees" that the
company is dedicated to and fulfilling admirably the multitude of claims and
promises that it has made pertaining to corporate conduct, corporate ethics, and
corporate responsibility.
Surely recent events have proven conclusively that those who are supposed to
implement policies and procedures cannot be permitted or relied upon to monitor
and to audit themselves. What role of the board is more vital than to oversee
ordinary business activities in order to be able to assure itself and
stockholders that such activities are being conducted properly and effectively?
The mission of the proposed Corporate Responsibility Committee would be to
oversee and to audit the company's true compliance with such as its "Code of
Business Conduct" and its "Veritas Values" of "Integrity and Respect" - based on
"making the right promises" and "keeping them". Promises can be reassuring, but
how well and the extent to which they are kept is what really matters.
Sincerely,
/s/
cc: Mary Louise Weber
[INQUIRY LETTER]
February 1, 2006
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Verizon Communications Inc. 2006 Annual Meeting Shareholder Proposals of
Richard A. Dee and Kenneth Steiner
Ladies and Gentlemen:
Enclosed please find executed duplicates of the No-action requests with respect
to the shareholder proposals of Richard A. Dee and Kenneth Steiner, copies of
which were previously sent to you on December 28, 2005.
If you have any questions or need anything further, please do not hesitate to
contact me.
Very truly yours,
/s/
Mary Louise Weber
Enclosures
[STAFF REPLY LETTER]
February 20, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Verizon Communications Inc. Incoming letter dated December 28, 2005
The proposal requests that the board of directors form a "Corporate
Responsibility Committee" to audit the extent to which the company's products
and services live up to the claims made for them and the extent to which the
company lives up to its commitment to the highest standards of business conduct.
There appears to be some basis for your view that Verizon may exclude the
proposal under rule 14a-8(i)(7), as relating to Verizon's ordinary business
operations (i.e., general adherence to ethical business practices). Accordingly,
we will not recommend enforcement action to the Commission if Verizon omits the
proposal from its proxy materials in reliance on rule 14a-8(i)(7). In reaching
this position, we have not found it necessary to address the alternative basis
for omission upon which Verizon relies.
Sincerely,
/s/
Gregory Belliston
Attorney-Adviser
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