Company Name: Centex Corp.
Public Availability Date: May 14, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
March 19, 2007
BY HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Shareholder Proposal of The Nathan Cummings Foundation Securities Exchange
Act-Rule 14a-8
Ladies and Gentlemen:
In accordance with Rule 14a-8(j) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), we hereby give notice on behalf of Centex
Corporation, a Nevada corporation (the "Company"), of the Company's intention to
omit from its proxy statement and form of proxy for its 2007 annual meeting of
stockholders (collectively, the "2007 Proxy Materials") a shareholder proposal
and statement in support thereof (the "Proposal") submitted to the Company by
The Nathan Cummings Foundation (the "Proponent") under the cover of letter dated
February 9, 2007. A copy of the Proposal is attached hereto as Exhibit A.
The Company expects to file the definitive 2007 Proxy Materials with the
Commission on or about June 8, 2007. Accordingly, as contemplated by Rule
14a-8(j), this letter is being filed with the Commission more than 80 calendar
days before the date upon which the Company expects to file the definitive 2007
Proxy Materials.
Pursuant to Rule 14a-8(j), we are enclosing herewith six copies of each of this
letter and the accompanying exhibit. In accordance with Rule 14a-8(j) and the
instructions contained in the letter accompanying the Proposal, a copy of this
submission is being forwarded simultaneously to the Proponent. This letter
constitutes the Company's statement of the reasons it deems the omission of the
Proposal to be proper. We have been advised by the Company as to all factual
matters set forth herein.
Rule 14a-8(k) provides that shareholder proponents are required to send
companies a copy of any correspondence that the proponents elect to submit to
the Commission or the staff of the Division of Corporation Finance (the
"Staff"). Accordingly, we are taking this opportunity to inform the Proponent
that if it elects to submit additional correspondence to the Commission or the
Staff with respect to the Proposal, a copy of that correspondence should
concurrently be furnished to the undersigned on behalf of the Company pursuant
to Rule 14a-8(k).
THE PROPOSAL
The Proposal requests that the Company's board of directors "assess how the
Company is responding to rising regulatory, competitive, and public pressure to
address climate change" in its homebuilding operations and report its findings
to shareholders "at reasonable cost and omitting proprietary information." In
addition, the Proposal includes a supporting statement that emphasizes that
"early action to reduce emissions and prepare for standards could provide
competitive advantages, while inaction and opposition to climate change
mitigation efforts could leave companies unprepared to deal with the realities
of a carbon constrained economy."
DISCUSSION
As set forth more fully below, the Company believes that it may properly omit
the Proposal from its 2007 Proxy Materials pursuant to Rule 14a-8(i)(7) because
the Proposal deals with a matter relating to the conduct of the Company's
ordinary business operations. In particular, as discussed below, we note that
the Staff granted no action relief to Wells Fargo & Company ("Wells Fargo") on
February 16, 2006 for a substantially similar proposal.
Rule 14a-8(i)(7) under the Exchange Act permits the exclusion of a shareholder
proposal that deals with matters relating to a company's "ordinary business"
operations. In 1998, the Commission clarified 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 "1998 Release"). The
Commission described the two "central considerations" underpinning the
exclusion. The first was that certain tasks were "so fundamental to management's
ability to run a company on a day-to-day basis" that they could not be subject
to direct stockholder oversight. Id. The second consideration related 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 the shareholders, as a group,
would not be in a position to make an informed judgment." Id. In addition, the
Staff has indicated that where a proposal requests a report on a specific aspect
of the registrant's business, the Staff will consider whether the subject matter
of the proposal relates to the conduct of ordinary business operations. Where it
does, such proposal, although only requiring the preparation of a report, will
be excludable. SEC Release No. 34-20091 (August 16, 1983).
A. The Proposal Involves Ordinary Business Matters Because It Relates to the
Assessment of Risk.
We believe the Proposal is excludable under Rule 14a-8(i)(7) because, as an
intended consequence of the requested internal assessment of the Company's
response to "rising regulatory, competitive and public pressure to address
climate change," the Proposal is seeking nothing less than the Company's
assessment of the risks and liabilities associated with the operation of its
residential construction business. The supporting statement amplifies this focus
on risks and liabilities by referring to the potential "competitive advantages"
to "early action to reduce emissions and prepare for standards" as contrasted
with "companies unprepared to deal with the realities of a carbon constrained
economy." Further, the broad usage of the terms "climate change," "greenhouse
gas emissions," and "extreme weather events" in the Proposal and its
introductory statement involve issues that are "fundamental to management's
ability to run the company on a day-to-day basis."
It is important to evaluate the Proposal in light of the Company's residential
construction business. As of December 31, 2006, the Company presently conducts
homebuilding operations in 25 states and the District of Columbia in over 675
neighborhoods. In the introductory statement to the Proposal, the Proponent
refers to the adverse effects of increased extreme weather events on the
Company's operations. Due to the number of construction projects in progress
across the United States at any given moment, any assessment of the
weather-related effects of climate change to the Company's homebuilding business
as a whole would be a task of tremendous scope that would require a detailed
analysis for all ongoing and future construction sites.
While the Proponent also includes greenhouse gas emissions in its general
discussion of "climate change," the introductory statement acknowledges that
"emissions associated with the actual construction of homes may be relatively
small" and admits that the post-construction usage of homes by homeowners
results in a significant amount of CO\2/ emissions. Thus, with respect to
greenhouse gas emissions, the Proposal is seeking to "micro-manage" the affairs
of the Company by attempting to impose certain types of technologies on the
business operations of the Company to reduce emissions by the Company's homes.
In essence, the Proposal focuses on matters that involve the Company's
fundamental day-to-day business activities and would require the Company to
provide a detailed report that, in effect, summarizes the Company's ordinary
business of building homes. In addition, the Proposal's requirement that the
board report on its assessment of "rising regulatory, competitive and public
pressures to address climate change" also deals with ordinary business
activities, including the Company's compliance function and its governance
processes for evaluating risks to the Company's reputation. The Proposal (as is
clearly evident in its supporting statement) is in essence calling on the
Company to undertake an internal assessment of the risks and benefits of the
Company's current approach to climate change by creating a risk report and
distributing it to shareholdersany assessment or evaluation of the pressures
that the Company may experience as a result of climate change would require the
identical action by the Company as an assessment of the risks and liabilities
associated with climate change. Finally, the Proposal does not request that the
Company change its policies nor does it claim that the production of the report
itself would address an important social policy. Thus, the Company believes that
the Proposal is precisely the type of report involving ordinary business
activities noted by the Commission in the 1998 Release as falling within the
ordinary business exclusion.
B. The Proposal Falls Within the Staff's Recent Guidance Issued in Staff Legal
Bulletin No. 14C ("SLB 14C"), Published on June 28, 2005, as a Proposal Which
May Be Omitted for Relating to the Ordinary Business Matter of Evaluating Risk.
In 2005, the Staff issued SLB 14C to allow companies to better assess whether
shareholder proposals related to environmental or public health issues may be
excluded from proxy materials under Rule 14a-8(i)(7). Specifically, in Section
D.2. of SLB 14C, the Staff stated:
"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)." (emphasis added).
Since the Proposal seeks an assessment of the adverse impact of the environment
on the Company, it is our belief that the first category is more applicable to
the present case and supports the exclusion of the Proposal pursuant to Rule
14a-8(i)(7). For example, it is well-established that shareholder proposals
seeking a company's assessment of the financial implications of aspects of its
business operations do not raise significant policy issues and instead delve
into the minutiae and details of the ordinary conduct of a company's business.
Here, the Proposal asks the Company to "assess its response" to pressures to
address climate change and the supporting statement clearly indicates that the
reason to do so is for "competitive advantages" to the Company. The supporting
statement further states that "inaction and opposition to climate change
mitigation efforts could leave companies unprepared to deal with the realities
of a carbon constrained economy." All of these items, as well as other
statements within the Proposal, clearly indicate a focus on the Company's
internal risks and not on any overall social policy issue. As such, these are
matters for the business judgment of management.
Section D.2. of SLB 14C discusses two principal no action letters addressing the
evaluation of risks relating to environmental or public health issues. First, in
nXcel Energy, Inc. (Apr. 1, 2003), the Staff granted relief under 14a-8(i)(7)
allowing Xcel to exclude a proposal because the proposal requested a report on
the economic risks of Xcel's prior, current and future emissions of carbon
dioxide and other substances. The Xcel proposal requested the report to address,
among other things, "the economic benefits of committing a substantial
reduction" of such emissions related to its business operations. Similarly, the
report requested by the Proposal will necessarily include the Company's
assessment of the risks it may encounter if it ignores the trend of addressing
climate changeindeed, the supporting statement makes reference to companies,
due to inaction and opposition, being "unprepared to deal with the realities of
a carbon constrained economy." Also, the Proposal references the financial and
competitive advantages which may result from taking action to address climate
change. The Proposal submitted to the Company involves a similar type of "risk
versus benefit" report requested by the similarly drafted proposal in the Ryland
Group, Inc. (February 13, 2006) (concurring that the company could exclude under
Rule 14a-8(i)(7) a proposal requesting a report on the company's "response to
rising regulatory, competitive and public pressure to increase energy
efficiency" as an evaluation of risk relating to the company's ordinary
business) (emphasis added).
In the second letter referenced in SLB 14C, Exxon Mobil Corp. (Mar. 18, 2005),
the Staff did not concur that the company could exclude the submitted proposal
under Rule 14a-8(i)(7). In Exxon Mobil Corp., the Exxon shareholder requested a
report on specific environmental damage that would result from Exxon drilling
for oil and gas in certain protected areas. The Exxon proposal focused on
environmental issues relating to the adverse effect on the environment of Exxon
Mobil Corp.'s operations, in contrast to this Proposal, which is focused on the
exact oppositethe adverse effect of the environment on the Company's
operations.
Here, the Proposal is effectively seeking a report on the Company's internal
assessment of the risks and benefits associated with addressing climate change
in its homebuilding business, and thus is consistent with the guidance provided
by the Staff regarding excludable proposals.
As a general matter, the Staff has consistently allowed exclusion of proposals
seeking detailed information on a company's assessment of the risks and benefits
of aspects of its business operations which do not raise significant policy
issues and instead delve into the minutiae and details of the ordinary conduct
of business. In The Dow Chemical Co. (February 23, 2005), the Staff concurred
that the company could exclude a proposal requesting a report describing the
reputational and financial impact of an environmental policy on Rule 14a-8(i)(7)
grounds because it related to the company's ordinary business operations (i.e.,
evaluation of risks and liabilities). In The Dow Chemical Co. (February 13,
2004), the Staff concurred that the company could exclude under Rule 14a-8(i)(7)
a proposal requesting a report related to certain toxic substances, including
"the reasonable range of projected costs of remediation or liability." In
concurring with the exclusion of the proposal, the Staff noted that it related
to an evaluation of risks and liabilities. See also Willamette Industries, Inc.
(March 20,2001) (excluding a proposal related to a request for a report on
environmental problems, including "an estimate of worst case financial exposure
due to environmental issues for the next ten years"); Potlatch Corp. (February
13, 2001) (excluding a proposal related to a request for a report that was to
include an assessment of environmental risks).
With respect to proposals dealing with climate change, the Proposal is similar
to other proposals requesting an assessment of a company's strategies to address
the impact of climate change on a company's business that the Staff has
concluded may be excluded under Rule 14a-8(i)(7) as relating to an evaluation of
risk and ordinary business operations.
For example, in American International Group. Inc. (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, and could be excluded. See also The Chubb Corporation (January 25,
2004) (identical proposal regarding the assessment of the company's strategies
to address the impacts of climate change excluded). 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, the Company believes that the
report requested by the Proposal necessitates an extensive analysis of the
effects of climate change on the Company's business, including a review of the
detailed operational processes that are part of the Company's ordinary business
operations involving risk and liability assessment, and, therefore, is similar
to American International Group. Inc. and The Chubb Corporation. See also
Hewlett Packard Company (December 12, 2006) (excluding a proposal requesting a
report on the development of a greenhouse gas emissions policy).
More recently, the Staff granted no action relief under Rule 14a-8(i)(7) to
Wells Fargo & Company (February 16, 2006) where a shareholder proposal requested
Wells Fargo to report to shareholders on the effect on Wells Fargo's business
strategy of the challenges created by global climate change. See also Wachovia
Corporation (February 10, 2006) (excluding a climate change proposal similar to
the proposal in Wells Fargo). The subject matter, including an assessment of
both rising public and regulatory pressures to limit greenhouse gases and an
increase in dramatic weather patterns, is substantially similar to the Proposal,
as is the effect of the Wells Fargo proposal on the distributed nature of Wells
Fargo's operations. In Wells Fargo, the Staff concluded that the 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). In our view, the
Proposal, like the Wells Fargo proposal, also improperly calls upon management
to conduct an internal assessment of risk to the Company and may be excluded
under Rule 14a-8(i)(7). See also The Chubb Corporation (February 26, 2007)
(excluding a proposal requesting a report on the company's position on climate
change, including "the effect climate change may have on our company, and steps
Chubb is taking in response to climate change concerns").
In short, the Company believes that the Proposal focuses on the Company's
fundamental day-to-day business operations and involves a matter that requires
an internal assessment of the risks and liabilities on the daily operations of
the Company in its numerous geographies. Moreover, the Proposal probes "deeply
into matters of a complex nature upon which the shareholders, as a group, would
not be in a position to make an informed judgment." See the 1998 Release.
Finally, a proposal may be excluded in its entirety when it addresses ordinary
business matters even if it also touches upon a policy matter. The fact that the
Proposal mentions greenhouse gas emissions and climate change does not remove it
from the scope of Rule 14a-8(i)(7) because the Proposal fundamentally addresses
the benefits, risks and liabilities the Company faces as a result of its
response to regulatory, competitive and public pressure to address climate
change. Accordingly, based on the foregoing and in view of the consistent
position of the Staff on prior proposals relating to similar issues, the Company
believes that it may properly omit the Proposal under Rule 14a-8(i)(7).
C. The Proposal Falls Within the Staff's Precedents, as a Proposal Which May be
Omitted for Relating to the Ordinary Business Matter of Choice of Technologies.
While the Proponent's request for a report focuses on risk assessment, the
introductory statement's focus on the greenhouse gas emissions associated with
the end-use of the Company's homes, points to the use of green building
technologies to reduce greenhouse gas emissions. The Company's choice of
building technologies and materials in homes is not an appropriate subject
matter for shareholder consideration. The Staff has, on several occasions,
granted relief under 14a-8(i)(7) where a shareholder proposal related to a
company's choice of technologies.
In WPS Resources Corp. ("WPS") (February 16, 2001) the Staff allowed WPS, a
utility company, to exclude a shareholder proposal requesting that it develop
new co-generation facilities and improve energy efficiency. The Staff granted
relief to WPS to exclude the proposal because the proposal dealt with "ordinary
business operations" (i.e., choice of technologies). The Staff also granted
relief under 14a-8(i)(7) in International Business Machines Corp. ("IBM")
(January 6, 2005), where the proposal requested a report on the design and
development of IBM's software products. In the context of the Proposal's
introductory statement, the Proponent's request for a report assessing how the
company is responding to rising regulatory, competitive and public pressures to
address climate change appears to charge the board with evaluating and assessing
certain building technologies and designs as they relate to greenhouse gas
emissions.
The Company believes that the evaluation, balancing and implementation of
policies and business practices in relation to building technologies and
designs, involve complex, detailed decision-making processes and judgments that
are and should be within the realm of management authority, and should not be
within the ambit of matters submitted to decision-making by shareholders.
Furthermore, in relation to these complex, detailed decision-making processes
and judgments, the Company's management should have full flexibility and
latitude to balance all proper criteria that it deems relevant, including social
and environmental factors as well as business, operational, profitability and
other factors. In summary, the Company's choice of building technologies and
designs is not an appropriate subject for shareholder consideration, and the
Proposal should be excludable as part of the Company's ordinary business choice
of technology.
* * *
Based on the foregoing, the Company believes that the Proposal may properly be
excluded from its 2007 Proxy Materials under Rule 14a-8(i)(7), as it deals with
the ordinary business operations of the Company both by focusing on an
inappropriate subject matter, the internal assessment of risk, and seeking to
micro-manage the Company by imposing a choice of technology on the Company.
Staffs Use of Facsimile Numbers for Response
Pursuant to Staff Legal Bulletin 14C, in order to facilitate transmission of the
Staff's response to our request during the highest volume period of the
shareholder proposal season, our facsimile number is (214) 661-4576 and the
Proponent's facsimile number is (212) 787-7377 (The Nathan Cummings Foundation).
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff of the
Commission concur that it will take no action if the Company excludes the
Proposal from its 2007 Proxy Materials. If the Staff does not concur with the
positions of the Company discussed above, we would appreciate the opportunity to
confer with the Staff concerning these matters prior to the issuance of its Rule
14a-8 response. In addition, the Company agrees to promptly forward to the
Proponent any response from the Staff to this no-action request that the Staff
transmits by facsimile to the Company only.
Please call the undersigned at (214) 953-6576 if you should have any questions
or need additional information. Please acknowledge receipt of this filing by
date-stamping the enclosed additional copy of this letter and returning it to
our messenger.
Sincerely,
/s/
Brian J. Henchey
Enclosures
cc: Paul Johnston
Vice President and Corporate Counsel
Centex Corporation
2728 North Harwood
Dallas, Texas 75201-1516
Fax: (214) 981-6975
Lance E. Lindblom
Laura J. Shaffer
The Nathan Cummings Foundation
475 Tenth Avenue, 14th Floor
New York, New York 10018
Fax: (212) 787-7377
[INQUIRY LETTER]
February 9, 2007
James R. Peacock III
VP, Deputy General Counsel & Secretary
Centex Corporation
2728 N. Harwood Street
Dallas, Texas 75201
Dear Mr. Peacock:
The Nathan Cummings Foundation is an endowed institution with approximately $535
million of investments. As a private foundation, the Nathan Cummings Foundation
is committed to the creation of a socially and economically just society and
seeks to facilitate sustainable business practices by supporting the
accountability of corporations for their actions. As an institutional investor,
the Foundation believes that the way in which a company approaches major public
policy issues has important implications for long-term shareholder value.
It is with these considerations in mind that we submit this resolution for
inclusion in Centex Corporation's proxy statement under Rule 14a-8 of the
general rules and regulations of the Securities Exchange Act of 1934. We would
appreciate an indication in the proxy statement that the Nathan Cummings
Foundation is the primary proponent of this resolution. At least one
representative of the filers will attend the stockholders' meeting to move the
resolution as required by the rules of the Securities and Exchange Commission.
The Nathan Cummings Foundation is the beneficial owner of over $2,000 worth of
shares of Centex Corporation stock. Verification of this ownership, provided by
Northern Trust, our custodian bank, is included with this letter. We have
continuously held over $2,000 worth of the stock for more than one year and will
continue to hold these shares through the shareholder meeting.
If you have any questions or concerns about this resolution, please contact
Laura Shaffer at (212) 787-7300. Thank you for your time.
Sincerely,
/s/
Lance E. Lindblom
President and CEO
/s/
Laura J. Shaffer
Manager of Shareholder Activities
cc: Interfaith Center on Corporate Responsibility Members and Associates
[APPENDIX]
WHEREAS:
The Intergovernmental Panel on Climate Change recently concluded that warming of
the climate system is unequivocal and that human activity is the main cause. In
January, chief executives of 10 major US corporations called on Congress to pass
a mandatory program for the reduction of greenhouse gas (GHG) emissions.
Regulations addressing GHG emissions already exist in 28 states and Congress is
now debating the best way to address the problem.
Analysts at firms such as Goldman Sachs, McKinsey and JPMorgan Chase have
publicly recognized the possible financial implications of climate change and
have raised concerns about companies that do not adequately disclose them.
According to the Conference Board, "climate change is a fact of life for
business in the 21st century ... businesses that ignore the debate over climate
change do so at their peril."
There is increasing recognition that climate change will have important impacts
on all sectors of the economy. According to Institutional Shareholder Services,
"... the scope of impact has expanded beyond the industries generally associated
with emissions (energy, oil/gas, auto) ... climate change has a measurable
impact on companies in all industries."
Although emissions associated with the actual construction of homes may be
relatively small, emissions associated with our company's end-product are
significant. According to the Environmental Protection Agency (EPA), residential
end-use accounted for 21 percent of CO2 emissions from fossil fuel combustion in
2004.
In addition to facing pressure to limit the emissions associated with the homes
they build, homebuilders may be vulnerable to the effects of climate change on
several other fronts. For instance, according to Business Week, many scientists
agree that the warmer temperatures resulting from climate change are causing
more powerful storms and perhaps intensifying extreme weather events including
drought and wild fires. Such events can have significant impacts on
homebuilders' operations. As Centex notes in its 2006 10-K, "The occurrence of
natural disasters or adverse weather conditions in the areas in which we operate
can delay new home deliveries, increase costs by damaging inventories of homes
and construction materials, reduce the availability of raw materials and skilled
labor, and negatively impact the demand for new homes in affected areas."
RESOLVED:
The shareholders request that the Board assess how the company is responding to
rising regulatory, competitive and public pressure to address climate change and
report to shareholders (at reasonable cost and omitting proprietary information)
by December 1, 2007.
SUPPORTING STATEMENT:
We believe that management best serves shareholders by carefully assessing and
disclosing all pertinent information on its response to climate change. We
believe taking early action to reduce emissions and prepare for standards could
provide competitive advantages, while inaction and opposition to climate change
mitigation efforts could leave companies unprepared to deal with the realities
of a carbon constrained economy.
[INQUIRY LETTER]
April 16, 2007
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attention: Chief Counsel, Division of Corporation Finance
Re: Request by Centex Corporation to omit shareholder proposal submitted by The
Nathan Cummings Foundation
Dear Sir/Madam,
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, The Nathan
Cummings Foundation (the "Foundation") submitted a shareholder proposal (the
"Proposal") to Centex Corporation ("Centex" or the "Company"). The Proposal asks
Centex's board to "assess how the Company is responding to rising regulatory,
competitive and public pressure to address climate change and report to
shareholders (at reasonable cost and omitting proprietary information) by
December 1, 2007."
By letter dated March 19, 2007, Centex stated that it intends to omit the
Proposal from the proxy materials to be sent to shareholders in connection with
the 2007 annual meeting of shareholders and asked for assurance that the Staff
would not recommend enforcement action if it did so. Centex argues that it is
entitled to exclude the Proposal in reliance on Rule 14a-8(i)(7), as relating to
Centex's ordinary business operations.
Rule 14a-8(i)(7) allows a company to exclude a proposal that "deals with a
matter related to the company's ordinary business operations." Centex urges that
the Proposal implicates the Company's ordinary business operations because it
(a) seeks an assessment of risk and (b) deals with Centex's choice of
technologies. Neither contention is supported by the Proposal's language or
prior Staff determinations.
The Proposal Does Not Ask for a Risk Assessment
Centex argues that the Proposal "is seeking nothing less than the Company's
assessment of the risks and liabilities associated with the operation of its
residential construction business." In Staff Legal Bulletin 14C ("SLB 14C"), the
Staff clarified the circumstances under which a company can rely on the ordinary
business exclusion to omit a proposal relating to the environment or public
health on the grounds that it asks for an evaluation of risks and benefits. SLB
14C states:
In determining whether the focus of these proposals is a significant social
policy issue, we consider both the proposal and the supporting statement as a
whole. 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).
Here, the Proposal does not focus on an internal assessment of risks or
liabilities but instead focuses on the steps Centex is taking to minimize or
eliminate operations that may adversely affect the environment. The bulk of the
supporting statement is devoted to a discussion of greenhouse gas emissions and
the increasing pressure on companies in all industries to minimize the
contribution made by their operations and products to climate change.
There is no mention of risk or liabilities in the Proposal, nor does the
Proposal even hint at the kind of balancing inherent in a cost-benefit analysis.
Rather, the Proposal asks Centex to tell shareholders what steps, if any, Centex
is taking to reduce the impact of its products on the earth's climate. If Centex
is not taking any steps, the board could comply with the Proposal by simply
disclosing that fact and indicating that it believes such inaction is the
appropriate response.
That end-use accounts for the vast majority of Centex's emissions does not
change the analysis. Constraints on carbon emissions affect not only direct
emitters such as utilities but also companies like Centex whose impact is felt
indirectly through their products. For example, Centex may change its home
designs in order to reduce the amount of greenhouse gas emissions produced by
its homes and ensure that its homes appeal to the desired market segment. An
automaker may decide to emphasize fuel efficiency more, which would reduce the
impact of its products on the environment and position it to succeed in an
environment in which auto emissions are more highly regulated. Indeed, the fact
that Centex's homebuilding activities themselves are not significant emitters
undercuts the argument that the Proposal implicates Centex's day-to-day
operations.
Nor does the possibility of competitive advantage to Centex flowing from
emissions reductions automatically transform the Proposal into a risk
assessment, as Centex seems to assert. Shareholders like the Foundation submit
proposals that they believe will be value-enhancing for the companies in which
they invest. It would defy logic to require that a proponent not discuss the
positive impact a proposal's implementation might have in order to avoid
exclusion on risk assessment grounds.
The determinations cited by Centex are inapposite because the proposals differed
significantly from the Proposal. In Xcel Energy, Inc.,1 the proposal
specifically asked for a risk-benefit analysis relating to specific substances.
It requested that the company report to shareholders on "(a) the economic risk
associated with the Company's past, present, and future emissions of carbon
dioxide, sulfur dioxide, nitrogen oxide and mercury emissions, and the public
stance of the company regarding efforts to reduce these emissions and (b) the
economic benefits of committing a substantial reduction of those emissions
related to its current business activities (i.e., potential improvement in
competitiveness and profitability)." Unlike here, the competitive impact of
changes in company behavior were not an argument in the supporting statement,
but rather were an element of the analysis Xcel was asked to perform. In
Hewlett-Packard Company,2 the proposal sought a cost-benefit analysis of the
company's policy on greenhouse gas emissions.
Similarly, the proposals in The Dow Chemical Company (2005),3 The Dow Chemical
Company (2004),4 Willamette Industries, Inc.5 and Potlatch Corp.6 clearly fell
within the risk assessment reasoning because they all explicitly sought a
financial analysis of particular risks or liabilities related to the
environment. The Ryland7 proposal focused on energy efficiency, a narrower
subject than climate change and one that the Staff had never foundin contrast
to climate changeto implicate a significant social policy issue.
The determinations in American International Group8 and Chubb9 should not be
generalized outside the insurance industry. There, both companies argued that
proposals dealing with the effects of climate change on their business
strategies by necessity involved risk assessment because pricing risk is the
core business of insurance companies. Centex's business is not the pricing of
risk. Moreover, unlike the Proposal, the AIG and Chubb proposals, as well as the
proposals in Wells Fargo10 and Wachovia,11 did not focus on the measures those
companies were taking to reduce harm to the environment, which SLB 14C states is
required in order to avoid exclusion. Accordingly, Centex should not be
permitted to omit the Proposal in reliance on the ordinary business exclusion.
The Proposal Does Not Try to Impose any Particular Technology on Centex
Centex contends that the Proposal is also excludable on ordinary business
grounds because it attempts to constrain the Company's choice of building
technologies and designs. But the Proposal does no such thing. It only asks
Centex to assess and report to shareholders on any steps it has taken to address
climate change. Centex could implement the Proposal without changing any of its
building technologies or designs.
In the determinations relied on by Centex, the proposals themselves urged the
companies to adopt particular technologies. The proposal in WPS12 suggested that
the company make eight changes, many of which involved specific technologies
including small-scale co-generation technologies and off peak powered phase
change air conditioning technologies. Likewise, the proposal in IBM13 urged the
company to "take steps to offer IBM customers software technology that enables
the customers to express their software with simplicity as advanced as was
allowed by technology that was designed at IBM 30 years ago." Specifying a
particular technology is clearly the kind of micromanagement the ordinary
business exclusion is intended to prevent. The Proposal does not cross this
line, however, making exclusion inappropriate.
If you have any questions or need anything further, please do not hesitate to
call me at (212) 787-7300. The Foundation appreciates the opportunity to be of
assistance in this matter.
Very truly yours,
/s/
Laura J. Shaffer
Manager of Shareholder Activities
cc: Brian J. Henchey, Esq.
fax # 214-661-4576
-----FOOTNOTES-----
1 Xcel Energy Inc. (publicly available Jan. 22, 2003).
2 Hewlett-Packard Company (publicly available Dec. 13, 2006).
3 The Dow Chemical Company (publicly available Feb. 23, 2005).
4 The Dow Chemical Company (publicly available Feb. 13, 2004).
5 Willamette Industries, Inc. (publicly available Mar. 20, 2001).
6 Potlatch Corp. (publicly available Feb. 13, 2001).
7 Ryland Group, Inc. (publicly available Feb. 13, 2006).
8 American International Group, Inc. (publicly available Feb. 11, 2004).
9 Chubb Corporation (publicly available Jan. 25, 2004).
10 Wells Fargo & Company (publicly available Feb. 16, 2006).
11 Wachovia Corporation (publicly available Feb. 10, 2006).
12 WPS Resources Corporation (publicly available Feb. 16, 2001).
13 International Business Machines Corp. (publicly available Jan. 6, 2005).
[INQUIRY LETTER]
April 20, 2007
BY HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Letter from The Nathan Cummings Foundation dated April 16, 2007 Opposing
Request for Omission of the Shareholder Proposal Submitted on February 9, 2007
by The Nathan Cummings Foundation to Centex Corporation
Ladies and Gentlemen:
We are counsel to Centex Corporation ("Centex" or the "Company") and, on behalf
of Centex on March 19, 2007, we submitted a letter requesting that the staff of
the Division of Corporate Finance (the "Staff") concur that it will not
recommend enforcement action if Centex omits a shareholder proposal and
supporting statement (the "Proposal") submitted on February 9, 2007 by The
Nathan Cummings Foundation (the "Proponent"). On April 16, 2007, we received a
facsimile of a letter from the Proponent (the "Response Letter") responding to
our request seeking omission of the Proposal.
We would like to respond to three specific points raised by the Proponent in its
Response Letter.
1. Preparation of the Report Requested by the Proposal Requires an Internal
Assessment of Risks and Liabilities Consistent with the Guidance in Staff Legal
Bulletin 14C.
The Response Letter asserts that the Proposal "does not focus on an internal
assessment of risks or liabilities but instead focuses on the steps Centex is
taking to minimize or eliminate operations that may adversely affect the
environment." This statement is not correct. The focus of the Proposal is not
the environment or the public's health, but rather the risks and benefits of
modifying Centex's ordinary business operations. Nowhere in the Proposal does
the Proponent directly call for Centex to reduce or eliminate greenhouse gas
(GHG) emissions or eliminate the use of fossil fuels.
As stated in Section D of Staff Legal Bulletin 14C, when reviewing a proposal
under the Rule 14a-8(i)(7) exclusion, the Staff looks at both the proposal and
the supporting statement as a whole. By its plain text reading, the Proposal is
seeking to require the Board of Directors to "assess how the company is
responding to rising regulatory, competitive and public pressure to address
climate change." (emphasis added) When this exercise is coupled with the
Proponent's focus on GHG emissions by Centex, the Board will be tasked with
conducting both a cost/benefit analysis and an assessment of GHG-related risks
regarding Centex's home designs, building techniques and technologies absent
which the Proponent asserts will leave Centex "unprepared to deal with the
realities of a carbon-constrained economy."
Furthermore, the Proponent's generic usage of the term "climate change" appears
to refer to a number of factors in addition to GHG emissions. Additional factors
referenced in the Proposal include global warming, extreme weather events and a
carbon-constrained economy. As the Proposal calls for the assessment and
disclosure of "all pertinent information" on Centex's response to climate
change, it is reasonable to assume that these factors do not constitute an
exclusive list. Thus, the report will also require a comprehensive
identification and assessment of all factors related to "climate change" that
are relevant to the Company's homebuilding business, which factors may vary from
geography to geography. In addition, the Proposal's reference to both GHG
emissions and extreme weather events touches on the fact that two separate
risk/liability assessments are implicated(i) the effect of the Company's
operations on climate change (e.g., GHG emissions), and (ii) the effect of
climate change on the Company's operations (e.g., extreme weather events).
Therefore, to generate the report requested by the Proposal, the Board must
engage in a multi-level analysis where an assessment of risks and liabilities
will be required at each level. As a result, the report will necessarily include
the types of risks and benefits called for by the Proposal. The Company's
request to omit the Proposal is consistent with the Staff's view that a proposal
calling for an assessment of company exposure to competitive, reputational and
regulatory risks is excludable under Rule 14a-8(i)(7).
2. The Proposal Is Identical in Effect to Excluded Shareholder Proposals Dealing
with Energy Efficiency.
In the Proposal and in the Response Letter, the Proponent confirms that Centex's
homebuilding activities are not significant emitters of GHGs and that the GHGs
indirectly attributable to Centex arise from people living in Centex-built
homes. Since, as the Proposal states, "residential end-use accounted for 21
percent of CO2 emissions from fossil fuel combustion in 2004," the true focus of
the Proposal appears to implicate a reduction in energy usage by the Company's
homes through an increase in energy efficiency. Thus, the Proposal may be read
as an attempt to avoid the fate of energy efficiency shareholder proposals
previously submitted to homebuilders. In Ryland Group, Inc. (February 13, 2006)
and Pulte Homes, Inc. (March 1, 2007), the Staff allowed exclusion by the two
homebuilders of shareholder proposals that are similarly structured to the
Proposal except that they reference an assessment related to "energy efficiency"
rather than "climate change." For this reason, the Proposal's oblique focus on
energy efficiency also has the practical effect of advocating for the adoption
of specific technologies and building designs to increase the efficiency of the
Company's homes, which is not an appropriate matter for shareholder
consideration.
3. The Proposal is Not Materially Different from Excluded Shareholder Proposals
Dealing with Climate Change.
The Response Letter objects to the Company's reliance on the Staff's exclusion
of shareholder proposals in Wachovia Corporation (February 10, 2006) and Wells
Fargo & Company (February 16, 2006). We do not agreethe referenced no-action
letters bear directly on the omission of the Proposal. The Wachovia and Wells
Fargo proposals each broadly referred to "global climate change," and included
general background information in the supporting statement that was not
specifically tailored to the businesses of either Wachovia or Wells Fargo. In
addition, the resolution clauses of each of these proposals call for a report
strongly resembling the one requested by the Proposal:
"a report to shareholders by October 2006 on the effect of 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 emissions of greenhouse
gases, and (b) anticipated changes to our physical environment."
Each of Wachovia and Wells Fargo requested exclusion on the grounds that the
proposals dealt with matters relating to the conduct of each company's ordinary
business operations, specifically the assessment of risks and liabilities of
global climate change as it relates to the companies' businesses. The fact that
Wachovia and Wells Fargo are financial institutions and the Company is a
homebuilder is not determinative as to whether the Proposal should be included
where the others were excluded. The Proponent argues otherwise in the Response
Letter and asserts that the proposals in American International Group, Inc.
(February 11, 2004) and The Chubb Corporation (January 25, 2004), each of which
was cited by Wachovia and Wells Fargo, should not be "generalized outside of the
insurance industry." Indeed, the proponent in Wells Fargo made a similar
argument in its response letter.1 The Company believes otherwise as supported by
the Staff's exclusion of the proposals at issue in both Wachovia and Wells
Fargo.
* * *
Based on the Company's request for omission of the Proposal and the
inapplicability of the Proponent's response, the Company respectfully requests
the Staff's concurrence that the Proposal may be omitted from the Company's 2007
proxy materials.
If you have any questions or need additional information, please contact the
undersigned. We appreciate your attention to this request.
Sincerely,
/s/
Brian J. Henchey
cc: Paul Johnston
Vice President and Corporate Counsel
Centex Corporation
2728 North Harwood
Dallas, Texas 75201-1516
Fax: (214) 981-6975
By facsimile:
Laura J. Shaffer
The Nathan Cummings Foundation
475 Tenth Avenue, 14th Floor
New York, New York 10018
Fax: (212) 787-7377
-----FOOTNOTES-----
1 Letter to the Staff dated January 25, 2006 from the Service Employees
International Union Master Trust.
[STAFF REPLY LETTER]
May 14, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Centex Corporation Incoming letter dated March 19, 2007
The proposal requests that the board assess how the company is responding to
rising regulatory, competitive and public pressure to address climate change.
There appears to be some basis for your view that Centex may exclude the
proposal under rule 14a-8(i)(7), as relating to Centex's ordinary business
operations (i.e., evaluation of risk). Accordingly, we will not recommend
enforcement action to the Commission if Centex omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Tamara M. Brightwell
Special Counsel
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