Company Name: Qwest Communications Int'l. Inc.
Public Availability Date: February 12, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 4, 2007
Direct Dial
(202) 955-8671
Fax No.
(202) 530-9569
Client No.
C 93166-00069
VIA HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Stockholder "Proposal" of the AFSCME Employees Pension Plan Exchange Act of
1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, Qwest Communications International
Inc. ("Qwest"), intends to omit from its proxy statement and form of proxy for
its 2007 Annual Stockholders Meeting (collectively, the "2007 Proxy Materials")
a purported stockholder proposal and statements in support thereof (the
"Submission") received from the AFSCME Employees Pension Plan (the "Proponent").
Pursuant to Rule 14a-8(j), we have:
enclosed herewith six (6) copies of this letter and its attachments;
filed this letter with the Securities and Exchange Commission (the
"Commission") no later than eighty (80) calendar days before Qwest files its
definitive 2007 Proxy Materials with the Commission; and
concurrently sent copies of this correspondence to the Proponent.
Rule 14a-8(k) provides that stockholder 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 the Proponent elects to submit additional correspondence to the
Commission or the Staff with respect to this Submission, a copy of that
correspondence should concurrently be furnished to the undersigned on behalf of
Qwest pursuant to Rule 14a-8(k).
THE SUBMISSION
The Submission requests that the Qwest Board of Directors adopt a policy "that
Qwest stockholders be given the opportunity at each annual meeting of
stockholders to vote on an advisory resolution ... to ratify the compensation of
the named executive officers [] set forth in the proxy statement's Summary
Compensation Table...." The supporting statement describes the Submission as
allowing stockholders to "express their opinion about senior executive
compensation at Qwest by establishing an annual referendum process."
A copy of the Submission and supporting statement, as well as related
correspondence from the Proponent, is attached to this letter as Exhibit A. On
behalf of our client, we hereby respectfully request that the Staff concur in
our view that the Submission may be excluded from the 2007 Proxy Materials
pursuant to Rule 14a-8(a) because it is not a proper subject for a stockholder
proposal.
ANALYSIS
The Submission May Be Excluded Under Rule 14a-8(a) Because It Seeks an Advisory
Vote.
The Submission is not a proposal for purposes of Rule 14a-8 because it does not
present a proposal for stockholder action but instead seeks to provide a
mechanism that would allow stockholders to express their views on a specified
topic. Under the Commission's rules, Staff responses to no-action requests under
Rule 14a-8(a) and other Staff precedent, such a vote is not a proper subject
under Rule 14a-8.
A. Requests for Advisory Votes Are Excludable Under Commission Amendments to
Rule 14a-8.
The rulemaking history of Rule 14a-8 clearly demonstrates that requests for
advisory votes are not proper subjects for stockholder proposals and thus are
excludable. Rule 14a-8(a) states in relevant part:
Question 1: What is a proposal? A shareholder proposal is your recommendation or
requirement that the company and/or its board of directors take action, which
you intend to present at a meeting of the company's shareholders....
Rule 14a-8(a) (emphasis added).
Rule 14a-8(a) was adopted as part of the 1998 amendments to the proxy rules. In
the Commission's 1997 release proposing these amendments, the Commission noted:
The answer to Question 1 of revised rule 14a-8 would define a "proposal" as a
request that the company or its board of directors take an action. The
definition reflects our belief that a proposal that seeks no specific action,
but merely purports to express shareholders' views, is inconsistent with the
purposes of rule 14a-8 and may be excluded from companies' proxy materials. The
Division, for instance, declined to concur in the exclusion of a "proposal" that
shareholders express their dissatisfaction with the company's earlier
endorsement of a specific legislative initiative. Under the proposed rule, the
Division would reach the opposite result, because the proposal did not request
that the company take an action.
Proposing Release, Amendments to Rules on Shareholder Proposals, Exchange Act
Release No. 39093 (September 18, 1997) (emphasis added) (citation omitted).
The Commission subsequently adopted this definition as proposed:
We are adopting as proposed the answer to Question 1 of the amended rule
defining a proposal as a request or requirement that the board of directors take
an action. One commenter objected to the proposal on grounds that the definition
appeared to preclude all shareholder proposals seeking information. In
formulating the definition, it was not our intention to preclude proposals
merely because they seek information, and the fact that a proposal seeks only
information will not alone justify exclusion under the definition.
Adopting Release, Amendments to Rules on Shareholder Proposals, Exchange Act
Release No. 40018 (May 21, 1998) (citations omitted).
The Submission is exactly of the type addressed by the Commission in the
releases cited above, as the supporting statements in the Submission
acknowledge. Echoing the language in the Commission's rulemaking releases, the
supporting statement indicates that the purpose of the Submission is to "allow
stockholders to express their opinion about senior executive compensation at
Qwest" and to allow stockholders to "provid[e] input to boards on senior
executive compensation." Thus, under the clear language of Rule 14a-8(a), the
Submission is not a proper subject under Rule 14a-8.
B. The Submission Is Not a Proposal for Purposes of Rule 14a-8 Based on Staff
Precedent.
Following adoption of Rule 14a-8(a), the Staff has consistently confirmed that a
stockholder submission is excludable if it "merely purports to express
shareholders' views" on a subject matter. For example, in Sensar Corp. (avail.
Apr. 23, 2001), the Staff concurred that a submission seeking to allow a
stockholder vote to express stockholder displeasure over the terms of stock
options granted to management, the board of directors and certain consultants
could be omitted under Rule 14a-8(a) because it did not recommend or require any
action by the company or its board of directors.
The Submission parallels the submission in Sensar: it seeks an advisory vote on
the compensation of executives set forth in the Summary Compensation Table, and
the advisory vote merely allows stockholders to express their views on that
information. The Submission's supporting statement clearly demonstrates that
this is the Proponent's objective. For example, as noted above, the supporting
statement indicates that the purpose of the Submission is to "allow stockholders
to express their opinion about senior executive compensation at Qwest" and to
allow stockholders to "provid[e] input to boards on senior executive
compensation."
The Submission's formulation as a request that Qwest adopt a policy of
submitting an advisory vote to stockholders does not change the Submission's
status for purposes of Rule 14a-8(a). In Exchange Act Release No. 20091 (August
16, 1983), the Commission stated that the substance of a proposal and not its
form is to be examined in determining whether a stockholder proposal is a proper
matter for a stockholder vote under Rule 14a-8. As the text of the release
explains:
In the past, the staff has taken the position that proposals requesting issuers
to prepare reports on specific aspects of their business or to form special
committees to study a segment of their business would not be excludable under
Rule 14a-8(c)(7). Because this interpretation raises form over substance and
renders the provisions of paragraph (c)(7) largely a nullity, the Commission has
determined to adopt the interpretative change set forth in the Proposing
Release. Henceforth, the staff will consider whether the subject matter of the
special report or the committee involves a matter of ordinary business; where it
does, the proposal will be excludable under Rule 14a-8(c)(7).
Adopting Release, Amendments to Rule 14a-8 Under the Securities Exchange Act of
1934 Relating to Proposals by Security Holders, Exchange Act Release No. 20091
(August 16, 1983).
The Staff applies this same approach throughout Rule 14a-8. Virtually all
precatory stockholder proposals request a company's management to take a
particular action, and the Staff has consistently looked at the subject
underlying the proposed policy to determine whether a proposal is excludable
under Rule 14a-8. The Staff has not considered the request to adopt a policy
itself as the subject of the proposal. When a proposal has requested that
management take a particular action, the Staff has examined whether that action
is a proper subject under Rule 14a-8. For example:
In letters where stockholders have requested companies to adopt a policy of
submitting the selection of auditors to a vote, the Staff has focused on the
subject of the policy (the manner of selecting auditors) in determining that the
proposal is excludable under Rule 14a-8(i)(7). See, e.g., Xcel Energy Inc.
(avail. Jan. 28, 2004). See also El Paso Corp. (avail. Feb. 23, 2005) (proposal
requesting that the company adopt a policy of hiring a new independent auditor
at least every ten years excluded under Rule 14a-8(i)(7) based on the underlying
subject, "the method of selecting independent auditors").
In determining whether a stockholder proposal asking that a company adopt a
policy would, if implemented, cause the company to violate the law for purposes
of Rule 14a-8(i)(2), the Staff examines whether implementation of the actions
that are the subject of the proposed policy would violate the law, not whether
adoption of the policy itself would violate the law. See, e.g., Mobil Corp.
(avail. Jan. 29, 1997) (proposal as originally submitted to the company asking
it to adopt a policy prohibiting executives from exercising options within six
months of a significant workforce reduction excludable pursuant to the
predecessor to Rule 14a-8(i)(2) because the subject matter of the policy would
require the company to breach existing contractual obligations).
In determining whether a stockholder proposal asking that a company adopt a
policy is vague and indefinite for purposes of exclusion under Rule 14a-8(i)(3),
the Staff looks at the subject matter of the proposed policy. See, e.g., Duke
Energy Corp. (avail. Feb. 8, 2002) (proposal urging the board to adopt a policy
to transition to a nominating committee composed entirely of independent
directors as openings occur was vague because the underlying action required
creation of a nominating committee, a fact not adequately disclosed in the
proposal or supporting statement).
In determining whether a stockholder proposal asking that a company adopt a
policy involves a personal grievance for purposes of Rule 14a-8(i)(4), the Staff
looks at the subject matter of the proposed policy. See, e.g., International
Business Machines Corp. (avail. Dec. 18, 2002) (proposal urging the board to
adopt a policy to honor any written commitments from company executives to
investigate certain claims excluded because the subject matter of the proposed
action related to a personal claim or grievance).
In determining whether a stockholder proposal requesting a company to adopt a
policy is not significant to a company's business for purposes of Rule
14a-8(i)(5), the Staff looks to the subject matter of the proposed policy. See,
e.g., Procter & Gamble Co. (avail. Aug. 11, 2003) (proposal requesting the
company to adopt a policy forbidding human embryonic stem cell research excluded
under Rule 14a-8(i)(5) where the company did not engage in the activity that was
the subject of the proposed policy); International Business Machines Corp.
(avail. Feb. 23, 1983) (proposal requesting the company to adopt a policy that
its directors require certain actions at other companies where they serve as
directors excluded under predecessor to Rule 14a-8(i)(5) because the subject
matter of the policythe actions its directors were to take at other
companiesdid not relate to the company's business).
When examining whether it is beyond a company's power to implement a
stockholder proposal requesting that the company adopt a particular policy for
purposes of Rule 14a-8(i)(6), the Staff does not look at whether the company has
the power to adopt the proposed policy, but instead looks at the company's
ability to implement the actions that are the subject of the proposed policy.
See, e.g., Catellus Development Corp. (avail. Mar. 3, 2005) (proposal that the
company adopt a policy relating to a particular piece of property was beyond the
company's power to implement because the company no longer owned the property
that was the subject of the proposed policy and could not control the property's
transfer, use or development); General Electric Co. (avail. Jan. 14, 2005)
(proposal that the company adopt a policy that an independent director serve as
chairman of the board excluded under Rule 14a-8(i)(6) because the company could
not ensure that the subject of the proposed policy would be satisfiedi.e., that
the chairman retain his or her independence at all timesand no mechanism was
provided to cure a failure); Ford Motor Co. (avail. Feb. 27, 2005) (same).
In determining whether a stockholder proposal conflicts with a company
proposal for purposes of Rule 14a-8(i)(9), the Staff does not look at whether
the proposals would result in conflicting policies, but instead looks at the
subject matter of the proposals, even if one of the proposals is to be
implemented through a process that does not involve adoption of a policy. See,
e.g., Baxter International Inc. (avail. Jan. 6, 2003) (proposal urging the board
to adopt a policy prohibiting future stock option grants to executive officers
excludable because the underlying subject of the proposed action conflicts with
substance of the company's proposal that stockholders approve a new executive
incentive compensation plan).
In determining whether a company has, for purposes of Rule 14a-8(i)(10),
substantially implemented a stockholder proposal asking the company to adopt a
policy, the Staff does not look at whether the company has in fact adopted a
policy, but instead looks at the substance of the underlying subject of the
proposed policy compared with actions taken by the company. See, e.g., Intel
Corp. (avail. Feb. 14, 2005) (proposal requesting adoption of policy of
expensing stock options excluded under Rule 14a-8(i)(10) based upon FASB's
adoption of mandatory expensing of stock options under SFAS 123(R)).
In determining whether one stockholder proposal substantially duplicates or
conflicts with another proposal for purposes of Rule 14a-8(i)(11), the Staff
looks at the subject matter of the proposals, even if one requests the company
to adopt a policy and the other does not. See, e.g., Merck & Co. (avail. Jan.
10, 2006) (proposal requesting that the company adopt a policy that a
significant portion of future stock option grants be performance-based
substantially duplicated the subject of another proposal requesting the company
to take the necessary steps so that no future stock options be awarded to
anyone).
In determining whether a stockholder proposal is substantially the same as
other proposals that have not received an adequate vote in prior years for
purposes of Rule 14a-8(i)(12), the Staff looks at the subject matter of the
proposals, even if one requests the company to adopt a policy and the other does
not. See, e.g., Eastman Chemical Co. (avail. Mar. 27, 1998) (proposal requesting
that the company adopt a policy not to manufacture cigarette filters until
certain research had been completed excluded because the subject of the proposed
policy was substantially the same as a prior proposal requesting that the
company take the necessary steps to divest its cigarette filter operations,
which earlier proposal had not received sufficient stockholder support).
Here, regardless of whether one views the Submission as asking for adoption of a
policy or as asking that management propose an annual advisory vote for
stockholders, the subject matter of the Submission concerns providing
stockholders an advisory vote, a matter that is not a proper subject of a
stockholder proposal under Rule 14a-8(a). The Proponent should not be able to
avoid the application of Rule 14a-8(a) merely by asking that Qwest adopt a
policy on (or submit for a vote) a matter that, if proposed directly by the
stockholder, would not be a proper subject under Rule 14a-8(a). Consistent with
the Commission's decision that proposals should be assessed on the basis of
their substance and not their form, as stated in its prior Rule 14a-8 rulemaking
discussed above, and consistent with the Staff's approach to interpreting every
other aspect of Rule 14a-8 as reflected in the precedent above, the subject
matter of the policy set forth under the Submission, and not the policy itself
or the form of the proposal, is to be evaluated for purposes of assessing
compliance with Rule 14a-8. Under those standards, the Submission does not
constitute a proposal for purposes of Rule 14a-8(a) and accordingly can be
excluded from Qwest's 2007 Proxy Materials.
C. A Request for Future Votes Is Not a Proper Form for a Stockholder Proposal
and Fails to Satisfy the Procedural Requirements of Rule 14a-8.
In addition to the bases for exclusion discussed above, the Submission is not a
proper form under Rule 14a-8 because it seeks to achieve an annual stockholder
vote on a matter in future years without satisfying any of the procedural
requirements of Rule 14a-8 with respect to those future years. This form of
propsal is substantively different from a proposal that requests a company to
take a particular action (such as implementation of a charter amendment
declassifying the board) or a proposal that a company not take a particular
action (such as adoption of a rights plan) without seeking a stockholder vote.
In those situations, the underlying subject of the proposal is a specific
corporate action and the future stockholder vote is incidental to management
taking the underlying action. Here, in contrast, the underlying action sought by
the Proponent is that a particular matteran advisory statement expressing the
stockholders' sentimentbe placed before stockholders for an annual vote. Rule
14a-8 prescribes the procedures that a stockholder is to follow if it wishes a
particular matter to be placed before stockholders at a particular meeting;1 it
is inconsistent with the structure and intent of Rule 14a-8 to allow a
stockholder to circumvent these standards by proposing that management submit
the stockholder's proposal to an annual vote at an indefinite number of future
meetings. Instead, Rule 14a-8 requires the stockholder to submit its proposal
for a possible vote at each annual meeting and to satisfy the procedural
requirements of Rule 14a-8 with respect to each meeting where the stockholder's
proposal is to be submitted for a vote.
If one looked only to what the Submission would accomplish in the current year,
and not to its effect in subsequent years, the purposes of the procedural
requirements under Rule 14a-8 could be evaded easily. For example, Rule 14a-8(b)
requires a stockholder to satisfy certain ownership requirements; specifically,
a proponent "must have continuously held at least $2,000 in market value, or 1%,
of the company's securities entitled to be voted on the proposal at the meeting
for at least one year by the date you submit the proposal" and "must continue to
hold those securities through the date of the meeting." 2 Rule 14a-8(c) limits a
proponent to submitting no more than one proposal for consideration at a
particular stockholders' meeting. Rule 14a-8(i)(9) and (i)(11) allow a proposal
to be excluded when it conflicts with a proposal submitted by the company or
duplicates a topic that is the subject of a previously submitted proposal.
Allowing a stockholder to submit a proposal calling for an annual vote on a
specific topic for an indefinite number of years in the future would allow
proponents to circumvent these important procedural requirements. Instead, Rule
14a-8 contemplates that a proponent will submit the topic or proposal itself at
each meeting at which it is to be considered, and will demonstrate compliance
with the requirements of Rule 14a-8 with respect to that meeting. Because the
Submission would allow the Proponent to circumvent the requirements of Rule
14a-8, and the Proponent has not sought to demonstrate that the requirements of
Rule 14a-8 would be satisfied with respect to future votes sought by the
Submission, the Submission is excludable under Rule 14a-8.
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff concur
that it will take no action if Qwest excludes the Submission from its 2007 Proxy
Materials. We would be happy to provide you with any additional information and
answer any questions that you may have regarding this subject. In addition,
Qwest agrees to promptly forward to the Proponent any response from the Staff to
this no-action request that the Staff transmits by facsimile to Qwest only.
If we can be of any further assistance in this matter, please do not hesitate to
call me at (202) 955-8671 or Stephen Brilz, Qwest's Vice President, Law, at
(303) 992-6244.
Sincerely,
/s/
Ronald O. Mueller
Enclosures
cc: Stephen Brilz, Qwest Communications International Inc.
Charles Jurgonis, AFSCME Employees Pension Plan
-----FOOTNOTES-----
1 Allowing stockholders to submit a subject for vote at an indefinite number of
annual meetings is inconsistent with Rule 14a-8(c), which instructs stockholders
that "Each shareholder may submit no more than one proposal to a company for a
particular shareholders' meeting."
2 In this regard, by a letter dated November 7, 2006, pursuant to Rule 14a-8(f),
Qwest notified the Proponent of its view that the Proponent would be required to
satisfy the requirements of Rule 14a-8(b) with respect to each future year at
which the advisory vote sought by the Submission would be voted on. See Exhibit
B. Qwest properly sent this notification to the Proponent within 14 days of
receiving the Submission. The Proponent did not provide information regarding
whether it expects to satisfy the requirements of Rule 14a-8(b) for each future
year at which the advisory vote is sought in its response dated November 13,
2006. See Exhibit B. Thus, the Submission may be excluded pursuant to Rule
14a-8(f) because the Proponent did not satisfy Rule 14a-8(b)(1) in this regard.
[INQUIRY LETTER]
October 24, 2006
VIA Overnight Mail and Telecopier (303) 896-8515
Qwest Communications International Inc.
1801 California Street
Denver, Colorado 80202
Attention: Richard Baer, Executive Vice President, General Counsel and Corporate
Secretary
Dear Mr. Baer:
On behalf of the AFSCME Employees Pension Plan (the "Plan"), I write to give
notice that pursuant to the 2006 proxy statement of Qwest Communications
International Inc. (the "Company") and Rule 14a-8 under the Securities Exchange
Act of 1934, the Plan intends to present the attached proposal (the "Proposal")
at the 2007 annual meeting of shareholders (the "Annual Meeting"). The Plan is
the beneficial owner of 10,038 shares of voting common stock (the "Shares") of
the Company, and has held the Shares for over one year. In addition, the Plan
intends to hold the Shares through the date on which the Annual Meeting is held.
The Proposal is attached. I represent that the Plan or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Plan has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please direct all questions or
correspondence regarding the Proposal to Charles Jurgonis at (202) 429-1007.
Sincerely,
/s/
GERALD W. McENTEE
Chairman
Enclosure
[APPENDIX]
RESOLVED, that stockholders of Qwest Communications International ("Qwest") urge
the board of directors to adopt a policy that Qwest stockholders be given the
opportunity at each annual meeting of stockholders to vote on an advisory
resolution, to be proposed by Company's management, to ratify the compensation
of the named executive officers ("NEOs") set forth in the proxy statement's
Summary Compensation Table (the "SCT") and the accompanying narrative disclosure
of material factors provided to understand the SCT (but not the Compensation
Discussion and Analysis). The proposal submitted to shareholders should make
clear that the vote is non-binding and would not affect any compensation paid or
awarded to any NEO.
SUPPORTING STATEMENT
In our view, senior executive compensation at Qwest has not always been
structured in ways that best serve stockholders' interests. For example, in 2005
Chairman and CEO Richard Notebaert received $462,498 for personal use of
corporate aircraft and $437,392 for tax gross-ups. Mr. Notebaert's 2005 pay
package included a $3,150,000 bonus, a restricted stock award valued at
$4,150,000, and 2,000,000 stock options.
We believe that existing U.S. corporate governance arrangements, including SEC
rules and stock exchange listing standards, do not provide stockholders with
enough mechanisms for providing input to boards on senior executive
compensation. In contrast to U.S. practices, in the United Kingdom, public
companies allow stockholders to cast an advisory vote on the "directors'
remuneration report," which discloses executive compensation. Such a vote isn't
binding, but gives stockholders a clear voice that could help shape senior
executive compensation.
Currently U.S. stock exchange listing standards require stockholder approval of
equity-based compensation plans; those plans, however, set general parameters
and accord the compensation committee substantial discretion in making awards
and establishing performance thresholds for a particular year. Stockholders do
not have any mechanism for providing ongoing feedback on the application of
those general standards to individual pay packages. (See Lucian Bebchuk & Jesse
Fried, Pay Without Performance 49 (2004))
Similarly, performance criteria submitted for stockholder approval to allow a
company to deduct compensation in excess of $1 million are broad and do not
constrain compensation committees in setting performance targets for particular
senior executives. Withholding votes from compensation committee members who are
standing for reelection is a blunt and insufficient instrument for registering
dissatisfaction with the way in which the committee has administered
compensation plans and policies in the previous year.
Accordingly, we urge Qwest's board to allow stockholders to express their
opinion about senior executive compensation at Qwest by establishing an annual
referendum process. The results of such a vote would, we think, provide Qwest
with useful information about whether stockholders view the company's senior
executive compensation, as reported each year, to be in stockholders' best
interests.
We urge stockholders to vote for this proposal.
[INQUIRY LETTER]
November 30, 2006
VIA HAND DELIVERY
Brian Cartwright, General Counsel
Office of General Counsel
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Mr. Cartwright:
We write to request that the SEC affirm that, when a shareholder proposal asks
for a future vote on a matter in the form of a proposal to be submitted by
management for a vote of shareholders, the eligibility requirements of Rule
14a-8 for shareholder proposals do not also apply to those future
management-sponsored agenda items.
The AFSCME Employees Pension Plan (the "Plan") and a number of other long-term
shareholders have submitted, or are planning to submit in the coming weeks,
approximately 60 proposals (each, an "Advisory Vote Proposal") asking corporate
boards to give shareholders the opportunity to provide input on senior executive
compensation via a yearly advisory vote on a proposal to be put forward by
company management. The Advisory Vote Proposals, whose "resolved" clauses are
substantially similar, "urge the board of directors to adopt a policy that
shareholders be given the opportunity at each annual meeting of shareholders to
vote on an advisory resolution, to be proposed by Company's management, to
ratify the compensation of the named executive officers ("NEOs") set forth in
the proxy statement's Summary Compensation Table (the "SCT") and the
accompanying narrative disclosure of material factors provided to understand the
SCT (but not the Compensation Discussion and Analysis). The proposal submitted
to shareholders should make clear that the vote is non-binding and would not
affect any compensation paid or awarded to any NEO." (emphasis added)
As you know, Rule 14a-8 (the "Rule") requires a proponent to prove that it
satisfies the Rule's eligibility requirements to submit a shareholder proposal;
specifically, it must show that it has held a minimum of $2,000 in value or 1%
of a company's stock for at least one year on the date of submission. A
proponent must also represent that it intends to continue to hold the shares
through the date of the meeting at which shareholders will vote on the proposal
submitted by the proponent.
On November 7, the Plan received a request from Qwest, to which it had submitted
an Advisory Vote Proposal, to verify the Plan's eligibility not only to submit
the Advisory Vote Proposal to be voted on by shareholders at Qwest's 2007 annual
meeting, but also "with respect to each future meeting at which the requested
stockholders' vote is to occur," or revise the Advisory Vote Proposal to request
only a vote at the 2007 annual meeting. (A copy of Qwest's letter is attached
hereto as Exhibit A.) The Plan responded, explaining that the request misread
both the text of the Advisory Vote Proposal the Plan had submittedwhich
unambiguously called for future years' advisory votes to be cast on a proposal
submitted by company managementas well as the Rule, which sets eligibility
requirements only for shareholder proposals.
Since the Plan received Qwest's request, we have been informed that several
other proponents that submitted Advisory Vote Proposals at at least two other
companies have received similar requests. Shareholder proposal submission
deadlines for companies with spring annual meetings extend well into December.
Qwest's and the other companies' requests are clearly meritless. Responding to
these requests, however, requires proponents to devote time and resources;
considering the number of Advisory Vote Proposals to be submitted for the 2007
annual meeting season, and the likelihood that still other companies will make
similar requestsone proponent was told that "outside counsel" had spurred the
requestthe total burden on proponents will likely be substantial. Even more
troubling is the possibility of numerous requests to the Staff of the Division
of Corporation Finance for no-action determinations based on proponents' alleged
failure to satisfy the Rule's eligibility requirements.
Moreover, the reasoning behind these requests extends beyond Advisory Vote
Proposals. Many shareholder proposals take the form of requesting a future
shareholder vote on a particular matter to be proposed by management. Some
proposals imply a single future votefor example, the shareholder vote necessary
to effect a charter amendment declassifying the board. Others would be triggered
by the occurrence of a particular event, such as the adoption or extension of a
shareholder rights plan or the repricing of stock options. That requiring proof
of eligibility at the time of these future votes is not consistent with the
language of the Rule or the proposals does not mean companies will not raise
this argument in those other contexts.
We therefore are requesting you to issue a Staff Legal Bulletin or similar
interpretive guidance clarifying for both registrants and proponents that there
is no such ownership requirement as to any future shareholder meetings at which
management proposals may be voted on pursuant to the shareholder's proposal. We
believe that such guidance would allow the resources of proponents, companies
and the Division's Staff to be deployed more efficiently this season.
If you have any questions or need additional information, please do not hesitate
to contact Richard Ferlauto, Director of Pension and Benefits Policy, at (202)
429-1275.
If you have any questions or need additional information, please do not hesitate
to contact Richard Ferlauto, Director of Pension and Benefits Policy, at (202)
429-1275.
Very truly yours,
/s/
Charles Jurgonis
Plan Secretary
Enclosure
cc: Chairman Christopher Cox
Commissioner Paul Atkins
Commissioner Roel Campos
Commissioner Annette Nazareth
Commissioner Kathleen Casey
John White, Director, Division of Corporation Finance
Stephen E. Brilz
VPDeputy General Counsel
Qwest
Fax # 303-296-2782
[INQUIRY LETTER]
January 22, 2007
VIA HAND DELIVERY
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, NE
Washington, DC 20549
Re: Shareholder proposal of AFSCME Employees Pension Plan; request by Qwest
Communications International for no-action determination
Dear Sir/Madam:
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the American
Federation of State, County and Municipal Employees, Employees Pension Plan (the
"Plan") submitted to Qwest Communications International ("Qwest") a shareholder
proposal (the "Proposal") that urges Qwest's board of directors to adopt a
policy that Qwest shareholders be given the opportunity at each annual meeting
of shareholders to vote on an advisory resolution, to be proposed by management,
to ratify the compensation of the named executive officers ("NEOs") set forth in
the proxy statement's Summary Compensation Table (the "SCT") and the
accompanying narrative disclosure of material factors provided to understand the
SCT (but not the Compensation Discussion and Analysis). The Proposal states that
the proposal submitted to shareholders should make clear that the vote is
non-binding and would not affect any compensation paid or awarded to any NEO.
In a letter to your office dated January 4, 2007, Qwest stated that it intends
to omit the Proposal from its proxy materials being prepared for the 2007 annual
meeting of shareholders. Qwest argues that it is entitled to exclude the
Proposal because (a) it is not a "proposal" within the meaning of Rule 14a-8,
(b) the Proposal circumvents the procedural requirements set forth in Rule
14a-8. As discussed more fully below, both of these arguments are meritless, and
Qwest should not be permitted to exclude the Proposal.
The Proposal is a Proposal for Purposes of Rule 14a-8
Qwest urges that the Proposal does not satisfy Rule 14a-8's definition of a
proposal because its purpose is to "allow stockholders to express their opinion
about senior executive compensation at Qwest." This argument misconstrues the
Proposal and the Commission's definition of a proposal, and should therefore be
rejected.
Rule 14a-8(a), question 1, defines a proposal as "your recommendation or
requirement that the company and/or its board of directors take action, which
you intend to present at a meeting of the company's shareholders." This
definition was added in 1998 to "reflect[] [the Commission's] belief that a
proposal that seeks no specific action, but merely purports to express
shareholders' views, is inconsistent with the purposes of rule 14a-8 and may be
excluded from companies' proxy materials." 1 The Commission explained that this
definition diverged from the then-current approach of the Staff, which had
declined to permit Pacific Gas & Electric Company to omit a proposal that
shareholders express disagreement with the company's position on a legislative
initiative.2
Thus, it is clear that the Commission's definition was intended to exclude
proposals that are themselves just expressions of shareholder sentiment. If, for
example, the Proposal stated, "Resolved, shareholders believe that executive
compensation at Qwest is excessive and inadequately tied to performance," it
would not qualify as a proposal under the Commission's definition. It would fail
because it would not ask Qwest to take any action, but would merely express a
sentiment or opinion.
The Proposal, however, unambiguously asks Qwest's board to take action: to adopt
a policy of submitting each year a non-binding management proposal to ratify the
previous year's NEO compensation. To implement the Proposal, Qwest's board would
need to craft and adopt a policy regarding the future submission of NEO
compensation to a shareholder vote. In addition, each year, Qwest's board would
need to submit a management proposal to shareholders. Accordingly, there is no
colorable argument that the Proposal does not ask Qwest to take action as
required by Rule 14a-8(a).
Qwest misrepresents the nature of the proposal in Sensar Corp.,3 which it cites
in support of its position that the Staff has previously determined proposals
requesting future advisory shareholder votes to be excludable non-proposals.
Qwest asserts that the Sensar proposal sought "to allow a stockholder vote to
express stockholder displeasure over the terms of stock options granted to
management, the board of directors and certain consultants." This is not the
case.
The Sensar proposal, like the PG&E proposal cited in the Commission's 1997
release, was itself only an expression of shareholder sentiment; it made no
mention of future shareholder votes or a policy regarding such votes. The Sensar
proposal stated in its entirety: "The shareholders wish to express displeasure
over the terms of the options on 2.2 million shares of Sensar that were recently
granted to management, the board of directors, and certain consultants, and the
shareholders wish to express displeasure over the seemingly unclear or
misleading disclosures relating to those options." The Staff concurred in
Sensar's view that the submission was not a proposal because "it does not
recommend or require that Sensar or its board of directors take any action."
In several pages of bulleted text, Qwest makes the point that the Staff
considers the underlying subject matter of a proposal when making determinations
of various sorts under Rule 14a-8. The Plan agrees. The underlying subject
matter of the Proposal is clearly senior executive compensation, a subject the
Staff has viewed as appropriate for shareholder proposals since 1992.4 Qwest's
characterization of the Proposal's subject matter as being "advisory votes"
exalts form over substance, as the numerous determinations cited by Qwest show
the Staff declines to do.5
The Proposal Does Not Circumvent Rule 14a-8's Procedural Requirements
Rule 14a-8 requires a proponent to prove that it satisfies the rule's
eligibility requirements to submit a shareholder proposal. Specifically, a
proponent must show that it has held a minimum of $2,000 in value or 1% of a
company's stock for at least one year on the date of submission. A proponent
must also represent that it intends to continue to hold the shares through the
date of the meeting at which shareholders will vote on the proposal submitted by
the proponent. Rule 14a-8 also limits a proponent to one proposal per
shareholder meeting.
Qwest maintains that the Proposal circumvents these requirements. Qwest's
argument rests on a misunderstanding of what the Proposal would do: It would not
provide a mechanism for a perpetual shareholder proposal. Instead, if Qwest's
board chose to implement the Proposal, it would adopt a policy that each annual
meeting's proxy statement would contain a management proposal allowing
shareholders to vote on the previous year's NEO compensation. That the proposal
would be offered by management, and would not be a shareholder proposal
submitted pursuant to Rule 14a-8, could not be clearer from the text of the
Proposal:
RESOLVED, that stockholders of Qwest Communications International ("Qwest") urge
the board of directors to adopt a policy that Qwest stockholders be given the
opportunity at each annual meeting of stockholders to vote on an advisory
resolution, to be proposed by the Company's management, to ratify the
compensation of the named executive officers.... (emphasis supplied)
It is beyond debate that Qwest's board has the power to submit a matter for a
shareholder vote without complying with Rule 14a-8's procedural requirements.
Many shareholder proposals take the form of requesting a future shareholder vote
on a particular matter to be proposed by management. Some proposals imply a
single future votefor example, the shareholder vote necessary to effect a
charter amendment declassifying the board. Others would be triggered by the
occurrence of a particular event, such as the adoption or extension of a
shareholder rights plan or the repricing of stock options. There is no basis in
Rule 14a-8, or in logic, for subjecting these management votesor the future
advisory votes sought in the Proposalto the rule's eligibility requirements
simply because the management proposal's genesis was in a shareholder proposal.
Qwest has failed to meet its burden of establishing that it is entitled to omit
the Proposal. Because the Proposal asks Qwest's board to adopt a policy of
allowing future advisory votes on NEO compensation, and does not simply express
a shareholder sentiment, it qualifies as a "proposal" for purposes of Rule
14a-8. Further, the Proposal does not circumvent the eligibility and other
procedural requirements contained in Rule 14a-8, which do not apply to proposals
submitted by management for a vote of shareholders. Accordingly, Qwest's request
for a determination allowing it to exclude the Proposal should be denied.
* * * *
If you have any questions or need additional information, please do not hesitate
to call me at (202) 429-1007. The Plan appreciates the opportunity to be of
assistance to the Division in this matter.
Very truly yours,
/s/
Charles Jurgonis
Plan Secretary
cc: Ronald O. Mueller
Gibson, Dunn & Crutcher LLP
Fax # (202) 530-9569
-----FOOTNOTES-----
1 Exchange Act Release No. 39093 (Sept. 18, 1997).
2 Id. (citing Pacific Gas & Electric Company (publicly available Jan. 21, 1997).
3 Sensar Corp. (publicly available Apr. 23, 2001).
4 See Eastman Kodak Company (publicly available Feb. 13, 1992) ("[I]t is the
Division's view that proposals relating to senior executive compensation no
longer can be considered matters relating to a registrant's ordinary
business.").
5 Even assuming, arguendo, that the subject matter of the Proposal were advisory
votes, it is not clear whyand Qwest has offered no explanation apart from its
inapposite citation of the Sensar determinationadvisory votes are an off-limits
subject matter for a proposal. There is nothing inherently wrong with an
advisory, as opposed to binding, shareholder vote. Indeed, the vast majority of
shareholder proposals submitted each year pursuant to Rule 14a-8 are themselves
advisory in nature.
[STAFF REPLY LETTER]
February 12, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Qwest Communications International Inc. Incoming letter dated January 4,
2007
The proposal urges the board to adopt a policy that shareholders be given the
opportunity at each annual meeting to vote on an advisory management resolution
to ratify the compensation of the named executive officers set forth in the
Summary Compensation Table of the company's proxy statement.
We are unable to concur in your view that Qwest may exclude the proposal under
rule 14a-8(a). Accordingly, we do not believe that Qwest may omit the proposal
from its proxy materials in reliance on rule 14a-8(a).
Sincerely,
/s/
Gregory Belliston
Attorney-Adviser
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