Company Name: Bear Stearns Cos. Inc.
Public Availability Date: February 14, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 20, 2006
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F. Street, NE
Washington D.C. 20549
Re: The Bear Stearns Companies Inc. Shareholder Proposal
Ladies and Gentlemen:
On behalf of The Bear Stearns Companies Inc., a Delaware corporation (the
"Company"), and in accordance with Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), we respectfully request the
concurrence of the staff of the Division of Corporation Finance (the "Staff") of
the Securities and Exchange Commission (the "Commission") that it will not
recommend any enforcement action to the Commission if the shareholder proposal
described below (the "Proposal") is excluded from the Company's proxy statement
for the Company's 2007 Annual Meeting of Stockholders (the "Proxy Statement").
The Annual Meeting is scheduled for on or about April 18, 2007. A copy of the
Proposal is attached hereto. As required by Rule 14a-8(j), six copies of this
letter, including the attachment, are enclosed.
We are also sending a copy of this letter to The Free Enterprise Action Fund
(the "FEAF") to notify it of the Company's intention to omit the Proposal from
the Proxy Statement.
A. Factual Background
On November 10, 2006, the Company received a shareholder proposal from FEAF. The
Proposal reads as follows:
Resolved: The shareholders request that the Board of Directors prepare by
October 2007, at reasonable expense and omitting proprietary information, a
Sarbanes-Oxley Right-to-Know Report. The report should include:
1. An assessment of the costs and benefits of the Sarbanes-Oxley Act on the
Company's in-house operations; and
2. An assessment of the impacts of the Sarbanes-Oxley Act on the Company's
investment banking business.
FEAF also included a supporting statement. FEAF's full letter is attached hereto
as Exhibit A.
B. The Proposal May Be Omitted Under Rule 14a-8(i)(7)
As Relating to the Conduct of the Ordinary Business Operations of the Company
Pursuant to Rule 14a-8(i)(7) of the Exchange Act, a shareholder proposal may be
omitted from a company's proxy statement "if the proposal deals with a matter
relating to the company's ordinary business operations." The Proposal seeks a
report which includes the Company's assessment of the costs, benefits and impact
of the Sarbanes-Oxley Act of 2002 ("SOX") on the Company. Because the subject
matter of the Proposal relates to the Company's compliance with the legal
requirements of SOX and the assessment of the liabilities resulting from such
compliance, which the Company already undertakes as a part of its ordinary
business operations, we believe that the exclusion provided for in Rule
14a-8(i)(7) applies to the Proposal.
The Commission has stated that the policy underlying the ordinary business
exclusion of Rule 14a-8(i)(7) is based on two considerations. The first is that
"certain 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." SEC Release No. 34-40018 (May 21, 1998). The
second 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.
The exclusionary basis provided in Rule 14a-8(i)(7) is consistent with Delaware
General Corporation Law (the "DGCL"). Section 141(a) of the DGCL provides that
"the business and affairs of every corporation ... shall be managed by or under
the direction of a board of directors." Accordingly, ordinary business
operations are to be run by the Company's board of directors without oversight
or micro-management by the Company's stockholders.
1. The Proposal Relates to the Company's Compliance with Federal Regulations
The Staff has consistently permitted companies to exclude shareholder proposals
that relate to compliance with state or federal regulations. See, e.g.,
Williamette Industries, Inc. (March 20, 2001) (excluding a proposal that
requested a report of the company's environmental compliance program and the
facts regarding the financial impact of compliance); Humana Inc. (February 25,
1998) (excluding a proposal that related to the general conduct of a legal
compliance program because it was directed at matters relating to the conduct of
the Company's ordinary business); and Allstate Corp. (February 16, 1999)
(excluding a proposal that requested a report on issues including, without
limitation, whether there has been illegal activity by the company and
recommendations to controlling the costs of these actions).
Congress enacted SOX in response to corporate and accounting scandals and, as a
result, SOX regulates corporate governance and accounting issues for public
companies. Subsequently, the Commission issued regulations thereunder and
approved new corporate governance listing standards that were proposed and
adopted by the New York Stock Exchange and Nasdaq. Because the Company is a
public company and a large accelerated filer under the Exchange Act, the Company
is regulated by the Commission and is subject to all aspects of SOX. The
Proposal therefore directly relates to the Company's compliance with federal
regulations, and the Company's establishment of policies and programs to comply
with the various requirements of SOX, including the implementation and
maintenance of disclosure and internal controls, is clearly an ordinary course
business operation. The Company has employed or retained the appropriate staff,
internal auditors, independent public accountants, legal counsel and others to
ensure compliance with SOX, to oversee any policies and programs implemented in
response to SOX, to perform all required testing and to perform any and all
other day to day tasks and functions that SOX requires. Because of the broad
spectrum of SOX, compliance with SOX flows through many aspects of the Company
and preparation of a report would require the Company to focus on micro-level
details of ordinary business.
Further, FEAF states in its supporting statement that "[s]hareholders have the
right to know how SOX impacts the Company so they can take appropriate action if
warranted." (emphasis added) Just as with any state or federal law or
regulation, the Company's compliance with SOX is not voluntary. The Company must
comply with all provisions of SOX regardless of the cost to, burden or other
impact on the Company. Stockholders would therefore be unable to take any action
to eliminate any of the Company's compliance programs even if they did not
"approve" of the costs or impacts of SOX detailed in the proposed report. In
addition, SOX contains detailed and complex accounting and governance
regulations. In order to fully comply with SOX, as explained above, the Company
has employed talented individuals and retained the necessary consultants and
advisors who can help the Company navigate and satisfy all requirements. The
Company works tirelessly to ensure that its operations are cost-effective and
efficient. Stockholders would not have the ability to oversee all of the
SOX-related functions at the Company and do not have the necessary financial,
legal or other expertise to micro-manage or control the SOX-related
decision-making for the Company's in-house operations or investment banking
business. Therefore, even if the stockholders received the information that FEAF
is requesting, they would not be able to (i) determine what changes are
necessary or even possible with respect to the Company's SOX compliance; (ii)
implement any action that they believe would be appropriate; (iii) understand
the additional consequences to the Company, unrelated to SOX, that may occur if
any changes are made to the Company's policies, programs, staffing or
consultant/advisor retention practices or (iv) understand the legal requirements
that may govern certain SOX-related decisions or the legal consequences that may
occur if any policies or procedures are modified.
Accordingly, because the Proposal relates to the Company's compliance with SOX,
we believe that the Proposal is clearly excludable under Rule 14a-8(i)(7).
2. The Proposal Asks the Company to Perform an Assessment of Liabilities
The Staff has consistently permitted companies to exclude shareholder proposals
that request a company to assess liabilities and, in June 2005, the Commission
released Staff Legal Bulletin 14C summarizing such precedent and providing that
if a proposal focuses "on the company engaging in an internal assessment of the
risks or liabilities that the company faces as a result of its operations," then
there is a basis for exclusion under Rule 14a-8(i)(7). Although the Staff Legal
Bulletin focuses on shareholder proposals relating to the risks and liabilities
regarding the environment and public health, the Staff has permitted exclusion
of shareholder proposals relating to the assessment of other topics. See, e.g.,
JPMorgan Chase & Co. (February 28, 2001) (excluding a proposal requesting that
the company's annual report include a discussion of the risks of inflation and
deflation on the company) and AT&T Corp. (February 21, 2001) (excluding a
proposal requesting a report on the company's policies for involvement in the
pornography industry and an assessment of certain liabilities).
The Proposal requests an assessment of (i) the costs and benefits of SOX on the
Company's in-house operations and (ii) the impact of SOX on the Company's
investment banking business. An internal assessment of the "costs" and "impact"
of SOX on the Company, which costs and impact are unavoidable due to the
Company's obligation to comply with SOX, is an assessment on the Company's
ordinary business operations. Accordingly, the Proposal is essentially
requesting an assessment of the liabilities that the Company faces as a result
of doing business.
Because the Proposal requests the Company to make an assessment of its
liabilities, the Staff should permit the Company to exclude the Proposal from
the Proxy Statement.
3. The Proposal Does Not Focus on Significant Social Policy Issues
We acknowledge that the Commission has concluded that ordinary business
operation proposals "focusing on sufficiently significant social policy issues
(e.g., significant discrimination matters) generally would not 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." SEC Release No. 34-40018 (May 21, 1998). We believe that application of
such exception to the Proposal would be unwarranted.
FEAF states in its supporting statement that "SOX may be harming shareholder
value through unnecessarily burdensome compliance costs and by reducing the
Company's investment banking business." FEAF also provides quotations from
various sources that suggest that the costs of SOX are too onerous and are
preventing companies from going public in the United States. Notwithstanding
these statements, the Proposal does not raise significant social policy concerns
that are directly tied to the Company's operations under Rule 14a-8(i)(7).
Criticizing SOX should not serve to transform a Proposal seeking an assessment
of the Company's ordinary business operations into one raising any substantial
policy matters.
We acknowledge that SOX has ignited debate about the relative costs and benefits
of the requirements thereof. However, if FEAF's intent is to use the proposed
report to compile data to fuel this debate and/or assert an argument to the
Commission or to Congress that SOX is too costly and should be amended, then the
Proposal would be directed at involving the Company in the political or
legislative process relating to an aspect of the Company's operations. The Staff
has previously permitted exclusion of a proposal based on this reason. See
International Business Machines Corporation (March 2, 2000) (excluding a
proposal requesting a report on the potential impact on IBM of pension-related
proposals being considered by national policy makers because the proposal
appeared to be directed at involving IBM in the political or legislative process
relating to an aspect of IBM's operations).
In addition, the Staff has taken the position that if part of a proposal relates
to ordinary business, the proposal may be excluded in its entirety even if the
proposal appears to address matters outside the scope of ordinary business. See,
e.g., Wal-Mart Stores, Inc. (March 15, 1999) (excluding a proposal that
requested a report to ensure that the company did not purchase items from
suppliers that used forced, convict or child labor or failed to comply with laws
protecting employees rights because the report was also to address ordinary
business matters). Accordingly, although a proposal may raise social issues, if
the proposal also relates to ordinary business operations, the Staff may permit
such proposal to be excluded if the social issues are not sufficiently
significant. In light of the Staff's permission to exclude the shareholder
proposals in the no-action letters cited above notwithstanding the potential
social issues raised therein (e.g., child labor, pornography, illegal activities
and environmental and health issues), we do not believe that the cost burden on
public companies as a result of SOX should rise to a level of significance that
would bar the Company from excluding the Proposal.
B. The Proposal is Vague and Misleading and May Be
Omitted Under Rule 14a-8(i)(3)
Rule 14a-8(i)(3) provides that a registrant may exclude a proposal if it
violates the proxy rules, including Rule 14a-9, which prohibits materially false
or misleading statements in proxy soliciting materials. The Staff has determined
that a proposal is excludable under this rule if it is "so inherently vague and
indefinite that neither the shareholders voting on the proposal, nor the Company
in implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Staff Legal Bulletin No. 14B (September 15, 2004). See also Bristol-Myers Squibb
Co. (February 1, 1999) (the Staff permitted exclusion of a proposal which was so
vague that it precluded shareholders from determining with reasonable certainty
either the meaning of the resolution or the consequences of its implementation).
The Staff has also permitted a company to exclude entire shareholder proposals
or portions of shareholder proposals and supporting statements when they
contained false and misleading statements. See, e.g. General Magic, Inc. (May 1,
2000) (the Staff permitted exclusion of an entire proposal) and Sysco Corp.
(August 12, 2003) (the Staff permitted exclusion of portions of the supporting
statement pursuant to Rule 14a-9).
We believe that the Proposal may be excluded pursuant to Rule 14a-8(i)(3)
because its vague and misleading statements do not provide a clear description
or instruction as to what actions are required to be taken by the Company if the
stockholders approve the Proposal. The first part of the Proposal, which
requests an assessment of the "costs" and "benefits" of SOX compliance, may
easily be misinterpreted by both the Company and stockholders. It is unclear as
to whether the Proposal is limited to the economic costs and benefits or whether
the Proposal envisions a more qualitative analysis that would include a public
policy evaluation. The second part of the Proposal, which requests an assessment
of the "impact" of SOX on the Company's investment banking business, is also
ambiguous. The Proposal suggests that the "impact" is different from the "costs"
and "benefits," but no explanation is provided as to what exactly the report
should include. What additional effects would the Company be required to assess?
Because the Company would not be able to identify the ultimate scope of the
Proposal if approved by stockholders, to ensure compliance with the Proposal,
the Company would have to apply the broadest interpretation possible and spend
significant time and incur substantial costs to consider the numerous
quantitative and qualitative "costs," "benefits" and "impacts" at every level
and in every division of the Company. In addition, disclosure of such a detailed
assessment of the Company's costs, benefits and impacts of compliance would
likely include disclosure of confidential information that is competitively
sensitive.
The Proposal is also misleading because the proponent has included the name of
the federal regulation in the title of the requested reportthe "Sarbanes-Oxley
Right to Know Report." The Proposal therefore suggests that SOX provides
stockholders with a legal right to the report being requested and that the
proponent is simply seeking full compliance with SOX. Stockholders are not
entitled to such a report pursuant to SOX, however, and the proponent is
actually criticizing SOX as possibly "harming shareholder value." As a result,
the Proposal is misleading and may be excluded under Rule 14a-8(i)(3).
Request
Based on the foregoing, the Company believes that it may omit the Proposal from
the Proxy Statement, and we respectfully request that the Staff not recommend
any enforcement action if the Proposal is omitted from the Proxy Statement. If
you have any questions or if the Staff is unable to concur with our conclusions
without additional information or discussion, we respectfully request the
opportunity to confer with members of the Staff prior to the issuance of a
written response to this letter. Please do not hesitate to contact the
undersigned at (212) 504-5555. Thank you for your consideration.
Very truly yours,
/s/
Dennis J. Block
cc: The Free Enterprise Action Fund
[INQUIRY LETTER]
February 2, 2007
BY OVERNIGHT DELIVERY
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Bear Stearns Companies, Inc.; Shareowner Proposal of the Free Enterprise
Action Fund; Securities Exchange Act of 1934 - Rule 14a-8
Dear Ladies and Gentleman,
This letter is on behalf of the Free Enterprise Action Fund ("FEAOX") in
response to the December 18, 2006 request by the Bear Stearns Companies, Inc.
("Bear" or the "Company") for a letter from the staff of the Division of
Corporate Finance (the "Staff") concurring with Bear's view that the
above-referenced Shareowner Proposal (the "Proposal") is excludable pursuant to
Rule 14a-8.
Please be advised that the FEAOX did not receive a copy of the Bear Stearns
request until January 17, 2007 - almost one month after the date that the FEAOX
was entitled to notice under Rule 14a-8. The FEAOX is concerned that this rule
violation as well as other potential irregularities associated with Bear's
interaction with the Staff - discussed in prior correspondence - may have
prejudiced the Staff's review of the Company's request.
Action Fund Management, LLC is the investment adviser for FEAOX and is
authorized to act on behalf of FEAOX. FEAOX believes the Proposal is not
excludable for any of the reasons claimed by Bear.
THE PROPOSAL
The Proposal states in its entirety:
SARBANES-OXLEY RIGHT-TO-KNOW REPORT
Resolved: The shareholders request that the Board of Directors prepare by
October 2007, at reasonable expense and omitting proprietary information, a
Sarbanes-Oxley Right-to-Know Report. The report should include:
1. An assessment of the costs and benefits of the Sarbanes-Oxley Act on the
Company's in-house operations; and
2. An assessment of the impacts of the Sarbanes-Oxley Act on the Company's
investment banking business.
Supporting Statement:
Since the Company operates for the benefit of shareholders, they have the right
to know how laws and regulations impact Company operations.
The Sarbanes-Oxley Act of 2002 (SOX) was intended to improve investor protection
and confidence. SOX, however, may adversely impact Company operations without
providing the commensurate benefits intended by Congress. Shareholders have the
right to know how SOX impacts the Company so they can take appropriate action if
warranted.
SOX may be harming shareholder value through unnecessarily burdensome compliance
costs and by reducing the Company's investment banking business.
"[In 2005,] only one of the world's 25 biggest initial public offerings listed
in the U.S. So far in 2006, just one of the 10 biggest IPOs have priced here.
Six years ago, in comparison, the U.S. hosted nine of the top 10 IPOs. Many
executives here and abroad blame U.S. regulation. High on their hit list is
Sarbanes-Oxley - SOX -, the 2002 corporate-governance law that many CEOs find
overly restrictive and costly. [Wall Street Journal, Fixing SOX No Quick Fix,
September 22, 2006]
"... Anguish over SOX in this country is not abating ... As the CEO of a U.S.
stock market, I am in frequent contact with a broad spectrum of business
leaders, many of whom list on our exchange. When it comes to SOX, their message
is clear: The burden of compliance is onerous, the cost is significant, and it
falls disproportionately on smaller companies that are least able to pay. Our
research has shown that the burden on small companies, on a percentage of
revenue basis, is 11 times that of large companies." [Bob Greifeld, Nasdaq
President, Wall Street Journal, March 6, 2006]
"That is only part of the problem. In my travels to countries like China, India
and Israel, I meet with the new generation of international entrepreneurs who
are building businesses and dreaming of the day they can take their companies
public. The constant refrain I hear is that when it comes time to do an IPO,
they will be reluctant to list on American markets. They will look elsewhere to
raise capital, and the main reason they cite is SOX. Indeed, a recent piece in
these pages suggested that 90% of international small companies intending to go
public are choosing to list abroad because of SOX costs and concerns. Despite
the compelling advantages of listing with the world's most efficient markets and
having access to our vast pool of sophisticated investors, many of these
companies are likely to follow the line of least resistance and list abroad.
[Ibid.]
RESPONSE TO BEAR's CLAIMS
I. Summary of the Proposal
The Proposal requests that Bear prepare a report on the costs and benefits to
the Company of the Sarbanes-Oxley Act of 2002 ("SOX"). Although SOX was enacted
to improve investor protection and confidence, significant public debate has
arisen about whether SOX's costs outweigh its benefits to companies. SOX is a
significant social policy that may impose substantial costs on Bear and that
also may also impact Bear's business opportunities. Given the ongoing public
debate about SOX, the Proposal views SOX as the sort "significant social policy
issue" contemplated in Exchange Act Release No. 40,018 (May 21, 1998). Because
the Proposal addresses a significant social policy issue - i.e., balancing the
costs and benefits of the investor protection and confidence offered by SOX -
that is the subject of considerable public debate, the Proposal is not
excludable from proxy materials merely because it may relate in some manner to
some aspect of ordinary business operations. The purpose of the Proposal is in
the nature of disclosure. That is, shareholders are entitled to know how the
significant social policy issue of SOX impacts their investment in Bear.
The Proposal requests information about costs and benefits incurred by Bear in
the implementation of SOX - a similar request to what the Staff previously
deemed appropriate for the shareholder proposal in General Electric Company
(January 17, 2006). The only difference between the two proposals is that in
General Electric Company, the global warming policy at issue was self-imposed
whereas the instant Proposal focuses on a financial regulatory policy externally
imposed on Bear. We believe that the source of the policy is not material with
respect to whether the Proposal is excludable. Both global warming and SOX are
subjects of considerable public debate that transcends ordinary business
operations. As such, SOX constitutes a significant social policy issue of the
type discussed in Exchange Act Release 40,018.
The Proposal does not seek to monitor or micro-manage the Company's
implementation of SOX; it does not seek to engage Bear in public debate about
SOX; it does not contain false and/or misleading statements; and it is not vague
or confusing to shareholders.
The Proposal merely requests information that may be material to shareholders
and that is not available from any place other than Bear. With the information
requested by the Proposal in the hands of shareholders, they may then take any
action on their own that they deem appropriate including increasing or
decreasing their investment in Bear and/or petitioning the government to amend
the law. Without such information, shareholders are effectively left in the
dark. Such an outcome is not contemplated by the federal securities laws and
cannot be considered as sound public policy.
II. The Proposal is not excludable as pertaining to "ordinary business
operations."
Bear asserts that the Proposal is excludable because compliance with SOX is
"fundamental to management's ability to run the company on a day-to-day basis"
and "could not as a practical matter, be subject to shareholder oversight."
But the Proposal does not in any way seek to interfere with management's ability
to run the Company or subject management to inappropriate shareholder oversight.
Nor does the Proposal interfere with management's implementation of SOX. The
Proposal merely seeks a report on the impacts of SOX on the company.
Bear is the unique repository of information pertaining to the costs and
benefits that may be attributable to SOX. Shareholders are entitled to know
whether and to what extent laws and regulations may adversely impact their
investments. Such disclosure of material information is a basic tenet of the
federal securities laws.
Given the information requested by the Proposal, shareholders might then be able
to make more informed decisions with respect to increasing or decreasing their
investment in Bear or perhaps petitioning the government for appropriate changes
in the law. Without the information requested by the Proposal, shareholders are
effectively left in the dark - which is contrary to the intent of securities
laws and regulations.
The issue at hand is not how management is implementing SOX, but how SOX may be
impacting shareholders. The Proposal seeks information about the impacts of SOX
on the Company, not oversight of management. The Proposal in no way questions
management's compliance with SOX. The Proposal assumes that management is in
compliance with SOX. The information requested by the Proposal would shed light
on whether the benefits of the law outweigh its costs and thereby provide
shareholders with relevant information to make appropriate decisions.
Bear asserts, but does not explain how the Proposal seeks to micro-manage the
Company. Without support, Bear's assertion cannot stand.
Bear also asserts that the matters addressed by the Proposal are "too complex"
for shareholders to make an "informed judgment." But almost two-thirds (63
percent) of Bear's shareholders are sophisticated institutional investors or
insiders. Surely the Proposal's cost-benefit analysis of SOX is not "too
complex" for them. Moreover, all shareholders are deemed competent to understand
the complex, and often Byzantine, financial disclosures required of all
companies. It is not credible to claim that shareholders are incompetent to
weigh the costs of SOX against its benefits.
Once again, the Proposal does not intend to interfere with Bear's compliance
with SOX. The Proposal merely requests disclosure of information about the
impacts of such compliance so that shareholders may make informed
investment-related decisions.
II. The Proposal does not request Bear to perform an assessment of liabilities.
The Proposal asks for a report the actual costs and impacts of SOX on Bear. The
information requested by the report is simple and straightforward. It does not
request Bear to speculate about or perform an internal assessment of risks and
liabilities. Bear does not explain or offer any evidence to support its
assertion other than its specious effort to confuse "costs" with "liabilities."
In an accounting sense, "costs" are on the liabilities side of the ledger, but
costs are incurred expenses, not future and conditional liabilities.
III. SOX is a significant social policy issue.
Bear asserts that the Proposal does not come within the "significant social
policy issue" exception to the ordinary business exclusion. But SOX is the
subject of an ongoing major public policy debate with significant social and
economic implications. Consider that:
The Committee on Capital Markets Regulation just issued a report calling for
SOX reform;
The Securities and Exchange Commission is considering changes in the
implementation of SOX;
SOX compliance costs have been estimated to be as high as $1.4 trillion;
A sample of recent media headlines spotlighting the debate include,
"Sarbanes-Oxley Helps Fill Coffers Of Foreign Bourses, Private-Equity Firms"
(Barron's, Oct. 16) and "Sarbanes-Oxley Brings U.S. Firms IPO Earnings Abroad" (Bloomberg.net,
October 30, 2006).
The Proposal itself spotlights several prominent articles in the media
concerning the costs and benefits of SOX.
Because SOX has such significant social impacts and is the subject of
considerable public debate in the media, government and business world, SOX is a
significant social policy issue within the meaning of Exchange Act Release No.
34-12999 (Nov. 22, 1976) and Exchange Act Release No. 34-40018 (May 21, 1998).
IV. The Proposal does not seek to involve Bear in a political or legislative
process.
The Proposal quite clearly states,
Shareholders have the right to know how SOX impacts the Company so they can take
appropriate action if warranted.
The purpose of the Proposal is disclosure to shareholders so that they may use
the information as they see fit with respect to their investments.
V. The Proposal does not contain vague and indefinite statements that are
materially false and misleading.
Bear asserts that the terms "Sarbanes-Oxley Right-to-Know Report," "costs,"
"benefits, and impacts" are vague and indefinite statements that would mislead
shareholders.
Bear asserts that the Proposal's title "Sarbanes-Oxley Right-to-Know Report"
will confuse shareholders into thinking that the sort of report requested in the
Proposal is somehow required or contemplated by SOX. This is not a reasonable or
fair reading of the entire Proposal. The Proposal points out that there is
controversy over the impacts of SOX on companies and that shareholders have the
right to know what those impacts are.
The Staff has already determined in General Electric Company (January 17, 2006)
that the "costs" and "benefits" terminology is not excludable a vague and
confusing. Moreover, the Proposal, in fact, affords Bear much latitude to define
the contents of and terms used in the requested report.
Bear's assertion that measuring the "impact" of SOX on the Company's investment
banking business won't be understood by shareholders is without foundation.
There have been numerous recent articles in major media about how SOX may be
impacting the investment banking business.
In addition to those news articles cited in the Proposal's Supporting Statement,
recent major media articles spotlight the vigorous debate over the impacts of
SOX, including: "U.S. competitiveness is at risk, says report; Sarbanes-Oxley,
regulations hampering capital markets' strength, say CEOs (MarketWatch.com,
November 30, 2006); and "Sarbanes-Oxley Brings U.S. Firms IPO Earnings Abroad" (Bloomberg.net,
October 30, 2006).
Shareholders are quite aware of the debate over SOX's impact on the investment
banking business. What shareholders lack, though, is information that the
Proposal would provide to help them sort fact from fiction.
There is nothing genuinely vague about the Proposal. In any event, to the extent
that uncertainty exists, Bear is free to use its best judgment in determining
how to do the report.
CONCLUSION
Based upon the forgoing analysis, we respectfully request that the Staff reject
Bear's request for a "no-action" letter concerning the Proposal. If the Staff
does not concur with our position, we would appreciate the opportunity to confer
with the Staff concerning these matters prior to the issuance of its response.
Also, we request to be party to any and all communications between the Staff and
Bear and its representatives concerning the Proposal.
Pursuant to Rule 14a-8(j), enclosed herewith are six copies of this letter. A
copy of this correspondence has been timely provided to Bear and its counsel. If
we can provide additional correspondence to address any questions that the Staff
may have with respect to this correspondence or Bear's no-action request, please
do not hesitate to call me at 301-258-2852.
Sincerely,
/s/
Steven J. Milloy
Managing Partner & General Counsel
Cc: Kenneth Edlow, Bear Stearns Companies
Dennis J. Block, Cadwalader, Wickersham & Taft
[INQUIRY LETTER]
February 9, 2007
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F. Street, NE
Washington D.C. 20549
Re: Stockholder Proposal from Free Enterprise Action Fund
Ladies and Gentlemen:
On behalf of The Bear Stearns Companies Inc. (the "Company"), we are writing to
reply to the letter dated February 2, 2007 submitted by Steven J. Milloy (the
"Proponent's Letter") on behalf of the Free Enterprise Action Fund (the
"Proponent") to the staff of the Division of Corporation Finance (the "Staff"),
a copy of which is attached hereto as Exhibit A. The Proponent's Letter is in
response to the Company's letter dated December 20, 2006 to the Staff seeking to
exclude the Proponent's proposal from the Company's proxy materials for its 2007
Annual Meeting. The Proponent's proposal requests that the Company prepare a
report on the costs, benefits and impacts of the Sarbanes Oxley Act of 2002
("SOX") on the Company.
The Proposal Focuses on Ordinary Business Operations
Contrary to the claims made in the Proponent's Letter, we continue to believe,
for the reasons set forth in our prior letter, that the Proponent's proposal
addresses the Company's ordinary business operations by seeking information
about the Company's compliance with federal law and its evaluation of the impact
of such government regulation. Accordingly, we believe that the Proponent's
proposal is excludable pursuant to Rule 14a-8(i)(7) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Staff has recently taken this
position and granted no-action relief for the exclusion of the identical
proposal submitted by the Proponent to three other investment banking companies.
See Morgan Stanley (January 8, 2007); Lehman Brothers Holdings Inc. (January 11,
2007) and Merrill Lynch & Co., Inc. (January 11, 2007).
The Proposal Does Not Relate to a Significant Social Policy Issue
We respectfully disagree with the Proponent's argument that the proposal relates
to a significant social policy issue because "SOX is the subject of an ongoing
major public policy debate." The SEC's "significant social policy issue"
exception to the ordinary business operations basis for exclusion provided by
Rule 14a-8(i)(7) is intended to prevent exclusion of proposals that "would
transcend the day-to-day business matters and raise policy issues so significant
that it would be appropriate for a shareholder vote." See Amendments to Rules on
Shareholder Proposals, Release 34-40018. We do not believe that public debate
should convert a proposal seeking an assessment of the Company's ordinary
business operations into one that "transcends" ordinary matters and raises
significant issues.
The Proponent cites to the Staff's decision not to grant no-action relief for
the exclusion of the Proponent's proposal submitted to General Electric Company
to support its position. See General Electric Company (January 17, 2006)
(requiring the company to include a shareholder proposal that sought a report on
the data and studies relied upon to formulate the company's climate change
policy, the costs and benefits of the company's policy and a Company assessment
of the impact of human activity on the global climate). The General Electric
proposal is distinguishable from the Proponent's proposal to the Company in many
ways, however. First, SOX is a federal law whereas General Electric's policy was
internally created. As a result, the Proponent's proposal focuses on the costs
and benefits of the Company's actions taken in order to comply with a federally
mandated regulation while the costs and benefits with respect to the General
Electric proposal are self-imposed. General Electric had a choice as to whether
or not to incur the costs whereas the Company does not have such a choice.
Second, the report requested of the Company focuses on the costs, benefits and
impacts of SOX on the Company itself, not on the investment banking industry or
on investors. The General Electric proposal seeks information about the global
climatea concept which has a scope much broader than General Electric itself.
Lastly, the issue at hand in the General Electric proposalGeneral Electric's
attempt to address pressing environmental challengestruly is a significant
social issue because the General Electric initiatives to which the proposal
referred may impact people's health and help produce cleaner and more efficient
sources of energy. We do not believe that an analysis of the costs of doing
business under the SOX regime rises to this level of significance and therefore
any public debate on SOX should not remove the matter from the ordinary business
operations exclusionary basis under Rule 14a-8(i)(7).
Although we acknowledge that the Proponent's proposal relates to legislation, we
believe that the Proponent's focus and intent is misplaced and inappropriate. We
believe that the Proponent's Letter confirms our prior speculation that the
Proponent may use the requested information to compile data to assert an
argument to Congress that SOX is too costly. On page 3 of the Proponent's
Letter, the Proponent generally asserts that it "does not seek to engage Bear in
public debate about SOX." However, in the very next paragraph, the Proponent
states that the information proposed to be provided by the Company may be used
by shareholders for "petitioning the government to amend the law," and it
repeats a similar statement on page 4.
Further, the Mr. Milloy and Thomas Borelli, who own and control the Proponent's
investment adviser, wrote an article entitled, "Remember the Shareholder,"
attached hereto as Exhibit B, in which they describe the Proponent's proposal
and explain that the Proponent is requesting information that would put
shareholders "in a position to make appropriate investment-related decisions,
including altering their investment positions and petitioning the government to
amend SOX." We therefore believe that the Proponent's proposal is clearly
directed at involving the Company in the legislative process. As noted in our
prior letter to the Staff, the Staff has permitted the exclusion of such type of
proposal pursuant to Rule 14a-8(i)(7). See International Business Machines
Corporation (March 2, 2000) (excluding a proposal requesting a report on the
potential impact on IBM of pension-related proposals being considered by
national policy makers because the proposal appeared to be directed at involving
IBM in the political or legislative process relating to an aspect of IBM's
operations).
The Proponent's Letter is Misleading
We also submit that certain of the Proponent's statements mischaracterize the
federal securities laws and, as a result, the Company's obligations thereunder.
The Proponent states that without the requested information, "shareholders are
left in the dark" and such "outcome is not contemplated by the federal
securities laws." The Proponent also states that disclosure of the requested
information is "a basic tenet of the federal securities laws." As a large
accelerated filer, the Company recognizes and acknowledges that it is subject to
the clearly defined, specific disclosure requirements of the Exchange Act and
the rules and regulations promulgated thereunder. Complying with such disclosure
requirements is a major component of the Company's ordinary business operations.
The SEC has amended companies' disclosure obligations since the adoption of SOX
to better reflect the intent of the SOX legislation and to ensure that investors
receive the type of information that is necessary to make investment decisions.
To date, the SEC has not created an obligation for a company to disclose the
costs, benefits or impacts of SOX, and Bear Stearns is not obligated to
voluntarily provide more extensive disclosure than is required.
Request
For the reasons set forth above, as well as those set forth in greater detail in
our letter dated December 20, 2006, we respectfully request that the Staff not
recommend any enforcement action if the Proponent's proposal is omitted from the
Company's proxy materials.
As required by Rule 14a-8(j), six copies of this letter are enclosed herewith
and a copy of this letter is simultaneously being sent to the Proponent. If you
have any questions or if the Staff is unable to concur with our conclusions
without additional information or discussion, we respectfully request the
opportunity to confer with members of the Staff prior to the issuance of a
written response to this letter. Please do not hesitate to contact the
undersigned at (212) 504-5555. Thank you for your consideration.
Very truly yours,
/s/
Dennis J. Block
cc: The Free Enterprise Action Fund
[STAFF REPLY LETTER]
February 14, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Bear Stearns Companies Inc. Incoming letter dated December 20, 2006
The proposal requests that the board of directors prepare, by October 2007, a
report on the costs, benefits and impacts of the Sarbanes-Oxley Act on Bear
Stearns.
There appears to be some basis for your view that
Bear Stearns may exclude the proposal under rule 14a-8(i)(7) as relating to its
ordinary business operations (i.e., general legal compliance program).
Accordingly, we will not recommend enforcement action to the Commission if Bear
Stearns 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 Bear Stearns relies.
Sincerely,
/s/
Tamara M. Brightwell
Special Counsel
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