Company Name: Wells Fargo & Co.
Public Availability Date: February 23, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 27, 2005
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
RE: Wells Fargo & CompanyOmission of Shareholder Proposal
Ladics and Gentlemen:
Wells Fargo & Company, a Delaware corporation ("Wells Fargo"), hereby notifies
the Securities and Exchange Commission (the "Commission") of its intent to omit
a shareholder proposal (the "Proposal") and supporting statement submitted by
The Catholic Equity Fund and co-filed by CHRISTUS Health, Unitarian Universalist
Association of Congregations, Benedictine Sisters of Mount St. Scholastica and
the Congregation of the Holy Cross, Southern Province (collectively, the
"Proponents") from its proxy statement and form of proxy (the "Proxy Materials")
for Wells Fargo's 2006 Annual Meeting of Stockholders ("2006 Annual Meeting")
pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). In connection therewith, Wells Fargo respectfully requests
the staff of the Division of Corporation Finance (the "Staff") to advise that
the Staff will not recommend to the Commission that enforcement action be taken
if Wells Fargo excludes such Proposal from its Proxy Materials for its 2006
Annual Meeting for the reasons set forth below. In addition, as indicated at the
end of this letter, if the Staff does not concur that the Proposal may be
excluded in its entirety, Wells Fargo intends to exclude one co-filer for
failure to demonstrate proof of ownership of Wells Fargo's common stock as
required under Rule 14a-8(f).
General
Wells Fargo expects to file its Proxy Materials for the 2006 Annual Meeting
pursuant to Rule 14a-6(b) of the Exchange Act no earlier than March 17, 2006,
and Wells Fargo's 2006 Annual Meeting is scheduled for April 25, 2006.
Accordingly, pursuant to Rule 14a-8(j), Wells Fargo is submitting its no-action
request with respect to the Proposal no later than 80 calendar days before
filing its Proxy Materials for its 2006 Annual Meeting with the Commission.
Wells Fargo hereby agrees to promptly forward to the Proponents any Staff
response to this no-action request that the Staff transmits by facsimile to it
only. In accordance with Rule 14a-8(j), six additional copies of this letter,
including all exhibits, are enclosed, and one copy of this letter, including all
exhibits, is being sent to the Proponents. Please acknowledge receipt of this
letter and its enclosures by stamping the enclosed copy of this letter and
returning it to the undersigned in the return envelope provided.
The Proposal
On November 11, 2005, Wells Fargo received from the Proponents a proposal for
inclusion in Wells Fargo's Proxy Materials for its 2006 Annual Meeting. This
Proposal, including its supporting statement and associated correspondence with
the Proponents of the Proposal, is attached to this letter as Exhibit A. The
Proposal reads:
RESOLVED, the shareholders request the the [sic] following of the board:
1. Annually ask the shareholders to approve every future compensation package
for non-employee directors, excluding any element to which the company is
contractually bound as of the end of the 2006 annual meeting.
2. In its submission, identify every benefit and perquisite of serving as a
director that involves an expenditure or use of company assets, including
contributions to charities of particular interest to the director.
3. If the package receives at least half of the shareholder votes cast, make the
package effective as of the effective date specified in the submission. If the
package fails to receive at least half of the shareholder votes cast, leave the
existing non-employee director compensation package in effect until the
shareholders approve a different one.
Although the Proposal addresses non-employee director compensation, the
supporting statement primarily addresses matters relating to CEO compensation,
as did the proposal the lead Proponent submitted in connection with Wells
Fargo's 2005 annual meeting (the "2005 Proposal"). The 2005 Proposal asked
shareholders to approve a resolution which urged the Board to "limit
Compensation paid to the CEO in any fiscal year to no more than 100 times the
average Compensation paid to the company's Non-Managerial Workers in the prior
fiscal year, unless the shareholders have approved paying the CEO a greater
amount."
Grounds for Omission of the Proposal
Rule 14a-8 generally requires public companies under certain circumstances to
include in their proxy materials proposals submitted by eligible shareholders. A
proposal need not be included in the company's proxy materials, however, if it
falls within one of 13 substantive bases for exclusion specified in Rule
14a-8(i) or it fails to satisfy the procedural requirements for such Rule. For
the reasons discussed below, Wells Fargo believes that the Proposal is
excludable from its Proxy Materials pursuant to Rules 14a-8(i)(3) and
14a-8(i)(6), because the Proposal is vague and indefinite and it contains false
and misleading statements in violation of Rule 14a-9.
The Proposal May Be Excluded under Rules 14a-8(i)(3) and 14a-8(i)(6) Because It
is Inherently Vague and Indefinite and It Contains False and Misleading
Statements
Rule 14a-8(i)(3) permits an issuer to omit a proposal from its proxy materials
if the proposal or supporting statement is contrary to any of the Commission's
proxy rules, including Rule 14a-9, which prohibits materially false and
misleading statements in proxy solicitation materials. The Staff has
consistently concurred that shareholder proposals (including those that address
executives' or directors' compensation) may be excluded under Rule 14a-8(i)(3)
when the action called for by the proposal is so vague and indefinite as to be
misleading because "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." Staff Legal Bulletin No. 14B (Sept. 15, 2004) ("SLB 14B"). Moreover,
a proposal is sufficiently vague and indefinite so as to justify exclusion where
a company and its shareholders might interpret the proposal differently, such
that "any action ultimately taken by the [c]ompany upon implementation of the
proposal could be significantly different from the actions envisioned by the
shareholders voting on the proposal." Fuqua Industries, Inc. (avail. Mar. 12,
1991).
In addition, Rule 14a-8(i)(6) permits a company to exclude a shareholder
proposal if it is beyond the company's power to implement. A company "lack[s]
the power or authority to implement" a proposal and may properly exclude it
pursuant to Rule 14a-8(i)(6) when the proposal in question "is so vague and
indefinite that [the company] would be unable to determine what action should be
taken." Int'l Business Machines Corp. (avail. Jan. 14, 1992).
As discussed below, the Proposal may be excluded under these standards because
(1) the Proposal fails to define critical terms, (2) the Proposal fails to
provide guidance on how Wells Fargo should implement it, and (3) substantial
portions of the supporting statement are conspicuously irrelevant to the issue
of non-employee director compensation.
The Proposal is Vague and Indefinite
The Staff on many occasions has permitted the exclusion under Rule 14a-8(i)(3)
of proposals related to executive compensation when critical terms or concepts
in the proposal are so vague and indefinite that the compensation arrangements
being referred to in the proposal, or the action desired under the proposal,
either are not clear or are subject to a variety of interpretations.
In Int'l Business Machines Corp. (avail. Feb. 2, 2005), the Staff concurred
that the company could omit under Rule 14a-8(i)(3), as vague and indefinite, a
shareholder proposal requesting that "the officers and directors responsible"
for IBM's reduced dividend payment have "their pay reduced to the level
prevailing in 1993" because it could be interpreted at least three different
ways.
In Eastman Kodak Company (avail. Mar. 3, 2004), the proposal requested that
"the Top Salary be 'capped' at $1 million to include bonus, perks [and] stock
options." The company argued that the proposal did not, among other things,
provide guidance on how it should be implemented by failing to define "critical
terms" such as perks and how options were to be valued. The Staff concurred with
exclusion of the proposal under Rule 14a-8(i)(3) as vague and indefinite.
In Safescript Pharmacies, Inc. (avail. Feb. 27, 2004), the Staff concurred
that a company could exclude under Rule 14a-8(i)(3) a proposal requesting that
the company expense all stock options in accordance with FASB guidelines. There
the Staff concurred that the proposal could be excluded where the company
pointed out that FASB standards allowed for two different methods of expensing
options, and, as such, neither shareholders nor the company could determine
which method the proposal sought to use.
In Otter Tail Corporation (avail. Jan. 12, 2004), the Staff concurred that the
company could exclude, as vague and indefinite, a proposal requesting that
future executive salary and stock option plans be changed to "limit" any
benefits for either salary or stock options for 5 years.
In Woodward Governor Co. (avail. Nov. 26, 2003), the Staff permitted exclusion
of a proposal that read, "Resolved: That the board ... implement a policy for
compensation for executives ... based on stock growth. This would focus the
management team on the goal of increasing stock value." The company argued that,
particularly when read with the supporting statement, the proposal was vague as
to whether it addressed all compensation or only stock-based compensation, and
thus could be interpreted in multiple and contradictory ways.
In General Electric Co. (avail. Feb. 5, 2003), the Staff held that a proposal
requesting the board to seek shareholder approval "for all compensation for
Senior Executives and Board members not to exceed more than 25 times the average
wage of hourly working employees" could properly be excluded where the company
argued that the proposal failed to define critical terms and failed to address
the treatment of non-cash compensation for the purpose of the proposed cap.
In General Electric Co. (avail. Jan. 23, 2003), a proposal seeking "an
individual cap on salaries and benefits of one million dollars for General
Electric officers and directors" was properly excluded because the proposal
failed to define the critical term "benefit" or otherwise provide guidance on
how it should be measured for purposes of implementing the proposal.
As with the precedent cited above, each of the three prongs of the Proposal
contains vague and indefinite terms and references, such that neither
shareholders in voting on the Proposal nor Wells Fargo, if it were to seek to
implement the Proposal, would know what would be expected.
The first clause of the Proposal reads, "Annually ask the shareholders to
approve every future compensation package for non-employee directors, excluding
any element to which the company is contractually bound as of the end of the
2006 annual meeting." In this clause, the term "every future compensation
package" is undefined and, for the reasons explained below, is vague and subject
to multiple, conflicting interpretations.
Effective January 1, 2005, the cash compensation for directors on Wells
Fargo's Board of Directors ("Board") consisted of (i) an annual retainer of
$65,000 plus $1,600 for each Board or committee meeting attended, (ii) an annual
fee of $15,000 to be paid to each of the chairs of the Credit, Finance, and
Governance and Nominating Committees, (iii) an annual fee of $20,000 to be paid
to the chair of the Human Resources Committee, and (iv) an annual fee of $25,000
to be paid to the chair of the Audit and Examination Committee. It is unclear
whether this compensation structure would require one vote covering all of the
variations, or whether there are four cash "compensation packages" (the
retainer, meeting fees and chair fee to be paid to the chair of the Audit and
Examination Committee; those amounts to be paid to the chair of the Human
Resources Committee; those amounts to be paid to the chairs of the other Board
committees; and those amounts to be paid to directors who do not serve as the
chair of any committee) or whether there are even more than four cash
compensation packages (that is, whether the Proposal would require a separate
vote on the compensation payable to the chair of each Board committee, even if
the same amount as paid to other committee chairs, constitutes a different
"package," since shareholders might have differing views as to the value of
different Board committees).
The proposal does not address what constitutes a "future compensation
package." Does this refer to all elements of compensation that are at the time
of the requested shareholder vote proposed to be paid for the coming year, or
would it require a vote covering whatever form of compensation might be provided
in the future under an arrangement? For example, would a stock option plan
providing for automatic option grants require only one vote for all future
grants, or would it require separate votes each year? Would all of the option
grants under such a plan constitute a "future compensation package," or do they
constitute only one element in each director's future compensation package? Is
"future" compensation only compensation that differs from "current" compensation
(that is, only if the Board proposes to change the directors' "compensation
package") or is it any compensation package that is proposed to be paid in the
future, even if no different from what is being paid currently?
The proposal is unclear as to whether an intention to pay a new director any
compensation, even if the same as what other directors are paid, constitutes a
"future compensation package" that must be subject to a separate shareholder
vote.
The second clause of the Proposal reads, "In its submission, identify every
benefit and perquisite of serving as a director that involves an expenditure or
use of company assets, including contributions to charities of particular
interest to the director." This clause contains numerous vague and confusing
concepts, including:
Does the phrase "every benefit and perquisite ... of serving as a director
that involves an expenditure" cover expenses that are not typically viewed as
compensation, such as travel and hotel reimbursement for attending directors'
meetings? Does the answer to the foregoing question depend on whether the
company provides first class air fare as opposed to economy class air fare or
three star hotel accommodations as opposed to budget hotel accommodations?
Are the benefits and perquisites to be identified only those received in the
past or current fiscal year, or must the disclosure cover all of the benefits
and perquisites received by a director over his or her entire term of service?
What does it mean for a charity to be "of particular interest" to a director?
Because of Wells Fargo's active philanthropy (for example, in 2004 Wells Fargo
contributed $93 million to more than 15,000 non-profit organizations), it would
be important for shareholders and Wells Fargo to know exactly what Wells Fargo
would be expected to track and report. Would a director have to know of Wells
Fargo's contribution to a charity for it to be "of particular interest" to the
director, or is it the charity itself that must be "of particular interest"?
How is this clause to relate to the other clauses in the Proposal? Are the
benefits and perquisites that are to be identified considered part of the
directors' "compensation package," or is this information to be provided as
background information when shareholders are being asked to vote on "future
compensation packages"?
The third clause of the Proposal reads, "If the package receives at least half
of the shareholder votes cast, make the package effective as of the effective
date specified in the submission. If the package fails to receive at least half
of the shareholder votes cast, leave the existing non-employee director
compensation package in effect until the shareholders approve a different one."
This clause is important because it highlights the other ambiguities in the
Proposal.
Does this clause indicate that the reference in the first clause to "every
future compensation package" means only "future compensation packages" that
differ from the existing arrangements, as opposed to "every" compensation
package proposed to be paid in the future? If the package voted on provides the
same compensation that directors are currently paid and it is not approved by
shareholders, how is this clause (which states that the existing compensation
packages may be left in effect) reconciled with the first clause (which says
that "every" future compensation package is to be voted on)?
Is the reference to shareholder approval of "a different [non-employee
director compensation package]" referring to a vote that is separate from the
vote under clause one on "every future compensation package"?
Is the "at least half of the shareholder votes cast" standard intended to
establish a lower voting threshold than the traditional Delaware law standard of
a "majority of votes cast"?
Without clear and specific definitions of terms such as "future compensation
package" and "benefit and perquisite," and without a clear explanation of
exactly what is to be voted on and how the referendum described in the Proposal
is to work, neither the shareholders voting on the Proposal, nor Wells Fargo in
attempting to implement the Proposal, would be able to determine with any
reasonable certainty exactly what actions or measures the Proposal requires.1
Critical terms in the first and second clauses "every future compensation
package" and "every benefit and perquisite" are not defined, just as in the
Eastman Kodak and two General Electric letters cited above. Moreover, the
operation of the entire scheme established under the three clauses of the
Proposal is vague and uncertain, just as with the compensation arrangements
discussed in the International Business Machines and Otter Tatl letters
discussed above, and the first and third clauses are inconsistent and create
confusion as to whether "every" compensation package or only changes to
compensation packages are to be subject to a shareholder vote, just as the
Woodward Governor proposal and supporting statement created confusion as to
whether all compensation or only stock-based compensation was to be addressed.
Accordingly, Wells Fargo requests that the Staff concur with its determination
that the Proposal may be excluded from the Proxy Materials because the Proposal
fails to define critical terms and to provide guidance on the basic
implementation of the Proposal, and thus is so vague and indefinite that it
fails to pass muster under Rule 14a-9 and Rule 14a-8(i)(3). For the same
reasons, the Proposal would be impossible for Wells Fargo to implement within
the meaning of Rule 14a-8(i)(6), as any actions it takes could be significantly
different from the actions envisioned by the shareholders voting on the
Proposal.
The Supporting Statement is Vague and Misleading
In SLB 14B, the Staff further clarified its position with respect to certain
interpretations under Rule 14a-8(i)(3). Of particular relevance to the Proposal,
the Staff stated that it may be appropriate to rely on Rule 14a-8(i)(3) to
exclude either an entire shareholder proposal or statements in the proposal or
supporting statement when:
"the proposal and the supporting statement, when read together" are "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" they require, and
"substantial portions of the supporting statement are irrelevant to a
consideration of the subject matter of the proposal, such that there is a strong
likelihood that a reasonable shareholder would be uncertain as to the matter on
which she is being asked to vote."
The supporting statement is vague and misleading because it creates ambiguity
over what exactly the Proposal addresses or how the Proposal operates.
Specifically, the supporting statement creates confusion between whether the
Proposal is designed to address non-employee director compensation or CEO
compensation, and uses inflammatory language and innuendo without establishing
any relation between the statements and the operation of the Proposal. In
Exxon-Mobil Corp. (avail. Mar. 27, 2002), the Staff concurred that an
inflammatory statement in the supporting statement regarding a survey on
undisclosed environmental liabilities among surveyed companies could be excluded
under 14a-8(i)(3) because it was irrelevant to the subject matter of the
proposal.
As discussed above, the Proposal calls for disclosure of and a vote on
non-employee director compensation. The supporting statement asserts, "There is
evidence that directors who enjoy high director compensation are more likely to
pay excessive CEO compensation and that high director pay coupled with high CEO
pay correlates with underperformance of the company." However, the supporting
statement does not assert that Wells Fargo's non-employee director compensation
is "high" and in fact does not provide any factual information regarding the
level of Wells Fargo's non-employee director compensation. Instead, the rest of
the supporting statement addresses the rise of executive compensation in general
and the level of Wells Fargo's CEO's compensation.
The Proposal and supporting statement do not identify how the information about
CEO compensation cited in the supporting statement is to be used by the
shareholders or the Board in connection with their consideration or
implementation of a proposal that would establish a referendum on non-employee
director compensation.2 If the Proponents are trying to lead shareholders to
think that increasing their say in the determination of non-employee director
compensation will reduce the compensation being paid to Wells Fargo's CEO, the
Proposal does not establish how that interaction is to occur: do the Proponents
mean to imply that there is an automatic correlation that works both ways (if
high directors' compensation is associated with high executive compensation,
then lowering the former will automatically affect the latter), or are
non-employee directors somehow supposed to be able to interpret a positive or
negative vote on their own compensation as reflecting approval or disapproval
with just one aspect of their responsibilitiessetting CEO compensation? The
Proposal and supporting statement simply use statements regarding the CEO's
compensation to confuse readers over the subject of the Proposal and the manner
in which it will operate and to seek to rally support for the Proposal, without
establishing a viable connection between the statistics and studies on CEO
compensation and the substance of the Proposal, non-employee director
compensation.
The supporting statement's discussion of an alleged link between excessive CEO
compensation and compensation paid to directors also magnifies the ambiguities
as to how the Proposal would operate, if adopted. As such, the supporting
statement's extensive discussion of CEO compensation results in confusion as to
what shareholders would be voting on and what Wells Fargo would need to do in
implementing the Proposal, if adopted. There are numerous precedents that allow
the exclusion of supporting statements (or portions thereof) that are unrelated
to the primary subject of the Proposal, in particular as such statements may be
misleading in violation of Rule 14a-9. For example, the Proposal is similar to
one that was considered by the Staff in General Motors Corp. (avail. Feb. 21,
2004). In General Motors, the Staff concurred that a supporting statement that
related to the proponent's prior year's proposal (addressing the ability to vote
"against" director nominees), could be omitted from a proposal asking the
company to limit certain forms of executive compensation, because the supporting
statement was not relevant to the issue set forth in the proposal. Accordingly,
if the Staff does not concur that the Proposal is excludable in its entirety as
being vague and indefinite, Wells Fargo asks that it be permitted to exclude the
supporting statement contained in the Proposal on the bases that it is
irrelevant to the Proposal and creates confusion as to the operation of the
Proposal, and thus will only increase the ambiguity for shareholders as to what
they are voting on.
The Proposal Contains False and Misleading Statements
SLB 14B also states that it may be appropriate to exclude or modify a supporting
statement where "statements directly or indirectly impugn character, integrity,
or personal reputation, or directly or indirectly make charges concerning
improper, illegal, or immoral conduct or association, without factual
foundation." See also, Note (b) to Rule 14a-9. The Staff has granted relief in
the past where a statement impugned the character, integrity or personal
reputation of directors and management without factual foundation. See The
Boeing Co. (avail. Feb. 26, 2003) (directing the proponent to delete the
statement that "[t]here is no evidence that our management located any of the
numerous reports that support this shareholder proposal topic," among others,
based, in part, on the company's argument that the statement was misleading,
irrelevant and indirectly impugned the character of the board); First Energy
Corp. (avail. Feb. 23, 2004) (instructing the proponent to delete "[c]ompany
officials may, in fact, be funding groups and candidates whose agendas are
antithetical to the interests of it, its shareholders and its stakeholders"
based on the argument that the statement impugned the character and reputation
of the company's board and executives); General Electric Co. (avail. Jan. 25,
2004) (instructing the proponent to delete statements based on the argument that
the statements impugned the character of the company's board and management);
Alaska Air Group, Inc. (avail. Mar. 14, 2003) (instructing the proponent to
delete "[a]lthough Delaware law allows some flexibility our company requires an
80%-yes vote from all shares in existence to adopt this proposal topic" based,
in part, on the company's argument that the statement impugned the integrity of
the company and its officers and directors); and Honeywell Int'l, Inc. (avail.
Jan. 15, 2003) (directing the proponent to delete multiple statements from his
proposal based on the company's argument that such statements impugned the
character and integrity of the company's board).
As described below, certain statements in the supporting statement imply
improper, unethical and possibly illegal conduct and impugn the character and
integrity of Wells Fargo's non-employee directors. Because these inflammatory
statements have no factual foundation and are presented in an inflammatory and
potentially misleading manner, they are in violation of Rule 14a-8(i)(3) and
Rule 14a-9.
It is materially false and misleading for the Proponents to imply that Wells
Fargo's non-employee directors engaged in improper and unethical behavior by
linking general criticisms of CEO compensation to the Board's compensation
practices. The supporting statement asserts "[w]e believe that any board that
pays excessive CEO compensation fails in one of its most important duties" and
"[w]e believe that many employees regard excessive CEO compensation as a breach
of trust and demeaning of their value as employees and human beings." Clearly,
if these phrases were referring specifically to Wells Fargo's Board, they would
"directly ... impugn character, integrity, or personal reputation, or directly
... make charges concerning improper, illegal, or immoral conduct ... without
factual foundation." The fact that they are stated as opinions or belief does
not render the statements unobjectionable, and the fact that they do not
directly refer to members of the Wells Fargo Board means only that the
Proponents are trying to do indirectly what would clearly be prohibited if done
directly, or that the statements are "irrelevant to a consideration of the
subject matter of the proposal" within the meaning of SLB 14B. See Exxon-Mobil
Corp. (avail. Mar. 27, 2002) (permitting omission of a reference to a survey
that either was irrelevant or inflammatory).
In addition, the statement "[t]here are indications that our board has not paid
sufficient attention to CEO compensation" is likewise an unfounded and
unsubstantiated disparaging statement. The quoted sentence is followed only by
statements asserting that Wells Fargo's CEO pay is high and is not correlated to
shareholder returns. While Wells Fargo disagrees with the characterization of
its CEO pay and performance, whether one agrees with them or not, they simply do
not establish any basis for the statement alleging that the Board has not paid
sufficient attention to CEO compensation. In this respect, the statement is
similar to one that the Staff concurred could be excluded in Electronic Data
Systems Corp. (avail. Mar. 11, 1999). There, the Staff concurred that the
statement, "[t]here is evidence the EDS Board considered Mr. Alberthal
mediocre," followed by a citation to a newspaper article, was improper under
Rule 14a-9, and thus could be excluded from the proposal.
Accordingly, Wells Fargo requests the Staff's concurrence that it may omit the
foregoing three sentences from the supporting statement. Wells Fargo
respectfully requests that the Staff should not give the Proponents an
opportunity to revise the Proposal to adequately address the numerous Rule
14a-8(i)(3) problems discussed above, because such revisions would require
detailed and extensive editing and would result in a new proposal that is so
fundamentally different from the Proposal as to constitute a new proposal, which
would not have been submitted by the Proponents to Wells Fargo by November 17,
2005 (the deadline for inclusion in Wells Fargo's Proxy Materials for its 2006
Annual Meeting as established by Rule 14a-8(e)).
Exclusion of the Proposal and Supporting Statement under Rules 14a-8(i)(3) and
14a-8(i)(6)
For all of the reasons set forth above, Wells Fargo intends to omit the
Proponents' Proposal from its Proxy Materials for its 2006 Annual Meeting. Wells
Fargo respectfully requests that the Staff concur with its conclusion that it
may properly exclude the Proposal and indicate that it will not recommend
enforcement action to the Commission if it excludes the Proposal in its entirety
from its Proxy Materials for the 2006 Annual Meeting pursuant to Rules
14a-8(i)(3) and 14a-8(i)(6). Alternatively, if the Staff does not concur that
the Proposal can be omitted in its entirety, Wells Fargo requests the Staff to
concur with its conclusion that all or parts of the supporting statement may be
omitted under Rule 14a-8(i)(3).
Exclusion of Co-Filer for Failure to Demonstrate Beneficial Ownership
As noted above, Wells Fargo also received the Proposal from a number of
co-filers, including the Congregation of the Holy Cross, Southern Province (the
"Congregation"). Rule 14a-8(f) provides that a company may exclude a shareholder
proposal if the proponent fails within 14 days of receiving a proper notice of
deficiency to provide evidence that he or she has satisfied the beneficial
ownership requirements of Rule 14a-8(b). Rule 14a-8(b)(1) provides, in part,
that "[in] order to be eligible to submit a proposal, [a shareholder] must have
continuously held at least $2,000 in market value, or 1%, of the company's
securities entitled to be voted on the proposal at the meeting for at least one
year by the date [the shareholder submits] the proposal." Wells Fargo received
the Proposal from the Congregation on November 16, 2005. Within 14 days, on
November 25, 2005, Wells Fargo sent the Congregation a letter by overnight
delivery and by facsimile, requesting that it document its eligibility to submit
the Proposal under Rule 14a-8(b). A copy of the correspondence with the
Congregation is attached to this letter as Exhibit B.
Wells Fargo strictly complied with the procedural requirements for delivering a
notice of deficiency under Rule 14a-8 and with the standards set forth in SLB
14B. Within 14 days of Wells Fargo's receipt of the Proposal, Wells Fargo
delivered to the Congregation its November 25thletter, which clearly stated
(1) the ownership requirements of Rule 14a-8(b)(1); (2) that further
documentation from the Congregation's broker would be necessary to clarify that
the Congregation continuously held $2,000 in market value of Wells Fargo common
stock for at least one year as of the date the Congregation submitted his
proposal; and (3) that the Congregation's response had to be postmarked within
14 days after its receipt of Wells Fargo's letter. Notwithstanding the
foregoing, the Congregation did not provide proof of beneficial ownership
satisfying the requirements of Rule 14a-8(b) within 14 days of its receipt of
Wells Fargo's notice of deficiency. Accordingly, Wells Fargo believes that it
may exclude the Congregation as a co-filer of the Proposal under Rule
14a-8(f)(1).
* * *
For all of the reasons set forth above, Wells Fargo intends to omit the
Proponents' Proposal from its Proxy Materials for its 2006 Annual Meeting. Wells
Fargo respectfully requests that the Staff concur with its conclusion that it
may properly exclude the Proposal and indicate that it will not recommend
enforcement action to the Commission if it excludes the Proposal in its entirety
from its Proxy Materials for the 2006 Annual Meeting.
If the Staff has any questions regarding this request or requires additional
information, please do not hesitate to contact the undersigned at (612) 667-4652
or Mary E. Schaffner at (612) 667-2367. If the Staff is unable to concur with
Wells Fargo's conclusions with respect to the excludability of the Proposal,
Wells Fargo respectfully requests the opportunity to discuss the Proposal with
members of the Staff prior to the issuance of any written responses.
Very truly yours,
/s/
Kerri L. Klemz
Senior Counsel
cc: Mr. Theodore F. Zimmer The Catholic Funds
Dr. Donna Meyer CHRISTUS Health
Jerry Gabert Unitarian Universalist Association of Congregations
Rose Marie Stallbaumer Benedictine Sisters of Mount St. Scholastica
Thomas G. Krieter Congregation of the Holy Cross, Southern Province
-----FOOTNOTES-----
1 Moreover, the Proponent is clearly familiar with Staff interpretations on this
issue, because in the 2005 Proposal the Proponent did define the terms
"Compensation" and "Non-Managerial Workers" and he gave a method for valuing
stock options (i.e. "grant-date present value"), as such terms were critical to
understand the operation of the 2005 Proposal.
2 If the amount of compensation paid to the CEO is intended to be the subject of
the Proposal (as it was in the 2005 Proposal submitted by the Proponent for last
year's proxy statement), the Proponent should not be able to cover that same
issue again in the Proxy Materials for the 2006 Annual Meeting under the guise
of a proposal that focuses on non-employce director compensation. In this
respect, one of the Proponents recently stated in The Friday Report\TM/
published by Institutional Shareholder Services on December 9,2005, "[w]e have
picked [Wells Fargo] as a way to get at executive compensation, particularly for
the CEO."
[INQUIRY LETTER]
BY FEDERAL EXPRESS OVERNIGHT
November 11, 2005
Laurel A. Holschuh
MAC #N9305-173
Wells Fargo & Co.
Sixth & Marquette
Minneapolis, MN 55479
Re: Shareholder Proposal for 2006 Annual Meeting
Dear Ms. Holschuh:
The Catholic Equity Fund (a component of The Catholic Funds, Inc.) is a mutual
fund that seeks to advocate for certain values espoused by Catholic social
teaching. We emphasize these three areas:
1. Preserving and promoting human dignity, especially in the workplace;
2. Promoting fair but not excessive executive compensation;
3. Promoting effective oversight by boards of directors.
As president of the Catholic Equity Fund, I submit the enclosed Directors
Compensation proposal for inclusion in the proxy statement for the annual
meeting in accordance with Rule 14a-8 of the General Rules and Regulations of
the Securities Act of 1934. The Fund is acting as the primary filer of this
resolution, which we expect will be co-filed by others. One or more
representatives of the filing shareholders will be present at the annual meeting
to introduce the proposal.
The Catholic Equity Fund is the beneficial owner of shares of the company's
common stock having a value in excess of $2,000, has owned this stock for more
than a year, and intends to continue to hold this stock through the date of the
annual meeting. A verification of ownership will follow shortly.
Sincerely,
/s/
Theodore F. Zimmer
President
Encl.
The Catholic Church has not sponsored or endorsed The Catholic Funds nor
disaoved of the Funds as an investment.
[INQUIRY LETTER]
November 11, 2005
Laurel A. Holschuh
MAC #N9305-173
Wells Fargo & Co.
Sixth & Marquette
Minneapolis, MN 55479
Dear Ms. Holschuh:
CHRISTUS Health, as a faith-based investor, looks for social and environmental
as well as financial accountability in its investments. We are particularly
concerned about the fairness of the levels of compensation among the people
employed in our companies.
Therefore. I am authorized to notify you of our intention to co-file the
enclosed resolution, for presentation, consideration and action by the
stockholders at the next annual meeting. We are filing in support of the
resolution sponsored by the Catholic Equity Fund. We hereby support its
inclusion in the proxy statement in accordance with Rule 14a-8 of the General
Rules and Regulations of the Securities Exchange Act of 1934.
Our portfolio custodian will send you a letter verifying that we are beneficial
owners of at least $2,000 worth of common stock in Wells Fargo. It is our
intention to keep shares in our portfolio at least until after the annual
meeting.
We hope our company will have acted positively by the time the proxy statement
comes due at the printer so that this resolution will prove unnecessary. We
would urge you to contact Mr. Theodore F. Zimmer. President of The Catholic
Funds, Inc., which includes the Catholic Equity Fund, if you believe that
dialogue might be helpful. His telephone number is (414) 278-6490 or he can be
reached by email at ted.zimmer@catholicknights.org.
Yours truly,
/s/
Donna Meyer, Ph.D.
System DirectorCHRISTUS Health
DM:tp
Encl.
cc: Theodore F. Zimmer, Gary Brouse, Julie Wokaty, Sr. Susan Mika
[INQUIRY LETTER]
November 15, 2005
Laurel A. Holschuh
MAC #N9305-173
Wells Fargo & Co.
Sixth & Marquette
Minneapolis, MN 55479
Re: Shareholder Proposal for 2006 Annual Meeting
Dear Ms. Holschuh:
The Benedictine Sisters of Mount St. Scholastica seek to advocate for certain
values espoused by Catholic social teaching. We emphasize these three areas:
1. Preserving and promoting human dignity, especially in the workplace;
2. Promoting fair but not excessive executive compensation;
3. Promoting effective oversight by boards of directors.
As a representative of the Benedictine Sisters of Mount St. Scholastica, I
submit the enclosed Directors Compensation proposal for inclusion in the proxy
statement for the annual meeting in accordance with Rule 14a-8 of the General
Rules and Regulations of the Securities Act of 1934. The Benedictine Sisters of
Mount St. Scholastica are acting as a co-filer of this resolution, please feel
free to contact Theodore Zimmer with Catholic Equity fund at 414-278-6490. One
or more representatives of the filing shareholders will be present at the annual
meeting to introduce the proposal.
The Benedictine Sisters of Mount St. Scholastica are the beneficial owner of
shares of the company's common stock having a value in excess of $2,000. have
owned this stock for more than a year, and intend to continue to hold this stock
through the date of the annual meeting. A verification of ownership will follow
shortly.
Sincerely,
/s/
Rose Marie Stallbaumer, OSB
Treasurer, Mount St. Scholastica
Encl.
The Catholic Church has not sponsored or endorsed The Catholie Funds nor
approved or disapproved of the Funds as an investment.
[INQUIRY LETTER]
November 15, 2005
Laurel A. Holschuh
MAC #N9305-173
Wells Fargo & Co.
Sixth & Marquette
Minneapolis, MN 55479
Re: Shareholder Proposal for 2006 Annual Meeting
Dear Ms. Holschuh:
The Congregation of Holy Cross, Southern Province seeks to advocate for certain
values espoused by Catholic social teaching. We emphasize these three areas:
1. Preserving and promoting human dignity, especially in the workplace;
2. Promoting fair but not excessive executive compensation;
3. Promoting effective oversight by boards of directors.
As a representative of the Congregation of Holy Cross, Southern Province, I
submit the enclosed Directors Compensation proposal for inclusion in the proxy
statement for the annual meeting in accordance with Rule 14a-8 of the General
Rules and Regulations of the Securities Act of 1934. The Congregation of Holy
Cross, Southern Province is acting as the a co-filer of this resolution, please
feel free to contact Theodore Zimmer with Catholic Equity fund at 414-278-6490.
One or more representatives of the filing shareholders will be present at the
annual meeting to introduce the proposal.
The Congregation of Holy Cross, Southern Province is the beneficial owner of 160
shares of the company's common stock, has owned this stock for more than a year,
and intends to continue to hold this stock through the date of the annual
meeting. A verification of ownership will follow shortly from Frost Investment
Services.
Sincerely,
/s/
Bro. Thomas G. Krieter, C.S.C.
Provincial Steward
Cc: Gary BrouseICCR
Nadera NarineICCR
Theodore ZimmerPrimary Filer
Sr. Susan MikaSRIC
[INQUIRY LETTER]
November 15, 2005
Laurel A. Holschuh
MAC #N9305-173
Wells Fargo & Co.
Sixth & Marquette
Minneapolis, MN 55479
Re: Shareholder Proposal for 2006 Annual Meeting
Dear Ms. Holschuh:
The Congregation of Holy Cross, Southern Province seeks to advocate for certain
values espoused by Catholic social teaching. We emphasize these three areas:
1. Preserving and promoting human dignity, especially in the workplace;
2. Promoting fair but not excessive executive compensation;
3. Promoting effective oversight by boards of directors.
As a representative of the Congregation of Holy Cross, Southern Province, I
submit the enclosed Directors Compensation proposal for inclusion in the proxy
statement for the annual meeting in accordance with Rule 14a-8 of the General
Rules and Regulations of the Securities Act of 1934. The Congregation of Holy
Cross, Southern Province is acting as the a co-filer of this resolution, please
feel free to contact Theodore Zimmer with Catholic Equity fund at 414-278-6490.
One or more representatives of the filing shareholders will be present at the
annual meeting to introduce the proposal.
The Congregation of Holy Cross, Southern Province is the beneficial owner of 160
shares of the company's common stock, has owned this stock for more than a year,
and intends to continue to hold this stock through the date of the annual
meeting. A verification of ownership will follow shortly from Frost Investment
Services.
Sincerely,
/s/
Bro. Thomas G. Krieter, C.S.C.
Provincial Steward
Cc: Gary BrouseICCR
Nadera NarineICCR
Theodore ZimmerPrimary Filer
Sr. Susan MikaSRIC
[APPENDIX]
DIRECTOR COMPENSATIONWells Fargo
WHEREAS:
Excessive CEO pay is now a matter of national concern and debate. We believe
that any board that pays excessive CEO compensation fails in one of its most
important duties. There is evidence that directors who enjoy high director
compensation are more likely to pay excessive CEO compensation and that high
director pay coupled with high CEO pay correlates with underperformance of the
company. (Note 1) We believe that many employees regard excessive CEO
compensation as a breach of trust and demeaning of their value as employees and
human beings. We believe that directors who recommend excessive CEO pay packages
should be held accountable. One way to do this is to allow shareholders to vote
on the directors' compensation.
There are indications that our board has not paid sufficient attention to CEO
compensation:
1. In 2004, the CEO's total compensation was $29.7 million or $52.1 million,
depending on whether total compensation includes the value of options granted in
2004 or instead gains from the exercise of stock options in 2004. (Note 2) The
average total compensation for CEOs of 367 leading corporations was $11.8
million. (Note 3.)
2. Evaluating CEO pay relative to shareholder return on a scale of one to five,
Business Week rated the company a one, the worst rating. (Note 4)
3. Forbes ranked the company 138thworst out 189 companies in its measure of
CEO performance versus CEO pay. (Note 5)
RESOLVED, the shareholders request the the following of the board:
1. Annually ask the shareholders to approve every future compensation package
for non-employee directors, excluding any element to which the company is
contractually bound as of the end of the 2006 annual meeting.
2. In its submission, identify every benefit and perquisite of serving as a
director that involves an expenditure or use of company assets, including
contributions to charities of particular interest to the director.
3. If the package receives at least half of the shareholder votes cast, make the
package effective as of the effective date specified in the submission. If the
package fails to receive at least half of the shareholder votes cast, leave the
existing non-employee director compensation package in effect until the
shareholders approve a different one.
NOTES
1. See Lucian Bebchuk and Jesse Fried, Pay Without Performance: The Unfulfilled
Promise of Executive Compensation, Harvard University Press (2004), and Ivan E
Brick, Oded Palmon, and John K. Wald, CEO Compensation, Director Compensation,
and Firm Performance: Evidence of Cronyism?,
http://www.personal.psu.edu/faculty/j/k/jkw10/jcf_052705.pdf. (May 25, 2005).
2. 2005 Proxy Statement
3. Sarah Anderson et al., Executive Excess 200512thAnnual CEO Compensation
Survey, http://www.faireconomy.org/press/2005/EE2005_pr.html (total includes
options exercised but not options granted).
4. Business Week, April 18, 2005.
5. Forbes, http://www.forbes.com/static/execpay2005/efficiency_126.html.
[INQUIRY LETTER]
January 31, 2006
Securities & Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Att: Mark Vilardo, Esq.
Office of the Chief Counsel
Division of Corporation Finance
Re: Shareholder Proposal Submitted to Wells Fargo & Company
Via fax 202-772-9201
Dear Sir/Madam:
I have been asked by The Catholic Equity Fund, Christus Health, the Benedictine
Sisters of Mount St. Scholastica, the Congregation of the Holy Cross (Southern
Province) and the Unitarian Universalist Association of Congregations (which are
hereinafter referred to collectively as the "Proponents"), each of which is the
beneficial owner of shares of common stock of Wells Fargo & Company (hereinafter
referred to either as "Wells Fargo" or the "Company"), and which have jointly
submitted a shareholder proposal to Wells Fargo, to respond to the letter dated
December 27, 2005, sent to the Securities & Exchange Commission by the Company,
in which Wells Fargo contends that the Proponent's shareholder proposal may be
excluded from the Company's year 2006 proxy statement by virtue of Rules
14a-8(i)(3) and 14a-8(i)(6).
I have reviewed the Proponent's shareholder proposal, as well as the aforesaid
letter sent by the Company, and based upon the foregoing, as well as upon a
review of Rule 14a-8, it is my opinion that the Proponents' shareholder proposal
must be included in Wells Fargo's year 2006 proxy statement and that it is not
excludable by virtue of either of the cited rules.
The proposal requests the Company to institute a program of shareholder
ratification of the compensation package for directors.
RULES 14a-8(i)(3) and 14a-8(i)(6) (Proposal Vague and Indefinite)
Frankly, the Company's arguments seem like make-weights.
First Clause of Proposal
In its first bullet paragraph, Wells Fargo Claims that the phrase "future
compensation package" would not be understood by the shareholders or directors.
This seems absurd on its face. (See, for example, the proposed Director
Compensation Table in Rel 33-8655 (January 27, 2006).) What part of the phrase
don't you understand? The word "future"? The word "compensation"? Or the word
"package"? (Incidentally, the latter is used by the Commission itself three
times in its recent Compensation Reform Release 33-8655 (January 27, 2006) (See
pages 70 and 86-87.) Does somehow putting these three unambiguous words together
in one sentence make them ambiguous so that directors would be unable to
implement the proposal and shareholders would not know what they are voting on?
We submit that the Company has vastly underestimated the intelligence of its
directors and shareholders.
Items (i) thru (iv) certainly sound like a "package" to me.
As for the Company's second and third bullets, "future" means "future". If the
Company is unable to understand this term, we submit that it will be unable to
comply with the proposed new compensation disclosure proposed by Rel. 33-8655
(where the term appears 20 times, and the phrase "future compensation" appears
three times). If the Company is not already contractually bound (see phrase at
the end of the first RESOLVE provision), it would simply have to submit to
shareholder vote all the compensation, in whatever form, that it will award for
the ensuing year for whatever duties (including committees) are to be performed.
Second Clause of Proposal
We are shocked to learn that the Company cannot understand the phrase "every
benefit and perquisite", since it therefore will not only be unable to comply
with the proposed disclosure of director compensation in Rel. 33-8655 (January
27, 2006), which calls for disclosure of "all perquisites and other personal
benefits' over $10,000 (see p. 88), but apparently is confessing that it has
been failing to comply with the securities laws for years since the existing
rules on executive compensation already require disclosure of "perquisites and
other personal benefits". See Regulation S-K, item 402(b)(2)(iii)(C)(1).
Third Clause of Proposal
Why can't the Company understand the phrase "at least half of the shareholder
votes cast"? If the term "at least half" is, in the Company's view, ambiguous we
suggest again that the Company has vastly underestimated the intelligence of its
directors and shareholders. The Company's remaining two bullets are deserving of
no greater respect. For example, in the first bullet, it is reconciled because
the package was, in fact voted on (even if voted down).
In short, the Proponents believe that the Company has been wasting the
shareholder's money by making frivolous arguments unworthy of one of the finest
banking institutions in the country. (And we note that none of the other seven
companies that received similar shareholder proposals have seen fit to act
similarly.)
RULE 14a-8(i)(3) (Vague and Misleading)
We are confident that the Staff will have more success than the Company in
seeing the relevance of the Whereas Clause to the Resolve Clause. In essence,
the Proponents argue that the Company's Board has overpaid the CEO; that there
is evidence that high director compensation correlates with overpaying the CEO;
and that one remedy for controlling CEO compensation is to give the shareholders
control of director compensation. Incidentally this appears to be analogous to
the rational for the SEC's recent proposal that director compensation be more
fully disclosed. Whether the Company thinks this is a good idea, or that the
goal might be achieved more directly by giving the shareholders control of the
CEO's salary, is really quite irrelevant to the question of whether the Whereas
Clause is unrelated to the Resolve Clause.
Another way to analyze the relationship between the Whereas Clause and the
Resolve Clause is that if the premise is correct, namely that the Board has
failed to exercise proper oversight on behalf of the shareholders, then an
appropriate corrective would be for the shareholders to hold the Board's feet to
the fire by giving the shareholders the ability to set the directors pay in
accordance with their (poor) performance.
RULE 14a-8(i)(3) (False and Misleading Statements)
Although the Company refers to Staff Legal Bulletin 14B (September 15, 2004), it
apparently failed to read that Bulletin in its entirety. Section B.4., entitled
"Clarification of our views regarding the application of rule 14a-8(i)(3)" the
Staff clearly states:
Accordingly going forward, we believe that it would not be appropriate for
companies to exclude supporting statement language and/or the entire proposal in
reliance on rule 14a-8(i)(3) in the following circumstances:
....
.the company objects to factual assertions that, while not materially false or
misleading, may be disputed or countered;
.the company objects to factual assertions because those assertions may be
interpreted by shareholders in a manner that is unfavorable to the company, its
directors, or its officers; and/or
.the company objects to statements because they represent the opinion of the
shareholder proponent or a referenced source, but the statements are not
identified as such.
We submit that each and every objection by the Company falls squarely within
these enumerated circumstances (and that each no-action letter cited by the
Company predates the Staff Legal Bulletin).
In conclusion, we request the Staff to inform the Company that the SEC proxy
rules require denial of the Company's no action request. We would appreciate
your telephoning the undersigned at 941-349-6164 with respect to any questions
in connection with this matter or if the staff wishes any further information.
Faxes can be received at the same number. Please also note that the undersigned
may be reached by mail or express delivery at the letterhead address (or via the
email address).
Very truly yours,
/s/
Paul M. Neuhauser
Attorney at Law
cc: Kerri L. Klemz, Esq.
Proponents
Sister Pat Wolf
[STAFF REPLY LETTER]
February 23, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Wells Fargo & Company Incoming letter dated December 27, 2005
The proposal requests the board ask shareholders to approve every future
compensation package, identify every perquisite and benefit that involves an
expenditure of company assets, including contributions to charities of
particular interest to directors, and to make compensation packages effective if
they receive half of the shareholder vote.
We are unable to concur in your view that Wells Fargo may exclude the proposal
or portions of the supporting statement under rule 14a-8(i)(3). Accordingly, we
do not believe that Wells Fargo may omit the proposal or portions of the
supporting statement from it proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Wells Fargo may exclude the proposal
under rule 14a-8(i)(6). Accordingly, we do not believe that Wells Faro may omit
the proposal from its proxy materials in reliance on rule 14a-8(i)(6).
There appears to be some basis for your view that Wells Fargo may exclude the
Congregation of the Holy Cross, Southern Province as a co-proponent under rule
14a-8(f). We note that the proponent appears not to have responded to Wells
Fargo's request for documentary support indicating that the proponent has
satisfied the minimum ownership requirement for the one-year period required by
rule 14a-8(b). Accordingly, we will not recommend enforcement action to the
Commission if Wells Fargo omits the Congregation of the Holy Cross, Southern
Province as a co-proponent of the proposal in reliance on rules 14a-8(b) and
14a-8(f).
Sincerely,
/s/
Ted Yu
Special Counsel
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