Company Name: Wal-Mart Stores, Inc. (Green Century)
Public Availability Date: March 24, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 23, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Wal-Mart Stores, Inc.Notice of Intent to Omit from Proxy Materials
Shareholder Proposal of the Green Century Capital Management, Inc. et. al.
Ladies and Gentlemen:
Wal-Mart Stores, Inc., a Delaware corporation (the "Company"), files this letter
under Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to notify the Securities and Exchange Commission (the
"Commission") of the Company's intention to exclude a shareholder proposal (the
"Proposal") from the proxy materials for the Company's 2006 Annual Meeting of
Shareholders (the "2006 Proxy Materials"). The Proposal was submitted by Green
Century Capital Management, Inc. and the co-filers copied on this letter (the
"Proponents"). The Company asks that the staff of the Division of Corporation
Finance of the Commission (the "Staff") not recommend to the Commission that any
enforcement action be taken if the Company excludes the Proposal from its 2006
Proxy Materials for the reasons described below. A copy of the Proposal and all
correspondence is attached to this letter as Exhibit A. In accordance with Rule
14a-8(j), six copies of this letter and its attachments are enclosed.
Due to the volume of proxy materials that the Company must produce and
distribute to its shareholders, the Company plans to commence the printing of
the 2006 Proxy Materials on or about April 11, 2006 so that it may commence
mailing the 2006 Proxy Materials by no later than April 14, 2006. Accordingly,
we would appreciate the Staff's prompt advice with respect to this matter.
The Proposal
The Company received the Proposal on or about December 15, 2005. The Proposal
requests that the Board of Directors of the Company, by June 1, 2007, at a
reasonable cost and omitting proprietary information, "publish a report
evaluating Company policies and procedures for systematically minimizing
customers' exposure to toxic substances in products, including, at a minimum,
hormone disrupting chemicals, persistent bioaccumulative toxicants, carcinogens,
mutagens, and reproductive toxicants. The report should summarize the criteria
used to evaluate such chemicals, and include options for systematically
identifying toxic chemicals in stocked products, encouraging suppliers to reduce
or eliminate such chemicals and develop safer alternatives, and routinely report
on progress."
Grounds for Exclusion
The Company seeks to omit the Proposal from its 2006 Proxy Materials on the
grounds that: (1) the Proposal is vague, indefinite, and misleading as to be
excludable under Rule 14a-8(i)(3) and (2) the Proposal relates to the Company's
ordinary business operations and is excludable under Rule 14a-8(i)(10).
1. The Proposal is Vague, Indefinite, and Misleading and is Excludable under
Rules 14a-8(i)(3) and 14a-9
The Company intends to omit the Proposal from its 2006 Proxy Materials on the
grounds that the Proposal is materially vague, indefinite, and misleading in
violation of Rule 14a-9.
Rule 14a-8(i)(3) permits a company to omit from its proxy materials a
shareholder proposal and any statement in support thereof "[i]f the proposal or
supporting statement is contrary to any of the Commission's proxy rules,
including 17 C.F.R. §240.14a-9, which prohibits materially false or misleading
statements in proxy soliciting materials." Rule 14a-9 provides, in pertinent
part, that:
(a) No solicitation subject to this regulation shall be made by means of any
proxy statement, form of proxy, notice of meeting or other communication,
written or oral, containing any statement which, at the time and in the light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or which omits to state any material fact necessary in order
to make the statements therein not false or misleading....
The Staff has declared that it would concur in a company's reliance on Rule
14a-8(i)(3) to exclude a proposal where a company demonstrates objectively that
the proposal is materially false or misleading, or if the resolution is so
inherently vague or indefinite, that neither the stockholders nor the company
would be able to determine with any reasonable certainty exactly what actions or
measures the proposal requires. See Staff Legal Bulletin 14B (September 15,
2004) ("SLB 14B"). The Staff has also consistently taken the position that
shareholder proposals that are vague and indefinite are excludable under Rule
14a-8(i)(3) as inherently misleading because neither the shareholders nor the
company's board of directors would be able to determine, with any reasonable
amount of certainty, what action or measures would be taken if the proposal were
implemented. See, e.g., The Proctor & Gamble Company (October 25, 2002)
(permitting omission of a proposal requesting that the board of directors create
a specific type of fund as vague and indefinite where the company argued that
neither the shareholders nor the company would know how to implement the
proposal); Philadelphia Electric Company (July 30, 1992) (permitting omission of
a proposal regarding the creation of a committee of share owners because "the
proposal is so inherently vague and indefinite" that neither the share owners
nor the company would be able to determine "exactly what actions or measures the
proposal requires"); and NYNEX Corporation (January 12, 1990) (permitting
omission of a proposal relating to noninterference with the government policies
of certain foreign nations because it is "so inherently vague and indefinite"
that any company action "could be significantly different from the action
envisioned by the shareholders voting on the proposal").
Because many beneficial substances could be toxic under some circumstances or
harmful to certain persons, the Proposal could be virtually unlimited in its
scope. The Proposal itself refers to "scientific uncertainty" regarding
chemicals in products. Neither the stockholders, when voting on the Proposal,
nor the Company, when attempting to implement the Proposal (if adopted), would
be able to determine with reasonable certainty the scope of actions advocated by
the Proposal. Accordingly, the Company believes it may exclude the Proposal as
vague, indefinite, and materially misleading as to its meaning and intent.
2. The Proposal Relates to the Company's Ordinary Business Operations and is
Excludable under Rule 14a-8(i)(7)
Under Rule 14a-8(i)(7), a proposal may be omitted from a registrant's proxy
statement if such proposal "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." Release No. 34-40018 (May 21, 1998) (the "1998 Release"). In the 1998
Release, the Staff noted that one of the central considerations underlying this
policy, which relates to the subject matter of the proposal, is that "[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." 1998 Release. However, certain proposals
"relating to such matters but focusing on sufficiently significant policy issues
(e.g., significant discrimination matters) generally would not be considered to
be excludable." 1998 Release. "The second consideration relates 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." 1998 Release. Furthermore, in a
1983 release, the Staff stated that merely requesting that the registrant
prepare a special report will not remove the proposal from the ordinary business
grounds for exclusion. See Release No. 34-20091 (August 16, 1983). The Company
believes that it may exclude the Proposal because it relates to ordinary
business operations.
The Proposal is excludable because it seeks to "micro-manage" the Company's
retail business practices and inventory of products. The 1998 Release states
that proposals may be seen as attempting to micro-manage the Company "where the
proposal involves intricate detail, or seeks to impose specific time-frames or
methods for implementing complex policies." The Proposal asks the Company to
develop "options to identify toxic chemicals in stocked products, encouraging
suppliers to reduce or eliminate such chemicals and develop safer
alternatives...." The handling of inventory involves complex business decisions
and falls within the Company's ordinary business operations.
Shareholder proposals have been excluded for requesting reports that are too
detailed and specific, even when the subject may be a socially significant
issue. See, e.g., Ford Motor Company (March 2, 2004) (allowing exclusion of
proposal recommending that the board publish annually a report regarding global
warming which would include detailed information on temperatures, atmospheric
gases, sun effects, carbon dioxide production and absorption, and costs and
benefits at various degrees of heating or cooling, as relating to ordinary
business operations). The Proposal requests a report, by June 1, 2007,
"evaluating Company policies and procedures for systematically minimizing
customers' exposure to toxic substances in products, including, at a minimum,
hormone disrupting chemicals, persistent bioaccumulative toxicants, carcinogens,
mutagens, and reproductive toxicants." The requested report would include
complex and intricate scientific detail unsuited for presentation to
shareholders.
The Company is the world's largest retailer, and sells a multitude of products.
According to the Company's informational website, www.walmartfacts.com, last
year the Company purchased "goods from its 61,000 U.S. suppliers ranging from
products on our shelves to the concrete it takes to build our buildings."
Moreover, the Company purchases merchandise from factories and suppliers from
more than 60 countries around the world (See 2004 Report on Standards for
Suppliers). The requested scientific study and report would require the Company
to engage a staff of scientists and various other experts to undertake a
large-scale chemical research project. Business decisions such as the allocation
of resources for research are not suited to direct shareholder oversight.
More importantly, decisions concerning the selection of products to be sold in
the Company's stores and clubs are inherently based on complex business
considerations that are outside the knowledge and expertise of shareholders. The
ability to make business decisions as to product inventory is fundamental to
management's ability to control the operations of the Company, and, as such, is
not appropriately transferred to the Company's shareholders. Based on the
foregoing, the Company believes that it may exclude the Proposal because the
Proposal seeks to micro-manage the business affairs of the Company.
Conclusion
Based on the foregoing representations, the Company hereby requests that the
Staff confirm that it will not recommend any enforcement action if the Proposal
is excluded from the Company's 2006 Proxy Materials. Should you disagree with
the conclusions set forth herein, we would appreciate the opportunity to confer
with you prior to the issuance of the Staff's response. Moreover, the Company
reserves the right to submit to the Staff additional bases upon which the
Proposal may properly be excluded from the 2006 Proxy Materials.
By copy of this letter, the Proponents are being notified of the Company's
intention to omit the Proposal from its 2006 Proxy Materials.
Please acknowledge receipt of this letter by date-stamping the accompanying
acknowledgment copy and returning it to the undersigned in the self-addressed
postage pre-paid envelope provided. Please call the undersigned at (479)
277-3302 if you require additional information or wish to discuss this
submission further.
Thank you for your consideration.
Respectfully Submitted,
/s/
Samuel A. Guess
Enclosures
cc: Green Century Capital Management, Inc.
ATTN: Anne Perry
29 Temple Place, Suite 200
Boston, MA 02111
Harrington Investments, Inc.
ATTN: John C. Harrington
1001 2nd Street, Suite 325
Napa, CA 94559
[INQUIRY LETTER]
December 14, 2005
Jeffrey J. Gearhart
Vice President and General Counsel, Corporate Division, and Assistant Secretary
Wal-Mart
702 S.W. 8th Street
Bentonville, Arkansas 72716-0215
Dear Mr. Gearhart:
Green Century Capital Management is an environmental investment advisory firm.
At Green Century, we believe that environmental excellence and strong financial
returns go hand in hand.
I am writing today to file the enclosed shareholder resolution, for inclusion in
Wal-Mart's proxy statement pursuant to Rule 14a-8 of the general rules and
regulations of the Securities and Exchange Act of 1934. Proof of share ownership
will follow this letter. Green Century Capital Management will continue to hold
the shares through the 2006 stockholder meeting. A representative of our firm
will attend the stockholders' meeting to move the resolution as required. We are
the primary filer of this resolution, and ask to be listed as such in the proxy
materials.
The subject of the resolution is the presence of toxics. Specifically, the
increasing evidence that chemicals commonly used in consumer products can cause
significant negative health effects, even at very low doses. These chemicals of
concern, such as brominated flame retardants, phthalates, bisphenol-A and
others, are coming under increased scrutiny.
There is regulatory movement around the globe that would potentially restrict or
ban the use of many chemicals recognized as potential hormone disrupting
chemicals, persistent bioaccumulative toxicants, carcinogens, mutagens, and
reproductive toxicants. Meanwhile some forward thinking companies such as
L'Oreal, Revlon, and SC Johnson are taking steps to reformulate their products
to exclude certain of these chemicals of concern.
We appreciate Lee Scott's recent statements linking environmental and financial
performance, as signaled by Wal-Mart's commitment to reduced waste generation
and increased energy efficiency. We are also pleased by Wal-Mart's intention to
encourage and support enhanced environmental performance by its contract
suppliers.
We believe strongly that to further enhance its financial performance, reduce
potential liabilities, and strengthen its competitive position around the globe,
Wal-Mart should make a corporate commitment to adopting safer chemicals policies
throughout its supply chain. The goal of these policies should be to reduce the
hazards posed to Wal-Mart's customers, employees, and suppliers by toxic
chemicals in the many products stocked by Wal-Mart. Retailers and manufacturers
around the world have adopted safer chemicals practices to build public trust,
protect the reputation of their brands, and preserve and enhance market share by
anticipating regulation.
Thank you for attention to this matter. If you are another representative of
your company would like to discuss the issues involved, please contact Andrew
Shalit at Green Century Capital Management by telephone at 617-482-0800, by
e-mail at ashalit@greencentury.com, or by postal mail at the address below.
Sincerely,
/s/
Amy Perry
President
Green Century Capital Management
[INQUIRY LETTER]
December 15, 2005
Jeffrey J. Gearhart
Vice President and General Counsel, Corporate Division, and Assistant Secretary
Wal-Mart
702 S.W. 8th Street
Bentonville, Arkansas 72716-0215
Dear Mr. Gearhart:
Harrington Investments, Inc. (HII) is a registered investment advisor managing
assets for individuals and institutions concerned with a social and
environmental as well as financial return. I am deeply concerned about the
presence of toxic chemicals in consumer products. I believe it is important for
our company to implement a safer products policy. Therefore, I wish to co-file
the Green Century Capital Management shareholder resolution asking for a report
on our company's policies.
I am filing the enclosed shareholder resolution on my own behalf, in accordance
with Rule 14a-8 of the General Rules and Regulations of the Securities Act of
1934, for inclusion in our company's 2006 proxy material. I am the beneficial
owner of 100 shares of Wal-Mart stock. The shares were purchased prior to one
year from the date of this letter and have been continuously held since the date
of purchase. They will remain in the account at least until after the 2006
annual meeting of shareholders. I will be providing verification of my ownership
position.
HII recognizes Green Century Capital Management as the "primary filer" of this
resolution. Please copy correspondence to me as a "co-filer." We look forward to
your response. Should you have any questions or comments, please contact Andrew
Shalit at Green Century Capital Management at 617-482-0800.
Thank you for your attention to this matter.
Sincerely,
/s/
John C. Harrington
President
Harrington Investments
Encl.
Cc: Andrew Shalit, Green Century Capital Management
[APPENDIX]
Establishing a Safer Products Policy
Whereas,
Our company has made significant initial commitments to greening of products,
including an expressed goal "to sell products that sustain our resources and
environment," a commitment to help create a program in China giving preferences
to green suppliers, and a commitment to end PVC packaging of house brand
products within two years;
However, scientific evidence is quickly mounting that necessitates additional
action. Recent studies show that even very low levels of certain chemicals found
in consumer products may contribute to a host of human health disorders,
including cancers and neurological problems. Fetuses, infants, and young
children appear particularly vulnerable;
Whereas,
Regulations in California and other states and in the European Union are
increasingly restricting or otherwise regulating chemicals in consumer products;
Our company wishes to increase sales in the United States to higher-income
customers who are concerned about our company's social and environmental
commitments and the safety of products;
Whereas,
Some manufacturers are already responding to new scientific information, growing
public concern, and existing or potential regulation by reformulating their
products;
Wal-Mart cosmetics suppliers L'Oreal and Revlon have committed to reformulate
their cosmetics products globally to eliminate suspected reproductive toxicants
identified by the European Union;
Wal-Mart supplier SC Johnson and Son, Inc. has adopted a process for
systematically reducing the environmental footprint of its products and has, as
a result, eliminated all chemicals that accumulate in the environment and
increased the sales of its Blue Windex product;
Despite these positive developments, a great many products sold at Wal-Mart
contain substances of concern; and
Wal-Mart is uniquely positioned to dramatically shift global supply chains
towards use of safer chemicals in common consumer products.
RESOLVED, shareholders request that by June 1, 2007, at reasonable cost and
omitting proprietary information, the Board publish a report evaluating Company
policies and procedures for systematically minimizing customers' exposure to
toxic substances in products, including, at a minimum, hormone disrupting
chemicals, persistent bioaccumulative toxicants, carcinogens, mutagens, and
reproductive toxicants. The report should summarize the criteria used to
evaluate such chemicals, and include options for systematically identifying
toxic chemicals in stocked products, encouraging suppliers to reduce or
eliminate such chemicals and develop safer alternatives, and routinely reporting
on progress.
Supporting Statement
According to a recent report, (http://rosefdn.org/liroffreport.pdf), safer
chemicals policies have been adopted by leading consumer products manufacturers
and retailers.
Innovative practices include inventorying chemicals in products; establishing
goals and milestones even in the face of scientific uncertainty; providing
inducements to suppliers to provide safer products; and publicly disclosing
information to consumers and shareholders.
Companies have adopted such practices to build public trust, protect brand
reputation, and safeguard and grow market share by anticipating regulation. Such
actions by Wal-Mart would significantly and positively raise our company's
environmental profile, enhancing its reputation and competitive position
worldwide.
As Lee Scott said in October 2005, "being a good steward of the environment and
in our communities, and being an efficient and profitable business, are not
mutually exclusive. In fact they are one in the same."
[INQUIRY LETTER]
February 17, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Request For No Action on Shareholder Proposal Submitted to Wal-Mart
Corporation by Green Century Capital Management and Harrington Investments, Inc.
Dear Sir/Madam:
Green Century Capital Management, Inc. and Harrington Investments, Inc.
("Proponents") have submitted a shareholder proposal ("Proposal") to Wal-Mart
Stores, Inc. (the "Company" or "Wal-Mart"). We are writing to respond to the
letter dated January 23, 2006 ("Letter"), sent to the Securities and Exchange
Commission by Wal-Mart. In that letter, the Company contends that the
Proponents' shareholder Proposal may be excluded from the Company's 2006 proxy
statement by virtue of Rules 14a-8(i)(3) and 14a-8(i)(7). We disagree with this
view, for the reasons described below.
SUMMARY
The Company asserts that the Proposal is excludable because it is vague and
indefinite and because it seeks to micromanage the Company.
As discussed below, we believe the Proposal is not excludable for vagueness
because it discusses well-known issues of public concern that both shareholders
and management can understand. It is equally clear that the Proposal does not
seek to micromanage the company, but rather strikes the correct balance between
providing enough guidance and specificity such that management and shareholders
understand what is being proposed while leaving enough room for management to
address the issues in the most efficacious manner based on its own judgment.
Finally, the Proposal addresses a significant area of public policy concern and
thus is appropriate for consideration by shareholders.
ANALYSIS
1. The Proposal is Not Vague and Indefinite and Should Not Be Excluded under
Rule 14a-8(i)(3)
In 2004 the staff of the Division of Corporation Finance ("Staff") explained
that a proposal may be excluded under Rule 14a-8(i)(3) where
the resolution contained in the proposal is so inherently vague or 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 requiresthis
objection also may be appropriate where the proposal and the supporting
statement, when read together, have the same result. Staff Legal Bulletin 14B
(September 15, 2004) ("SLB 14B").
It also reiterated that rule 14a-8(g) makes clear that the company bears the burden of demonstrating
that a proposal or statement may be excluded. As such, the staff will concur in
the company's reliance on rule 14a-8(i)(3) to exclude or modify a proposal or
statement only where that company has demonstrated objectively that the proposal
or statement is materially false or misleading. SLB 14B (emphasis added).
The Proposal submitted by Green Century Capital Management and Harrington
Investments to Wal-Mart exhibits no such ambiguity or difficulty of
interpretation. It requests plainly that "the Board publish a report evaluating
Company policies and procedures for systematically minimizing customers'
exposure to toxic substances in products." To further clarify the intent of the
Proposal, it references directly and indirectly several comparable efforts to
reduce exposure to toxic substances.
The Company cites only a single reason for the obscurity or ambiguity of the
Proposal. It argues that the meaning of "toxic substances" is not clear and that
this would make implementation of the Proposal unmanageable:
Because many beneficial substances could be toxic under some circumstances or
harmful to certain persons, the Proposal could be virtually unlimited in its
scope.
Here the Company is claiming that almost anything could be toxic, and so it is
impossible to define how a company would take action to reduce the use of toxic
substances. The requested action might have been intractable if the Proposal had
asked the Company to ensure that none of its products contained any toxic
substances. But the Proposal asks no such thing. It only asks for a report with
the goal of "systematically minimizing customers' exposure to toxic substances"
(emphasis added). This goal is certainly something that the Company can attempt,
using the common meaning of the word "toxic."
Indeed, just such a goal is expressed by the Company's policies with regard to
its suppliers. The Company document Standards for Supplier: Supplier's
Responsibilities states:
We also encourage our suppliers to reduce excess packaging and to use recycled
and non-toxic materials whenever possible. We will favor suppliers who share our
commitment to the environment.
(www.walmartstores.com/Files/SupplierStandardsdoc.pdf)
This statement shows that the Company itself understands the meaning of toxic
versus non-toxic materials, and that it expects its suppliers to understand this
distinction without additional explication. Further, it shows that the Company
shares the concerns expressed by the Proposal, namely to minimize its customers'
exposure to toxic materials.
In its Letter the Company further claims that "neither the stockholders, when
voting on the Proposal, nor the Company, when attempting to implement the
Proposal (if adopted), would be able to determine with reasonable certainty the
scope of actions advocated by the Proposal."
To the contrary, the Proposal goes to great lengths to ensure that this is not
the case and that stockholders as well as the board understand clearly the
meaning of the Proposal and the nature of the action requested. The goal of the
Proposal is clearly to minimize customers' exposure to toxic substances. To
clarify what this might entail, the Proposal discusses actions by other
companies and by governments that exemplify how the Company would approach this
goal:
The Proposal discusses regulations governing toxic substances in California,
in other states, and in the European Union. These regulations illustrate the
types of toxic substances that are of concern to the Proposal.
The Proposal discusses three Wal-Mart suppliers who have already taken steps
to remove toxic substances from their products. These companies further
illustrate the types of toxic substances that are of concern to the Proposal,
and they also indicate the types of actions that could be considered as a result
of implementing the Proposal.
The Proposal provides a reference to a report which contains further examples
of companies that have taken steps similar to those contemplated by the
Proposal.
The supporting statement goes on to provide specific examples of the types of
practices that are foreseen by the Proposal:
Innovative practices include inventorying chemicals in products; establishing
goals and milestones even in the face of scientific uncertainty; providing
inducements to suppliers to provide safer products; and publicly disclosing
information to consumers and shareholders.
As described above, the present Proposal is quite clear and so differs entirely
from the subject proposals of the three prior rulings cited by the Company. Each
of these proposals contained serious flaws that are not present in the Proposal.
These flaws made it impossible to interpret the meaning of the proposals with
any certainty.
In The Procter & Gamble Company (October 25, 2002), Staff properly supported the
exclusion of a proposal requesting that the company establish a fund to support
individuals who "are victims of retaliation, intimidation and troubles because
they are stockholders/shareholders of publicly owned companies." The nature of
the "troubles" and the purpose of the requested support were made apparent
nowhere in the proposal text, and could not be discerned with certainty except
perhaps to the proponent himself. As stated by the company, "the context and
purpose of the Proposal is not clear. From [proponent's] first letter of June
19, 2002, he appears to suggest that his US Postal Service letter carrier and
his landlord are preventing him from accessing his mailbox in an attempt to
force him to name them as 'beneficiaries' of some type." The present Proposal
does not make obscure references to private information, but rather refers to
well-known subjects of public discussion, namely the presence of toxic
substances in consumer products.
In Philadelphia Electric Comapny (July 30, 1992) the proposal expressed outrage
at management and board performance, but the language and grammar used by the
resolved clause failed to communicate a clear request:
THEREFORE BE IT RESOLVED, that a Committee of small stockholders be elected, by
those stockholders of limited numbers 100-1000-5000 shares, to consider and
refer to the Board of Directors a plan or plans that will in some measure equate
with the gratuities bestowed on Management, Directors and other employees. Under
all conditions the Corporation will bear the expense of this resolve.
This resolution appears to suffer from a logical or grammatical flaw that makes
it impossible to discern clearly its meaning. In its request to exclude this
proposal, Philadelphia Electric Company described three possible interpretations
of the resolution, each of which was equally plausible. It rightly argued that
"there is no way in which shareholders will be able to determine with reasonable
certainty either the meaning of the resolution or the consequences of its
implementation." The current Proposal has no such ambiguity of interpretation.
In NYNEX Corporation (January 12, 1990) the language used by the proposal was
ambiguous and was left unclear specifically because of its brevity and lack of
clarifying detail. The full text of the proposal was only 50 words, half of
which largely restated the other half:
WHEREAS NYNEX should not interfere in the government policy of any foreign
government that NYNEX has been invited to set up facilities.
RESOLVED, that NYNEX does not interfere in government policies of foreign
nations that this company has been invited in the past and future to set up any
facilities.
The proposal made no references to past actions by NYNEX, by other companies, or
by shareholder groups that would indicate more clearly the specific behaviors or
actions that should or should not be undertaken by the company were the proposal
to pass.
In its request to exclude the proposal, NYNEX described a broad range of diverse
and mutually contradictory actions each of which could be interpreted as being
required by the text of the resolution. As Staff stated in their ruling, "the
proposal, if implemented, would require the Company to make highly subjective
determinations concerning what constitutes 'interference' and 'government
policies' as well as when the proscriptions of the proposal would apply. In the
Division's view, such determinations would have to be made without guidance from
the proposal and would be subject to differing interpretations by both
shareholders voting on the proposal and the Company."
The Proposal under discussion does not suffer from this flaw. It addresses a
well-known issue of public concernnamely the presence of toxic chemicals in
consumer products and packagingand requests a report on Company policies and
procedures for reducing customer exposure to such chemicals. It cites examples
of government regulations and proposed laws that define lists of toxic
chemicals. It cites companies that have taken steps similar to the steps that
are being requested of the Company. It lists examples of actions that could be
taken by the Company in pursuing this goal.
In summary, the proposal strikes the appropriate balance between describing the
concern in sufficient detail so as to provide appropriate guidance to
shareholders and the Company, and yet not so much as to micromanage the Company
in its actions. The Proposal appropriately leaves room for the Company to choose
the specific actions to take to implement the proposal in the way that is most
efficient and effective, while clearly stating its purpose using terms that are
well understood.
2. The Proposal Does Not Seek to Micromanage the Company, and Should Not Be
Excluded Under Rule 14a-8(i)(7)
The Company asserts that the Proposal should be excluded because it seeks to
micromanage the Company. Specifically, the company makes three arguments:
The Proposal involves intricate details that are unsuited for consideration by
stockholders;
Implementation of the Proposal would require a large staff of scientists, and
the associated resource allocation is not an appropriate subject for shareholder
consideration; and
The Proposal involves selection of products to be sold in stores, which is
properly under the control of management.
2.1 The Proposal Does Not Involve Intricate Detail
Under Rule 14a-8(i)(7), a proposal may be excluded if it seeks "to 'micromanage'
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." 1998 Release. The Release goes on to state that "[t]his consideration
may come into play in a number of circumstances, such as where the proposal
involves intricate detail, or seeks to impose specific time-frames or methods
for implementing complex policies." Id.
In arguing that the Proposal involves intricate detail, the Company cites Ford
Motor Company (March 2, 2004). The subject proposal of Ford requests that the
company take a series of complex steps, including measurements of temperatures,
gasses, and other specific factors across times and locations, with the goal of
assessing whether global warming or global cooling (sic) is taking place. These
complex steps were detailed in the proposal. In ruling that the proposal could
be excluded, Staff stated:
The Proposal recommends that the board publish annually a report ... that
includes detailed information on temperatures, atmospheric gases, sun effects,
carbon dioxide production, carbon dioxide absorption, and costs and benefits at
various degrees of heating or cooling.
The present Proposal specifies no such intricate detail. It does not list
specific actions or measurements to be taken and it does not specify a rigid
schedule of events. Rather it requests that the Board evaluate Company "policies
and procedures for systematically minimizing customers' exposure to toxic
substances in products." It does not specify the structure of the system, but
merely that the policies and procedures be systematic. The manner in which this
evaluation is to take place is properly left to the discretion of the Company,
as is the substance of the policies and procedures.
2.2 The Proposal Does Not Require Significant Allocation of Resources
The Company has indicated that to engage in the process requested by
shareholders would require the Company to engage a staff of scientists and
various other experts to undertake a large-scale chemical research project. The
company exaggerates the burden that might be placed on it. The Company can
easily work from existing lists of toxic and potentially toxic substances that
have been targeted for reduction by government. For example, the US EPA Waste
Minimization Program targets 31 priority chemicals for reduction
(www.epa.gov/epaoswer/hazwaste/minimize/chemlist.htm) and the State of
California annually compiles a list of chemicals known to cause cancer or
reproductive toxicity
(www.oehha.ca.gov/prop65/prop65_list/files/P65single3405.pdf). The Company can
also look to lists compiled by other retailers, for example Boots Group PLC
(www.boots-plc.com/environment/library/266.pdf) and Marks & Spencer
(www2.marksandspencer.com/thecompany/ourcommitmenttosociety/ environment/productsafety/ch
emicals_strategy.pdf).
Most or all of this work could be accomplished by existing staff and staff due
to be hired under current Company plans. For example, in late 2005, Tyler J. Elm
was named Senior Director, Competitive Strategy and Business Sustainability,
charged with "deriving business value for Wal-Mart Stores, Inc. by directing the
development, implementation and management of a competitive business strategy
that derives economic benefits for the Company from improved environmental and
social outcomes." (official corporate biography)
Furthermore, the Company has retained a search firm to hire a new Senior
Director for Stakeholder Engagement, reporting to Wal-Mart's Vice President of
Corporate Strategy, "who will play a critical role in helping the company
...create a new model of business engagement that uses market-based changes to
create societal value." (Job description from executive search firm Martha
Montag Brown and Associates). The job includes identifying global best practices
in corporate responsibility, with initial focus including the environment and
product sourcing.
Wal-Mart is in fact already investing staff time in toxic chemical issues as
signaled by their commitment to "replacing PVC packaging for [Company] private
brands with alternatives that are more sustainable and recyclable within the
next 2 years," ("Twenty First Century Leadership", Speech by Company CEO Lee
Scott, October 24, 2005). As part of that initiative, the Company has put
together teams of staff and stakeholders to explore addressing waste, toxics,
and other issues. They have invited non-governmental organizations such as the
Center for Health, Environment and Justice's PVC Campaign to participate in
these efforts, and have also solicited the PVC Campaign's suggestions for
sources of relevant expertise.
The report resulting from the adoption of this Proposal could provide guidance
and direction to these existing or planned efforts. The creation of the report
itself, as called for by the Proposal, would not in any way require the creation
of a significant new program or hiring large numbers of staff with highly
specialized skills.
2.3 The Proposal Does Not Dictate Selection of Products to be Sold in Stores
The Company argues that the Proposal represents an unwarranted interference in
the day-to-day selection of products to be sold in stores:
Decisions concerning the selection of products to be sold in the Company's
stores and clubs are inherently based on complex business considerations that
are outside the knowledge and expertise of shareholders. The ability to make
business decisions as to product inventory is fundamental to management's
ability to control the operations of the Company, and, as such, is not
appropriately transferred to shareholders.
The Company does not quote any text from the Proposal to support their
contention that the Proposal would take the control of inventory decisions and
product selection out of management's hands and place it instead in the hands of
stockholders. In fact, the Proposal does no such thing. It does not ask that the
Company sell (or not sell) any specific products or category of products. It
does not specify inventory levels or supply-chain management structures. It does
not list specific product ingredients that would be dispositive when making
decisions about whether to sell products.
It may be that the Company is arguing that categorically any proposal that
touches upon product selection even in the most indirect way is excludable. Such
an argument would be directly contrary to the 1998 Interpretive Release which
requires that each proposal be reviewed on a case-by-case basis, and that
"proposals relating to such matters but focusing on sufficiently significant
social policy issues ... generally would not be considered to be excludable,
because the proposals would transcend the day-to-day business matters and raise
policy issues so significant that it would be appropriate for a shareholder
vote."
The current Proposal focuses on a significant policy issue, as discussed below.
Moreover, it requests only a report "evaluating Company policies and procedures"
and does not seek to impose specific policies and procedures on the product
acquisition process.
4. The Proposal Focuses on a Significant Policy Issue
Pursuant to Rule 14a-8(i)(7), proposals may not be excluded if the subject
matter focuses "on sufficiently significant social policy issues ... because the
proposals would transcend the day-to-day business matters and raise policy
issues so significant that it would be appropriate for a shareholder vote."
Release No. 34-40018 (May 21, 1998) ("1998 Release"). A proposal may not be
excluded under clause (c)(7) if it has "significant policy, economic or other
implications". Roosevelt v. E.I. DuPont de Nemours & Company, 958 F. 2d 416, (DC
Cir. 1992) at 426.
The presence of toxic and potentially toxic substances in consumer products and
product packaging is clearly a significant policy issue that transcends the
day-to-day business of the Company. While the Company does not question this, it
is useful to note how it has in fact become an issue that receives a great deal
of attention and will have significant policy and economic implications for the
Company.
A number of recently passed or proposed state laws would ban the use of
previously acceptable chemicals in consumer products. For example, nine states
recently enacted bans on the bioaccumulative chemicals penta-PBDE and octa-PBDE,
which have been widely used as flame-retardants in furnishings, electronics, and
other products. Bills proposed in California and Maryland would ban the sale of
cosmetics and children's toys containing a category of chemicals known as
"phthalates" as well as children's toys and bottles containing the chemical
bisphenol A. Both phthalates and bisphenol A are suspected developmental
toxicants widely used in consumer products in the U.S.
In Europe, the RoHS (Reduction of Hazardous Substances) mandate requires the
removal of heavy metals and certain other chemicals from electronic products.
The broad REACH initiative (Registration, Evaluation and Authorisation of
Chemicals) would require the registration and testing of several thousand
chemicals used in consumer products.
Manufacturers have been active in this area as well, with computer and other
electronics manufacturers building RoHS-compliant products and over two hundred
cosmetics companies agreeing to take steps to reduce the inclusion of toxic
ingredients (www.safecosmetics.org/companies/signers.cfm), for example.
Media coverage and public concern about this issue have been growing steadily.
Major, mainstream news outlets such as the New York Times and the Los Angeles
Times ran stories in 2005 with headlines such as Should You Worry About the
Chemicals in Your Makeup?, Labels Can Hide the Presence of Phthalates,
Legislature Targets Toxic Risks in Products and Europe's Rules Forcing U.S.
Firms to Clean Up. The Wall Street Journal ran a series of prominently placed
front-page articles titled Toxic Traces: New Questions about Old Chemicals. See
Appendix 1.
As these facts clearly demonstrate, the subject of cosmetics and toxic chemicals
is a significant policy, economic, and environmental issue that has implications
for the long term goals and business strategy of the Company.
CONCLUSION
In conclusion, we request the Staff to inform the Company that the SEC proxy
rules require denial of the Company's no-action request. As demonstrated above,
the Proposal is not in any way vague, nor does it attempt to micromanage the
Company's business.
In the event that the Staff concludes that certain parts of the document may
require revision, please be advised of the willingness of the Proponents to make
needed modifications. Also, we respectfully request an opportunity to confer
with SEC staff in the event that the staff should decide to concur with the
Company. Communication should be directed to Andrew Shalit at 617-426-2503 or
via fax at 617-422-0881.
Sincerely,
/s/
Andrew Shalit
Green Century Capital Management
/s/
John C. Harrington
Harrington Investments
cc: Samuel A. Guess, Wal-Mart Stores Legal Department
Attachments: Appendix 1
[STAFF REPLY LETTER]
March 24, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Wal-Mart Stores, Inc. Incoming letter dated January 23, 2006
The proposal requests that the board publish a report evaluating the company's
policies and procedures for minimizing customers' exposure to toxic substances
in products.
There appears to be some basis for your view that Wal-Mart may exclude the
proposal under rule 14a-8(i)(7) as relating to its ordinary business operations
(i.e., sale of particular products). Accordingly, we will not recommend
enforcement action to the Commission if Wal-Mart 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 Wal-Mart relies.
Sincerely,
/s/
Ted Yu
Special Counsel
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