Company Name: Wells Fargo & Co. (SEIU Master Trust)
Public Availability Date: February 16, 2006
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA FEDERAL EXPRESS
December 23, 2005
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
RE: Wells Fargo & Company - Stockholder Proposal Submitted by SEIU Master Trust
and Trillium Asset Management Corporation
Ladies and Gentlemen:
Pursuant to Rule 14a-8(j) of the Securities Exchange Act of 1934, as amended
(the "Act"), Wells Fargo & Company ("Wells Fargo") hereby gives notice of its
intention to omit from its proxy statement and form of proxy for the Wells Fargo
2006 annual meeting of stockholders (collectively, the "2006 Proxy Materials"),
in reliance on Rule 14a-8(i)(7), a proposal (the "Proposal") submitted by SEIU
Master Trust and Trillium Asset Management Corporation (the "Proponents").
On November 16, 2005, the Company received the Proposal and a related supporting
statement (the "Supporting Statement"). In summary, the Proposal requests that
the Company prepare a report to stockholders by October 2006 on the effect on
Wells Fargo's business strategy of the challenges created by global climate
change. The text of the Proposal and the Supporting Statement are attached to
this letter as Exhibit A. As used in this letter, the term "Proposal" means
collectively, the Proposal and the Supporting Statement.
Wells Fargo hereby notifies the Securities and Exchange Commission (the
"Commission") that it intends to omit the Proposal from its 2006 Proxy Materials
pursuant to Rule 14a-8(j) on the grounds that the Proposal deals with a matter
relating to the conduct of Wells Fargo's ordinary business operations. We
respectfully request confirmation that the staff of the Division of Corporation
Finance (the "Staff") of the Commission will not recommend enforcement action if
Wells Fargo omits the Proposal from the 2006 Proxy Materials in reliance on Rule
14a-8(i)(7) for the reasons stated herein.
Wells Fargo expects to file its definitive 2006 Proxy Materials pursuant to Rule
14a-6(b) of the Act on or about March 17, 2006. Accordingly, pursuant to Rule
14a-8(j), Wells Fargo is submitting its reasons for omitting the Proposal more
than 80 calendar days before filing its definitive 2006 Proxy Materials with the
Commission.
The Proposal
The Proposal requests that "the Board of Directors report to shareholders by
October 2006 on the effect on [Wells Fargo's] business strategy of the
challenges created by global climate change." The Proposal states that "the
report should include, but need not be limited to, a discussion of the effects
of (a) rising public and regulatory pressures to limit the emission of
greenhouse gases, and (b) anticipated changes to our physical environment." The
Proposal also provides that the "report should be prepared at reasonable cost
and omit proprietary information."
Discussion
As set forth more fully below, Wells Fargo believes that it may properly omit
the Proposal from its 2006 Proxy Materials pursuant to Rule 14a-8(i)(7) because
the Proposal deals with a matter relating to the conduct of Wells Fargo's
ordinary business operations.
Rule 14a-8(i)(7) permits the exclusion of a stockholder proposal from a
company's proxy statement if it deals with a matter relating to the company's
ordinary business operations. In SEC Release No. 34-40018, the Commission stated
that the policy underlying this 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." SEC Release No. 34-40018 (May 21, 1998). The Commission
stated that this policy rests on two central considerations. The first is the
subject matter of the proposal. In this regard, the Commission said 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." Id. 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. Id.
In Wells Fargo's view, the Proposal fits squarely within the category of
proposals that the Commission intended to permit companies to exclude under Rule
14a-8(i)(7). As to the first consideration, the subject matter of the Proposal
deals with tasks that are part of management's day-to-day activities. The scope
of the assessment requested by the Proposal necessarily involves an evaluation
of numerous risks relating to Wells Fargo's business. Evaluation of risks is
clearly part of Wells Fargo's ordinary business operations. For example, Wells
Fargo's credit evaluation process involves an assessment of financial and
non-financial risk factors affecting credit applicants, including the geographic
and physical environments in which our customers and prospects conduct their
business activities. This assessment process is conducted by Wells Fargo as part
of its daily operations, and is incorporated into its credit standards, policies
and procedures, loan pricing policies and loan loss reserves. The evaluation of
risk also plays a part in the context of the various financial performance
metrics that Wells Fargo utilizes in its daily lending activities, including
risk adjusted return on capital, which measures returns in relation to the risks
taken. In addition, the Proposal's requirement that the report include a
discussion of the effects of "rising public and regulatory pressures to limit
the emission of greenhouse gases" also deals with ordinary business activities,
including Wells Fargo's compliance function and its processes for evaluating
reputational risks.
With respect to the second consideration, the degree to which the proposal seeks
to "micro-manage" the company, it is important to put the Proposal into
perspective as it relates to Wells Fargo's business. Wells Fargo is a
diversified financial services company, providing banking, insurance,
investment, mortgage, and consumer finance services through stores, the internet
and other distribution channels across North America and elsewhere
internationally. As of September 30, 2005, Wells Fargo ranked fifth in assets
and fourth in market value of its stock among its peers. Due to Wells Fargo's
size and decentralized structure, any assessment of the effects of global
climate change on Wells Fargo as a whole would be a task of tremendous scope
that would require the company to engage in a detailed analysis across numerous
business lines. In essence, the Proposal focuses on matters that involve Wells
Fargo's fundamental day-to-day business activities and would require Wells Fargo
to provide a detailed report that, in effect, summarizes Wells Fargo's ordinary
business operations. Thus, Wells Fargo believes that the Proposal is precisely
the type of report involving ordinary business activities noted by the
Commission in Exchange Act Release No. 34-40018 as falling within the ordinary
business exclusion.
The fact that a proposal relates to ordinary business matters does not
conclusively establish that a company may exclude the proposal from its proxy
materials. Proposals that relate to ordinary business matters but that focus on
"sufficiently significant social policy issues ... would not be considered to be
excludable, because the proposals would transcend the day-to-day business
matters...." Release No. 34-40018. In Staff Legal Bulletin No. 14C, the staff
explained its method for determining whether a proposal addressing environmental
or public health questions focuses on significant social policy issues:
To the extent that a proposal and supporting statement focus on the company
engaging in an internal assessment of the risks or liabilities that the company
faces as a result of its operations that may adversely affect the environment or
the public's health, we concur with the company's view that there is a basis for
it to exclude the proposal under rule 14a-8(i)(7) as relating to an evaluation
of risk. To the extent that a proposal and supporting statement focus on the
company minimizing or eliminating operations that may adversely affect the
environment or the public's health, we do not concur with the company's view
that there is a basis for it to exclude the proposal under rule 14a-8(i)(7).
Staff Legal Bulletin No. 14C (June 28, 2005).
The Proposal is similar to the first category described by the Staff. The
Proposal essentially requests an assessment of the risks and liabilities Wells
Fargo faces as a result of changes in the environment. Moreover, the Proposal
does not in any way focus on Wells Fargo minimizing or eliminating operations
that may affect the environment. Therefore, Wells Fargo believes that the
Proposal is of the type where the Staff generally concurs with the company's
view that there is a basis for exclusion under Rule 14a-8(i)(7).
There is precedent precisely on point that the Proposal falls within the
considerations underlying ordinary business exclusion and does not focus on
significant social policy issues. In Wachovia Corporation (publicly availably
January 28, 2005) the staff ruled that Wachovia Corporation could "exclude [a]
proposal under rule 14a-8(i)(7) as relating to Wachovia's ordinary business
operations (i.e., evaluation of risk)." The Wachovia proposal is identical to
the Proposal. Indeed, one of the Proponents was the proponent of the Wachovia
proposal. Wells Fargo and Wachovia operate in the same industry, providing a
wide variety of financial services to their customers. Just as in Wachovia,
Wells Fargo evaluates the effects of global climate change as part of its daily
operations and the report requested by the Proposal would necessarily relate to
a number of ordinary business activities of Wells Fargo. Accordingly, the
analysis relied on by the Staff in the Wachovia letter to exclude that proposal
applies in all respects to the Proposal and clearly supports the conclusion that
the Proposal may be excluded pursuant to Rule 14a-8(i)(7).
As noted in Wachovia, the Proposal is also similar to a number of other
proposals regarding the evaluation of risks of climate change that the Staff has
stated relates to ordinary business operations and thus may be excluded under
Rule 14a-8(i)(7). For example, in American International Group, Inc. (publicly
available February 11, 2004), the Staff ruled that a proposal requesting the
board to prepare a report providing a comprehensive assessment of the company's
strategies to address the impacts of climate change on its business related to
the company's ordinary business operations. See also The Chubb Corporation
(publicly available January 25, 2004) (identical proposal regarding the
assessment of the company's strategies to address the impacts of climate
change). In both American International Group, Inc. and The Chubb Corporation,
the Staff found that an assessment of a company's strategies to address the
impact of climate change necessarily requires an evaluation of risk and benefits
and is related to ordinary business operations. As noted above, Wells Fargo
believes that the Proposal also focuses on an evaluation of risks, and,
therefore, is similar to American International Group, Inc. and The Chubb
Corporation.
The Proposal also is very similar to other proposals that have requested a
report on the effects of various risks facing a company and that the Staff found
involve ordinary business operations. For instance, in Xcel Energy Inc.
(publicly available April 1, 2003) the Staff found that a proposal urging the
board of directors to issue a report disclosing, among other things, the
economic risks associated with the company's past, present and future emissions
of carbon dioxide, sulfur dioxide, nitrogen oxide and mercury omissions related
to the company's ordinary business operations because it dealt with the
evaluation of risks. See also The Mead Corporation (publicly available January
31, 2001) (proposal requesting the board to report on the current status of the
issues raised in a financial report as they affect the company, including a
description of the company's liability projection methodology and an assessment
of other major environmental risks, such as those created by climate change,
excludable under Rule 14a-8(i)(7) because it focuses on the company's liability
methodology and evaluation of risk). The Proposal, as in the above cases, would
involve conducting an appraisal of the risks of global climate change on Wells
Fargo's business and prospects. In addition, the Proposal would require a
detailed report containing, among other things, specified information assessing
the effects of changes in the physical environment and public and regulatory
pressures relating to the emission of greenhouse gases. In requesting such
detailed information in the report, the Proposal also is similar to other
proposals that the Staff found excludable as relating to ordinary business
operations. See Ford Motor Company (publicly available March 2, 2004) (proposal
recommending the board to publish a report entitled "Scientific Report on Global
Warming/Cooling" that includes detailed information on various technical matters
excludable under Rule 14a-8(i)(7) because it relates to "the specific method of
preparation and the specific information to be included in a highly detailed
report").
In sum, Wells Fargo believes that the Proposal focuses on Wells Fargo's
fundamental day-to-day business operations and involves a matter which requires
a significant amount of information regarding the daily operations of Wells
Fargo and its numerous lines of business. Moreover, the Proposal probes "deeply
into complex matters that the shareholders, as a group, would not be in position
to make an informed judgment." See Exchange Act Release No. 34-40018 (May 21,
1998). Accordingly, based on the foregoing and in view of the consistent
position of the Staff on prior proposals relating to similar issues and as set
forth in Staff Legal Bulletin No. 14C, Wells Fargo believes that it may properly
omit the Proposal under Rule 14a-8(i)(7).
Conclusion
Based upon the foregoing, we hereby respectfully request a response from the
Staff that it will not recommend enforcement action to the Commission if Wells
Fargo omits the Proposal from the 2006 Proxy Materials in reliance on Rule
14a-8(i)(7).
In accordance with Rule 14a-8(j), six copies of this letter, including Exhibit
A, are enclosed. Please acknowledge receipt of this letter and its enclosures by
stamping the enclosed additional copy of this letter and returning it to the
undersigned in the return envelope provided. By copy of this letter, Wells Fargo
is also notifying the Proponents of its intention to omit the Proposal from the
2006 Proxy Materials. Should the Staff desire any additional information in
support of Wells Fargo's position, we would appreciate an opportunity to confer
with the Staff concerning these matters. If the Staff has any questions about,
or wishes to discuss any aspect of this request, please contact the undersigned
at 612/667-8573 or by fax at 612/667-6082.
Very truly yours,
/s/
Jeannine E. Zahn
Senior Counsel
cc: Steve Abrecht, SEIU Master Trust
Steve Lippman, Trillium Asset Management
[APPENDIX]
Shareholder Proposal
RESOLVED that shareholders of Wells Fargo and Co. request that the Board of
Directors report to shareholders by October 2006 on the effect on our company's
business strategy of the challenges created by global climate change. The report
should include, but need not be limited to, a discussion of the effects of (a)
rising public and regulatory pressures to limit the emission of greenhouse
gases, and (b) anticipated changes to our physical environment. This report
should be prepared at reasonable cost and omit proprietary information.
SUPPORTING STATEMENT
Global climate change threatens to affect companies across a wide variety of
industries. Numerous reports from respected scientific bodies, such as the
Intergovernmental Panel on Climate Change and the National Academy of Sciences,
confirm that climate change is real and will cause a variety of profound
alterations to the earth's natural systems if not arrested.
Regulatory responses to climate change have been adopted, and many more are
likely. The Kyoto Protocol now requires signatory nations to reduce greenhouse
gas emissions on average 5.2% below 1990 levels. U.S. states, including
California, have proposed emissions-reduction initiatives.
Changes to our physical environment from climate change may pose serious
consequences to real estate investments, the tourism industry, and commercial
and individual insurance premiums. A water shortage would have broad impacts on
manufacturing, agriculture, forestry, and other sectors. And an increase in
dramatic weather patterns could lead to energy volatility and disease pandemic
concerns.
According to the company's website (10/14/05), Wells Fargo and its subsidiaries
provide a variety of commercial and retail banking, lending, asset management,
mortgage, insurance, and other financial services in all U.S. states and several
countries. Our company is also considered the largest crop insurance provider in
the U.S., the world's fifth-largest insurance brokerage, and provides
large-scale commercial real estate, construction, and project financing.
Because of the complexity of Wells Fargo's assets and businesses, it is
difficult for shareholders to determine the extent that climate change policies
and physical impacts will have on the company's long-term business strategy. We
believe that a Board-level assessment of these effects would assist shareholders
in evaluating our company stock as a long-term investment.
Wells Fargo currently provides no substantial guidance to its investors on the
potential impacts of this important issue, either in its annual report, on its
website, nor other financial filings. Yet key competitors, including JPMorgan
Chase, Bank of America, and Citigroup, have addressed this public concern
through written policies, sustainable development project guidance, forestry
protection initiatives, emissions reduction analysis, improved disclosure to
investors, and executive or Board oversight for climate change policy
implementation--clear signs that the banking industry is taking climate change
seriously as a public policy issue.
With Wells Fargo's inadequate reporting to shareholders on this increasingly
critical issue to our subsidiaries, investors have no way of knowing what our
company is doing to address this escalating global concern and the business
impacts that will emerge from it.
Therefore, we urge shareholders to vote FOR this proposal.
[INQUIRY LETTER]
January 25, 2006
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attention: Chief Counsel, Division of Corporation Finance
Re: Request by Wells Fargo & Company to omit stockholder proposal submitted by
the Service Employees International Union Master Trust
Dear Sir/Madam,
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the Service
Employees International Union Master Trust (the "Trust"), together with co-filer
Trillium Asset Management Corporation, submitted a stockholder proposal (the
"Proposal") to Wells Fargo & Company ("Wells Fargo" or the "Company"). The
Proposal asks Wells Fargo's Board of Directors to report to stockholders by
October 2006 on the effect on Wells Fargo's business strategy of the challenges
created by global climate change. The Proposal recommends that the report should
include, but need not be limited to, a discussion of the effects of (a) rising
public and regulatory pressures to limit the emission of greenhouse gases, and
(b) anticipated changes in the physical environment.
By letter dated December 23, 2005, Wells Fargo stated that intends to omit the
Proposal from the proxy materials to be sent to stockholders in connection with
the 2006 annual meeting of stockholders and asked for assurance that the Staff
would not recommend enforcement action if it did so. Wells Fargo contends that
it is entitled to exclude the Proposal in reliance on Rule 14a-8(i)(7) as
relating to the Company's ordinary business operations, because it asks for a
risk assessment and would micromanage Wells Fargo's day-to-day operations. As
discussed more fully below, Wells Fargo's arguments fall because the Proposal
does not ask for a risk assessment or cost/benefit analysis and is not so
detailed or rigid that it would micromanage Wells Fargo's business.
Risk Assessment and the Significant Social Policy Issue
The Proposal asks Wells Fargo's Board of Directors to report to stockholders on
the "effect on [the Company's] business strategy of the challenges created by
global climate change," including the effects of rising public and regulatory
pressures to limit the emission of greenhouse gases and anticipated changes in
the physical environment. Wells Fargo concedes, as it must, that the Staff has
determined that global climate change is a "significant social policy issue" as
that term is used in the Commission's Exchange Act Release No. 40018 (May 21,
1998) (the "1998 Release"). As a general matter, then, proposals dealing with
climate change are not excludable under Rule 14a-8(i)(7), which allows a
registrant to omit proposals that relate to its ordinary business operations.
E.g., Unocal Corporation (Feb. 23, 2004) (declining to allow exclusion of
proposal asking Unocal to report on "how the company is responding to rising
regulatory, competitive, and public pressure to significantly reduce carbon
dioxide and other greenhouse gas emissions"); Reliant Resources Inc. (Mar. 5,
2004) (same).
Wells Fargo urges, however, that the Proposal does not focus on "minimizing or
eliminating operations that may affect the environment," and thus falls outside
the significant policy issue ambit. It is true that the Proposal does not urge
Wells Fargo to cease some specific harmful activity. The Proposal is drafted the
way it is because Wells Fargo stockholders do not even have the basic
information about the Company's practices that would be necessary to formulate a
more proscriptive proposal. The Proposal is substantially similar to the Unocal
and Reliant proposals, cited above, which the Staff determined were not
excludable although they did not ask the companies to stop engaging in a
particular activity. Further, the Proposal could elicit information about
whether Wells Fargo is considering changing its business strategy in ways that
might minimize or eliminate operations that may affect the environment. In that
respect, then, it falls within the class of proposals the Staff has stated is
not excludable under the ordinary business exclusion.
Wells Fargo also argues that the Proposal is excludable on ordinary business
grounds, despite its focus on climate change, because it asks for an assessment
of risks and liabilities. The Staff has taken the position that proposals
seeking a risk evaluation or cost/benefit analysis, as well as those that ask
the company to report on or evaluate liabilities, relate to ordinary business
operations, even if the underlying subject matter is otherwise a significant
social policy issue.
These determinations appear to fall into two categories. The first involves
proposals that on their face ask the company to evaluate risks or liabilities.
The Xcel, Mead and Wachovia1 proposals cited by Wells Fargo all fall into this
category, and thus do not control on the question of whether the Proposal can be
omitted.
The second category involves insurers. Wells Fargo relies on two Staff
determinations in American International Group (Feb. 11, 2004) and The Chubb
Corporation (Jan. 25, 2004); in both, registrants were permitted to omit
proposals seeking disclosure regarding the effect of climate change on strategy.
Chubb and AIG argued that the nature of the insurance businessthe pricing and
underwriting of riskmeant that the proposal would elicit a risk assessment.
Chubb explained that producing the report requested by the proposal would
require the company to discuss actuarial methods and assumptions as well as the
pricing of its insurance products. The Staff has found that similar proposals
are not excludable, however, when submitted to non-insurers. See, e.g., Exxon
Mobil Corporation (Mar. 23, 2005) (declining to allow omission of proposal
asking Exxon Mobil to report on how it plans to meet greenhouse gas emission
reduction targets in markets where it operates that have adopted the Kyoto
Protocol).
Micromanagement
Wells Fargo claims that the Proposal would require such extensive and detailed
reporting that it would micromanage the Company's operations. The 1998 Release
stated that a proposal could be construed as micromanaging if it sought to
require a company to change a policy and to control the precise way a company
did so. Here, the Proposal does not request any change at all in Wells Fargo's
policies, but rather asks for a report within a reasonable time period.
Further, the 1998 Release made clear that a proposal, even one seeking policy
changes, can deal with an issue in some detail without being omitted. It stated:
"Some commenters [on the proposing release] thought that the examples cited
seemed to imply that all proposals seeking detail, or seeking to promote
time-frames or methods, necessarily amount to 'ordinary business.' We did not
intend such an implication. Timing questions, for instance, could involve
significant policy where large differences are at stake, and proposals may seek
a reasonable level of detail without running afoul of these considerations."
(Footnotes omitted)
The Proposal seeks information regarding the strategic impact of climate change
on Wells Fargo's business, and suggests two areasregulatory and physical
changeswhere the effects of climate change might be felt. This minimal level of
detail would surely be considered reasonable within the meaning of the 1998
Release.
By contrast, proposals the Staff has allowed registrants to exclude have
involved substantial amounts of technical detail. For example, in Ford Motor
Company, (available Mar. 2, 2004), cited by Wells Fargo, the proposal sought
"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" as they related to global climate change. The
Staff allowed Ford to omit the proposal in reliance on ordinary business
grounds, explaining that the proposal dealt with "the specific method of
preparation and the specific information to be included in a highly detailed
report." No such concerns are present here.
* * * *
If you have any questions or need anything further, please do not hesitate to
call me at (202) 639-7612. The Trust appreciates the opportunity to be of
assistance to the Staff in this matter.
Very truly yours,
/s/
Steve Abrecht
Executive Director of Benefit Funds
cc: Jeannine E. Kahn
Senior Counsel, Wells Fargo & Company
Fax # 612-667-6082
-----FOOTNOTES-----
1 Contrary to Wells Fargo's assertion, the Proposal is not "identical" to the
proposal submitted by the Trust last year at Wachovia. That proposal, which the
Staff determined was excludable on ordinary business grounds, specifically asked
Wachovia to report on the "risks" created by global climate change.
[STAFF REPLY LETTER]
February 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Wells Fargo & Company Incoming letter dated December 23, 2005
The proposal requests that the board prepare a report on the effect on Wells
Fargo's business strategy of the challenges created by global climate change.
There appears to be some basis for your view that Wells Fargo may exclude the
proposal under rule 14a-8(i)(7), as relating to Wells Fargo's ordinary business
operations (i.e., evaluation of risk). Accordingly, we will not recommend
enforcement action to the Commission if Wells Fargo omits the proposal from its
proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Gregory Belliston
Attorney-Adviser
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