Company Name: Verizon Communications Inc.
Public Availability Date: February 21, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 27, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Verizon Communications Inc. 2007 Annual Meeting Shareholder Proposal of SEIU
Master Trust
Ladies and Gentlemen:
This letter is submitted on behalf of Verizon Communications Inc., a Delaware
corporation ("Verizon"), pursuant to Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended. Verizon has received a shareholder proposal and
supporting statement (the "Proposal") from the SEIU Master Trust (the
"Proponent"), for inclusion in the proxy materials to be distributed by Verizon
in connection with its 2007 annual meeting of shareholders (the "2007 proxy
materials"). A copy of the Proposal is attached as Exhibit A. For the reasons
stated below, Verizon intends to omit the Proposal from its 2007 proxy
materials.
Pursuant to Rule 14a-8(j)(2), enclosed are six copies of this letter and the
accompanying attachments. A copy of this letter is also being sent to the
Proponent as notice of Verizon's intent to omit the Proposal from Verizon's 2007
proxy materials.
I. Introduction.
On November 20, 2006, Verizon received a letter from the Proponent containing
the following proposal:
"RESOLVED, that the shareholders of Verizon Communications Inc. ("Verizon") urge
the board of directors to adopt a policy requiring disclosure to shareholders in
the proxy statement of the material terms of all relationships between (a) each
director nominee deemed to be "independent" within the meaning of the New York
Stock Exchange's ("NYSE's") Listing Standards, and (b) Verizon or any of its
executive officers, that were considered by the board and/or the Corporate
Governance Committee in determining whether such nominee is independent,
regardless of whether the relationship is required to be disclosed pursuant to
Item 404 of the SEC's Regulation S-K. No disclosure shall be required of
transactions that are amounts due from a nominee for purchases subject to usual
trade terms, for ordinary travel and expense payments and for other transactions
in the ordinary course of business."
Verizon believes that the Proposal may be properly omitted from its 2007 proxy
materials on the following grounds, each of which is discussed in detail below:
The Proposal may be excluded under Rule 14a-8(i)(10) because Verizon has
substantially implemented it.
The Proposal may be excluded under Rule 14a-8(i)(7) because it deals with a
matter relating to Verizon's ordinary business operations; and
Verizon respectfully requests the concurrence of the Staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") that it will not recommend enforcement action against Verizon if
Verizon omits the Proposal in its entirety from its 2007 proxy materials.
II. Bases for Excluding the Proposal.
A. The Proposal May Be Omitted Under Rule
14a-8(i)(10), Because Verizon Has Substantially Implemented the Proposal.
Rule 14a-8(i)(10) permits a company to exclude a shareholder proposal if the
company has already substantially implemented the Proposal. Effective November
7, 2006, the Commission adopted amendments to the disclosure requirements for
proxy and information statements, periodic reports, current reports and other
filings under the Securities Exchange Act of 1934 and the Securities Act of
1933. These amendments apply to disclosures for, among other things, related
person transactions, director independence and other corporate governance
matters. Companies must comply with these new disclosure requirements in any
proxy statement filed on or after December 15, 2006.
As a result of the amendments, a new Item 407 has been added to Regulation S-K.
Paragraph (a) of Item 407 of Regulation S-K requires Verizon to (1) identify in
its proxy statement each nominee for director that is independent under the
independence standards of The New York Stock Exchange, Inc. and (2) "for each
nominee for director that is identified as independent, describe, by specific
category or type, any transactions, relationships or arrangements not disclosed
pursuant to Item 404(a) that were considered by the board of directors under the
applicable independence definitions in determining that the director is
independent." The instructions to paragraph (a) of Item 407 further provide that
the description of the specific categories or types of transactions,
relationships or arrangements "must be provided in such detail as is necessary
to fully describe the nature of the transactions, relationships or
arrangements." Exchange Act Release No. 34-54302 (August 11, 2006). Verizon will
comply with the disclosure requirements of Item 407, beginning with its 2007
proxy statement. As a result, Verizon believes that it has substantially
implemented the Proposal.
No-action precedents under Rule 14a-8(i)(10) make clear that the standard for
determining whether a proposal has been "substantially implemented" is not
dependent on the means by which implementation is achieved. When it initially
adopted the predecessor Rule of 14a-8(i)(10), the Commission observed that "mootness
can be caused for reasons other than the actions of management, such as
statutory enactments, court decisions, business changes, and supervening
corporate events," and expressed its belief that "a proposal which has been
rendered moot for whatever reason should properly be excludable from an issuer's
proxy materials." Exchange Act Release No. 12999 (November 22, 1976). The Staff
has consistently concurred that a proposal is substantially implemented due to
the actions of third parties. For example, in The Gap, Inc. (March 14, 2005);
Pfizer Inc. (February 15, 2005); and Intel Corporation (February 14, 2005), the
Staff agreed that, by virtue of the FASB's adoption of FASB Statement 123(R)
requiring public companies to expense in their financial statements share-based
payments, the companies had substantially implemented a proposal that the board
establish a policy of expensing future stock options. See, also, Eastman Kodak
Co. (February 1, 1991) (permitting exclusion of proposal under the predecessor
rule where the proposal requested disclosure of certain environmental compliance
information and the company represented that it fully complies with Item 103 of
Regulation S-K, which required disclosure of substantially similar information.)
Here, Item 407 of Regulation S-K requires substantially similar information as
that requested by the Proposal. For this reason, Verizon believes that Proposal
may be omitted from its 2007 proxy materials pursuant to Rule 14a-8(i)(10).
B. The Proposal May be Excluded Under Rule 14a-8(i)(7)
Because it Deals with a Matter Relating to Verizon's Ordinary Business
Operations.
Rule 14a-8(i)(7) permits a company to omit a shareholder proposal from its proxy
materials if it deals with a matter relating to the company's ordinary business
operations. Exchange Act Release No. 34-12999 (November 22, 1976). The general
policy underlying the "ordinary business" 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." Exchange Act Release No.
34-40018 (May 21, 1998) (the "1998 Release"). This general policy reflects two
central considerations: (i) "[c]ertain tasks are so fundamental to management's
ability to run a company on a day-to-day basis that they could not, as a
practical matter, be subject to direct shareholder oversight"; and (ii) the
"degree to which the proposal seeks to `micro-manage' the company by probing too
deeply into matters of a complex nature upon which shareholders, as a group,
would not be in a position to make an informed judgment." 1998 Release. Verizon
believes that the Proposal may properly be excluded under Rule 14a-8(i)(7)
because the Proposal seeks to "micro-manage" Verizon's compliance with the
disclosure requirements of Item 407 of Regulation S-K and the corporate
governance listing standards of the various stock exchanges upon which Verizon
is listed.
Verizon believes that its position is consistent with the Staff's interpretation
of Rule 14a-8(i)(7) set forth in Johnson Controls Inc. (October 26, 1999). The
proposal in Johnson Controls sought additional disclosure in the company's
financial statements, and the Staff concluded that there were sufficient grounds
to exclude the proposal under Rule 14a-8(i)(7). The Staff in Johnson Controls
announced, however, that it would no longer take a no-action position with
respect to the omission of proposals "solely because they relate to the
preparation and content of documents filed with or submitted to the Commission."
Rather, the Staff would consider "whether the subject matter of the additional
disclosure sought in a particular proposal involves a matter of ordinary
business." The Staff concluded that Johnson Controls had met this standard
because the subject proposal "related to its ordinary business operations (i.e.,
the presentation of financial statements in reports to shareholders)."
Similarly, a board's determination of those factors to be considered by it (in
addition to those factors required to be disclosed pursuant to Item 404(a) of
Regulation S-K) in reaching a conclusion as to the independence of a director is
a matter of ordinary business operations. For shareholders to try to involve
themselves in a determination as to which factors a board should consider, and
thus disclose pursuant to Item 407(a) of Regulation S-K, in making decisions as
to independence is contrary to the specific provisions of the 1998 Release.
Compliance with the various standards and related disclosure obligations
relating to director independence prescribed by the Commission and the stock
exchanges upon which Verizon is listed is a basic management function exercised
by the Board of Directors.
The Staff has consistently held that proposals relating to financial accounting
and disclosure decisions and presentations are excludable under Rule 14a-8(i)(7)
as involving the ordinary business operations of a company. See General Electric Company (January 21, 2003) (permitting exclusion of proposal seeking disclosure
in annual report of subsidiary information); Refac (March 27, 2002) (permitting
exclusion of proposal requesting improvement in disclosure practices);
International Business Machines Corporation (January 9, 2001) (permitting
exclusion of proposal requesting, in part, that company provide "transparent
financial reporting of profit from real company operations"); Conseco, Inc.
(April 18, 2000) (permitting exclusion of proposal requesting that "accounting
methods and financial statements adequately report the risks of subprime
lending"); The Boeing Company (March 6, 2000) (permitting exclusion of proposal
requiring disclosure of the use of employee pension fund trust assets and/or
surplus in all earnings statements); and General Electric Company (February 10,
2000) (permitting exclusion of a proposal requiring disclosure of "goodwill-net"
and "true value" of shareholders equity). Verizon believes that the
responsibility for determining the independence of directors and compliance with
applicable disclosure requirements is an equally complex task with respect to
which shareholders are not in a position to make an informed judgment.
The Staff has consistently determined that proposals that relate to the conduct
of a legal compliance program may be excluded under Rule 14a-8(i)(7). See
ConocoPhillips (February 23, 2006) where the Staff concurred with the exclusion
of a proposal that the board report to shareholders all potential legal
liabilities alleged by proponent to have been omitted from a merger prospectus
as relating to ordinary business operations (i.e., general legal compliance
program). See, also, Halliburton Company (March 10, 2006) (permitting exclusion
of a proposal requesting that the board report on the policies and procedures
adopted to reduce or eliminate the recurrence of certain violations and
investigations as relating to "general conduct of legal compliance program");
Monsanto Corp. (November 3, 2005) (permitting exclusion of proposal seeking
board oversight of compliance with code of ethics and applicable federal, state
and local rules and regulations as relating to "general conduct of legal
compliance program"); and Associate First Capital Corporation (February 23,
1999) (permitting exclusion of proposal that board formulate policy to prevent
lending practices that may violate federal or state law as relating to "general
conduct of legal compliance program). Assuring compliance with legal and
regulatory requirements relating to the independence of directors is a
fundamental management function that should not be "micro-managed" by
shareholders.
For the foregoing reasons, Verizon believes that the Proposal may be omitted
from its 2007 proxy materials because it deals with matters relating to
Verizon's ordinary business operations.
III. Conclusion.
Verizon believes that the Proposal may be omitted from its 2007 proxy materials
(1) under Rule 14a-8(i)(10) because Verizon has already substantially
implemented the Proposal, and (2) under Rule 14a-8(i)(7) because it deals with
matters relating to Verizon's ordinary business operations. Accordingly, Verizon
respectfully requests the concurrence of the Staff that it will not recommend
enforcement action against Verizon if Verizon omits the Proposal in its entirety
from Verizon's 2007 proxy materials.
Verizon requests that the Staff fax a copy of its determination of this matter
to the undersigned at (908) 696-2068 and to the Proponent at (202) 842-0046.
Kindly acknowledge receipt of this letter by stamping and returning the extra
enclosed copy of this letter in the enclosed self-addressed, stamped envelope.
If you have any questions with respect to this matter, please telephone me at
(908) 559-5636.
Very truly yours,
/s/
Mary Louise Weber
Assistant General Counsel
Enclosures
cc: SEIU Master Trust
1313 L Street, N.W.
Washington, D.C. 2005
[INQUIRY LETTER]
November 20, 2006
Jane Schapker
Assistant Corporate Secretary
Verizon Communications Inc.
140 West Street, 29th Floor
New York, NY 10007
Also sent via Email: jane.a.schapker@verizon.com
And Facsimile: 908 766-3813
Dear Ms. Schapker:
On behalf of the SEIU Master Trust ("the Trust"), I write to give notice that,
pursuant to the 2006 proxy statement of Verizon Communications Inc. (the
"Company"), the Trust intends to present the attached proposal (the "Proposal")
at the 2007 annual meeting of shareholders (the "Annual Meeting"). The Trust
requests that the Company include the Proposal in the Company's proxy statement
for the Annual Meeting. The Trust has owned the requisite number of Verizon
shares for the requisite time period. The Trust intends to hold these shares
through the date on which the Annual Meeting is held.
The Proposal is attached. I represent that the Trust or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Trust has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please contact me at
(202)730-7051 if you have any questions.
Sincerely,
/s/
Steve Abrecht
Executive Director of Benefit Funds
cc: Marianne Drost
Senior Vice President, Deputy General Counsel and Corporate Secretary
marianne.drost@verizon.com
[APPENDIX]
Greater Disclosure of Board Independence Determinations
RESOLVED, that shareholders of Verizon Communications Inc. ("Verizon") urge the
board of directors to adopt a policy requiring disclosure to shareholders in the
proxy statement of the material terms of all relationships between (a) each
director nominee deemed to be "independent" within the meaning of the New York
Stock Exchange's ("NYSE's") Listing Standards, and (b) Verizon or any of its
executive officers, that were considered by the board and/or the Corporate
Governance Committee in determining whether such nominee is independent,
regardless of whether the relationship is required to be disclosed pursuant to
Item 404 of the SEC's Regulation S-K. No disclosure shall be required of
transactions that are amounts due from a nominee for purchases subject to usual
trade terms, for ordinary travel and expense payments and for other transactions
in the ordinary course of business.
SUPPORTING STATEMENT
The listing standards of the NYSE, on which Verizon's stock is traded, require
that listed company boards and key committees satisfy certain independence
requirements In order to ensure that boards effectively represent shareholder
interests. The listing standard defines independence as the absence of a
"material relationship" with the company; several bright-line tests describe
relationships that disqualify a director from being considered independent.
However, the listing standard emphasizes that these tests are not exclusive and
urges that boards "broadly consider all relevant facts and circumstances."
(Listed Company Manual section 303A.02)
Verizon's board has adopted bright-line tests in its governance guidelines
specifying the types of relationships that disqualify a nominee from being
considered independent. The guidelines also provide that a director will not be
deemed independent if she has "any other relationship that the Board determines
is inconsistent with applicable laws and regulations on directors' independence
or that is likely to impair the Director's ability to act independently."
Verizon's board, based on the recommendations of the Corporate Governance
Committee, has determined that all twelve of Verizon's non-employee directors
are independent under the guidelines, though there is no disclosure of the
relationships considered or the reasoning employed.
We are concerned that this inquiry may not encompass all the types of
relationships that shareholders might reasonably conclude could compromise
independence. For example, relationships with executive officerssuch as the
financial relationship between former UnitedHealth CEO William McGuire and
compensation committee chair William Spearsdo not have to be disclosed pursuant
to SEC rules and are not covered by Verizon's bright-line tests. Similarly,
shareholders might view the existence of financial ties between Verizon and
certain directors, or the previous shared Wyeth board service of Verizon CEO
Seidenberg and directors Carrion and Shipley, as impairing independence, even if
those ties are not disqualifying under Verizon's guidelines.
Accordingly, we believe that Verizon stockholders would benefit from more
disclosure regarding these kinds of relationships. Such information would enable
shareholders to assess the robustness of the Corporate Governance Committee's
analysis.
We urge shareholders to vote for this proposal.
[INQUIRY LETTER]
January 24, 2007
Securities and Exchange Commission
Office of the Chief Counsel
Division of Corporation Finance
100 F Street, NE
Washington, DC 20549
Re: Request by Verizon Communications Inc. to omit shareholder proposal
submitted by the SEIU Master Trust
Dear Sir/Madam,
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the SEIU
Master Trust (the "Trust") submitted a shareholder proposal (the "Proposal") to
Verizon Communications Inc. ("Verizon" or the "Company"). The Proposal requests
that Verizon's board adopt a policy requiring disclosure to shareholders in the
proxy statement of the material terms of all relationships between (a) each
director nominee deemed to be "independent" within the standards of section
303A.02 of the New York Stock Exchange's ("NYSE's") Listing Standards, and (b)
Verizon or any of its executive officers, that were considered by the board in
determining whether such nominee is independent, regardless of whether the
relationship is required to be disclosed pursuant to Item 404 of Regulation S-K.
The Proposal contains a carve-out for certain kinds of ordinary course
transactions.
In a letter to the Commission dated December 27, 2006, Verizon stated that it
intends to omit the Proposal from its proxy materials to be distributed to
shareholders in connection with the Company's 2007 annual meeting of
shareholders. Verizon claims that it has substantially implemented the Proposal
because a newly-adopted Commission rule will, it asserts, require disclosure
similar to that requested in the Proposal. Verizon also argues that the Proposal
relates to the Company's ordinary business operations. As discussed more fully
below, Verizon has not carried its burden of showing that it is entitled to
exclude the Proposal on either of those bases, and its request for relief should
be denied.
The Commission's New Disclosure Rules Do Not Substantially Implement the
Proposal
Verizon contends that the Commission's revised disclosure rules around related
party transactions and director independence, which will apply to Verizon for
the first time this spring, substantially implement the Proposal. New Item
407(a)(3) of Regulation S-K requires a registrant to do two things relevant to
whether the Proposal has been substantially implemented:
First, it requires the company to identify each director and nominee "that is
independent under the independence standards applicable to the registrant under
paragraph (a)(1) of this Item," including any applicable definitions of
committee member independence.
Second, for each director and nominee identified as independent, it requires
the company to "describe, by specific category or type, any transactions,
relationships or arrangements not disclosed pursuant to Item 404(a)
(229.404(a)), or for investment companies, Item 22(b) of Schedule 14A
(240.14a-101 of this chapter), that were considered by the board of directors
under the applicable independence definitions in determining that the director
is independent" (emphasis supplied).
Thus, the disclosure required by Item 407(a)(3) is tied directly to the
independence definition used by the company. Because Verizon's stock is listed
on the New York Stock Exchange ("NYSE"), paragraph (a)(1) of Item 407 states
that it must use Verizon's "definition of independence that it uses for
determining if a majority of the board of directors is independent in compliance
with the listing standards applicable to the registrant" in making the Item
407(a)(3) disclosure.
According to Verizon's most recent proxy statement, when making independence
determinations, it uses the independence standards set forth in the NYSE listing
standards (See Definitive Proxy Statement of Verizon Communications Inc. filed
on Mar. 20, 2006). Verizon has also adopted categorical standards of materiality
to guide these determinations (See Governance Guidelines, available at http://investor.verizon.com/corp_gov/gov_guidelines.aspx).
The NYSE listing standard defines independence as having "no material
relationship with the listed company" (Listed Company Manual, section
303.02(a)). The listing standard also sets forth specific relationships, all of
which involve the listed company, that disqualify a director from being
considered independent (Id. Section 303.02(b)). Similarly, the relationships
addressed in Verizon's Governance Guidelines are all between a director nominee
and the Company (See Governance Guidelines, supra). It is these relationships
about which Item 407(a)(3) will require disclosure.
By contrast, the Proposal seeks to elicit disclosure not only on relationships
with the company but also on relationships with its executive officers. In
evaluating the independence of a nominee, Verizon's Corporate Governance
Committee could consider a relationship between the nominee and a Verizon
executive officer, disclosure of which would not be required under Item
407(a)(3).
The Trust believes that relationships with individual executive officers can
pose an equal or greater threat to independence than relationships with the
company itself. For example, an internal investigation into option backdating at
UnitedHealth found that William Spears, chairman of the board's compensation
committee, had a personal financial relationship with CEO William McGuire, who
benefited from the backdating. That relationship was not disclosed to
shareholders. In the Trust's view, if a board considers such a relationship but
decides it is immaterial and does not impair independence, that fact should be
disclosed to shareholders. Item 407(a)(3) does not currently require that
disclosure.
Further, the disclosure required by Item 407 is significantly less specific than
that sought in the Proposal. Item 407(a)(3) calls for a description, "by
specific category or type," and the instructions clarify that the description
must contain "such detail as is necessary to fully describe the nature of the
transactions, relationships or arrangements." A description of a relationship's
"nature" falls short of disclosing its material terms, which is the information
sought by the Proposal. Indeed, the difference is highlighted by the fact that
the Commission initially proposed to require more specific disclosure regarding
these relationshipsthe proposing release proposed disclosure of the "specific
details" of each relationshipand that several commenters objected to that
aspect of the proposal.
The Proposal's Subject Matter Does Not Relate to the Company's Ordinary Business
Operations
Verizon claims that the Proposal relates to the Company's ordinary business
operations because it attempts to micromanage the Company's compliance with Item
407(a)(3) and the board's independence determinations. As an initial matter, the
Proposal does not relate to legal compliance; as discussed above, the Proposal
goes well beyond the requirements of Item 407(a)(3) and other applicable rules.
This fact distinguishes the Proposal from the proposals cited by
VerizonConocoPhillips, Halliburton, Monsanto and Associates First Capital
Corporationall of which asked the companies to report on compliance efforts or
to bring their behavior into compliance with the law. The Proposal does neither
of these things.
Nor does the Proposal involve financial statement disclosure. The Trust does not
dispute that the Staff consistently allows companies to omit proposals that urge
companies to include additional information in their financial statements or to
change accounting methodology. The Staff permitted exclusion of each of the
General Electric (2001), International Business Machines, Conseco, Boeing,
Johnson Controls and General Electric (2000) determinations cited by Verizon on
the ground that the proposals involved presentation of financial statements or
financial information. (Refac differed somewhat in that the proposal asked the
company to change its auditor, also a subject matter traditionally found to
relate to ordinary business operations.) Because the Proposal does not ask for
financial information or request changes to the financial statement
presentation, these letters are inapposite.
It is not the case, however, that proposals regarding disclosure generally are
excludable. Instead, the Staff evaluates the underlying subject matters to
determine whether it relates to ordinary business operations. Here, the
Proposal's subject of director independence falls squarely outside the domain of
ordinary business for two reasons.
First, under the reasoning set forth in Exchange Act Release No. 40018 (May 21,
1998) (the "1998 Release"), which outlined the policy concerns animating
administration of the ordinary business exclusion, director independence is not
a matter "so fundamental to management's ability to run the company on a
day-to-day basis that [it] could not, as a practical matter, be subject to
direct shareholder oversight." Establishing director qualifications and
disclosure policies are not management tasks at all, but rather responsibilities
of a company's board of directors.
Second, the Proposal does not threaten the sort of micromanagement the 1998
Release suggests as a reason for exclusion. The 1998 Release specifically
referred to micromanagement that consisted of "probing too deeply into matters
of a complex nature upon which shareholders, as a group, would not be in a
position to make an informed judgment." Shareholders are well able to make an
informed judgment on director independence standards and the information they
need to monitor director independence; indeed, because directors are
shareholders' elected representatives, shareholders are the group best suited to
make such judgments.
The Staff has recognized on numerous occasions that proposals dealing with
director independence do not implicate a company's ordinary business operations.
For example, in Commerce Bancorp, Inc.,1 the Staff declined to concur with the
company's argument that a proposal urging that the compensation committee be
composed entirely of independent directors, and defining an independent
director, was excludable on ordinary business grounds. Like Verizon, Commerce
Bancorp had argued that the proposal would micromanage its operations and its
compliance with regulatory requirements. Similar arguments have been rejected in
Murphy Oil Corporation,2 Quality Systems, Inc.,3 and Philip Morris Companies,4
to name just a few.
In sum, new Item 407(a)(3) of Regulation S-K does not substantially implement
the Proposal because it will not require Verizon to disclose any relationships
between director nominees and individual executive officers of Verizon, nor will
it compel disclosure of the specific terms of the relationships considered in
determining independence, unless such disclosure is already required under Item
404 of Regulation SK. Moreover, shareholders' central role in the election of
directors, and the absence of a compelling management interest in director
independence, means the Proposal does not implicate Verizon's ordinary business
operations. Accordingly, Verizon's request for a determination allowing
exclusion of the Proposal should be denied.
* * * * *
If you have any questions or need additional information, please do not hesitate
to call me at (202)730-7051. The Trust appreciates the opportunity to be of
assistance in this matter.
Very truly yours,
/s/
Stephen Abrecht
Executive Director of Benefit Funds
SEIU Master Trust
SA:TR:bh
cc: Mary Louise Weber
Assistant General Counsel
Verizon Communications, Inc.
Fax: 908-696-2068
-----FOOTNOTES-----
1 Commerce Bancorp, Inc. (publicly available Mar. 15, 2002).
2 Murphy Oil Corporation (publicly available Mar. 10, 2002).
3 Quality Systems, Inc. (publicly available June 9, 1999).
4 Philip Morris Companies, Inc. (publicly available Jan. 30, 1997).
[INQUIRY LETTER]
February 2, 2007
U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549
Re: Verizon Communications Inc. 2007 Annual Meeting Shareholder Proposal of the
SEIU Master Trust
Ladies and Gentlemen:
I refer to my letter dated December 27, 2006 (the "December 27 Letter") pursuant
to which Verizon Communications Inc., a Delaware corporation ("Verizon"),
requested that the Staff of the Division of Corporation Finance (the "Staff") of
the Securities and Exchange Commission (the "Commission") concur with Verizon's
view that the shareholder proposal and supporting statement (collectively, the
"Proposal") submitted by the SEIU Master Trust (the "Proponent") may properly be
omitted pursuant to Rule 14a-8(i)(10) and Rule 14a-8(i)(7) from the proxy
materials (the "Proxy Materials") to be distributed by Verizon in connection
with its 2007 annual meeting of shareholders.
This letter is in response to the letter to the Staff by the Proponent dated
January 24, 2007 (the "Proponent's Letter"), and supplements the December 27
Letter. In accordance with Rule 14a-8(j), a copy of this letter is being sent
simultaneously to the Proponent.
I. The Proponent's Letter Significantly Misstates the Relationships Considered
by Verizon's Board in Determining Director Independence and Required to be
Disclosed by Item 407(a)(3) of Regulation S-K
The Proponent's Letter, on page 2, claims that Verizon's Board of Directors (the
"Board") determines director independence solely based on the standards set
forth in the New York Stock Exchange ("NYSE") listing standards, which standards
do not require consideration of relationships between Verizon directors and
executive officers. The Proponent therefore incorrectly concludes that
relationships between Verizon directors and executive officers considered by the
Board would not be disclosed by Verizon under Item 407(a)(3) of Regulation S-K.
However, Item 407(a)(3) of Regulation S-K requires disclosure not based on the
NYSE listing standards but under "the applicable independence definitions" used
by Verizon to determine director independence, and Item 407(a)(2) expressly
recognizes that a registrant may use its own definitions for determining
independence. As stated at page 4 of Verizon's 2006 proxy statement, the Board
evaluates the independence of the directors, not only in accordance with the
NYSE listing standards but also the director independence standards set forth in
Verizon's Corporate Governance Guidelines.
The "Independence" section of Verizon's Corporate Governance Guidelines,
available through the Corporate Governance link on Verizon's website at
www.verizon.com/investor, provides that the Board will not consider a director
to be independent if the "[d]irector has any other relationship that the Board
determines is inconsistent with applicable laws and regulations on directors'
independence or that is likely to impair the [d]irector's ability to act
independently" (emphasis added). Annually, Verizon directors complete
questionnaires that elicit the information needed by the Board to evaluate the
independence of the directors under the applicable standards. The questionnaire
requests information about any relationship that may affect a director's
independence and in a number of instances specifically requests information
about various possible relationships with Verizon executive officers. As a
result, contrary to the statements contained in the Proponent's Letter, the
Board explicitly considers relationships between directors and Verizon executive
officers when it makes its determinations as to director independence. Were any
such relationship to exist, the nature of that relationship would be disclosed
in Verizon's Proxy Materials pursuant to Item 407(a)(3) of Regulation S-K.
Therefore, the Proponent's assertion that Verizon has not substantially
implemented the Proposal because Item 407(a)(3) of Regulation S-K does not
require Verizon to disclose relationships between Verizon directors and
executive officers is factually incorrect.
II. The Proponent's Letter Inaccurately Claims that Certain Immaterial
Differences Between the Proposal and Item 407(a)(3) of Regulation S-K Mean that
Verizon Has Not Substantially Implemented the Proposal
The Proponent argues, on page 3, that "the disclosure required by Item
407[(a)(3) of Regulation S-K] is significantly less specific than that sought in
the Proposal." This is an incorrect understanding of the requirements of Item
407(a)(3) of Regulation S-K. In fact, as detailed by the Commission in
Securities Act Release No. 33-8732A (Aug. 29, 2006), the requirements of Item
407(a)(3) of Regulation S-Kdisclosure of the categories or types of
transactions, relationships or arrangements considered by the boardare not
generic descriptions of relationships, but provide sufficient detail to fully
inform shareholders with respect to these relationships. Further, in Instruction
3 to Item 407(a)(3) of Regulation S-K, the Commission made clear that the
required disclosure "must be provided in such detail as is necessary to fully
describe the nature of the transactions, relationships or arrangements." As a
result, the final disclosure requirements of Item 407(a)(3) of Regulation S-K
provide for substantially the same level of disclosure requested by the
Proposal. The Proponent offers no support for its statement, on page 3 of the
Proponent's Letter, that Item 407(a)(3) of Regulation S-K is "significantly less
specific" than the Proposal.
The Proponent does not challenge the clear precedent that Commission disclosure
requirements on a specific topic support the exclusion of shareholder proposals
requesting merely incremental additional disclosure on the same topic.
Specifically, as noted in Section II.A of the December 27 Letter, in Eastman
Kodak Co. (Feb. 1, 1991), the Staff carefully analyzed for Rule 14a-8(i)(10)
purposes a proposal requesting disclosure of the company's environmental fines
in relation to the disclosure requirements of Item 103 of Regulation S-K. The
proposal in Eastman Kodak Co. requested full disclosure of all environmental
fines, no matter how small, innocent, or otherwise immaterial. For its part,
Item 103 only required disclosure of environmental proceedings "where monetary
sanctions may exceed $100,000." In granting Rule 14a-8(i)(10) no-action relief
in Eastman Kodak Co., the Staff specifically noted that the Commission in
adopting Item 103 had already called for disclosure of "important" environmental
proceedings; that such Item 103 disclosures were sufficient for an investor to "evaluat[e]
[a registrant's] environmental compliance and [the] impact on the [registrant's
operations]"; and that the Commission had therefore "allow[ed] omission of
disclosure about immaterial government proceedings." Finally, the Staff noted
with approval the company's position that "because the Company discloses all
fines [required to be disclosed by] Item 103, the information under the proposal
(except for de minimis amounts) is currently available through [the company's
public filings]." In addition to Eastman Kodak Co., the Company's request is
similar to other Rule 14a-8(i)(10) no-action letters where the Staff has
concurred that a proposal may be excluded as substantially implemented due to
the existence of regulatory requirements that require a public company to make
disclosures regarding subjects addressed by the proposal. See, e.g., Honeywell
International, Inc. (Feb. 14, 2005) (concurring that a proposal requesting that
the board establish a policy of expensing the costs of all future stock options
in a company's annual income statement was excludable under Rule 14a-8(i)(10)
where the company was required to comply with revised Financial Accounting
Standards Board 123). See, also Pfizer Inc. (Feb. 15, 2005) (same).
III. The Proponent References Inapplicable No-Action Precedent Relating to the
Ordinary Business Exclusion
The Proponent attempts to refute Verizon's argument, as fully set forth in
Section II.B of the December 27 Letter, that the Proposal may be excluded under
Rule 14a-8(i)(7) because it deals with a matter relating to Verizon's ordinary
business operations. First, the Proponent claims, on page 3, that "the Proposal
does not relate to legal compliance ... [because] the Proposal goes well beyond
the requirements of Item 407(a)(3)" of Regulation S-K and so should not be
excludable. The Proponent appears to acknowledge that the Proposal would be
excludable if it related to legal compliance. However, as shown in Sections I
and II above, the Proposal is substantially similar to 407(a)(3) of Regulation
S-K and does not in fact "go well beyond" that Item. As a result, the Proposal
clearly relates to legal compliance and is excludable by the Proponent's own
admission.
Furthermore, the Proponent's Letter on page 4, claims to cite precedent standing
for the proposition that "proposals dealing with director independence do not
implicate a company's ordinary business operations." However, a review of this
precedent reveals that all of the no-action letters in question were submitted
in connection with shareholder proposals urging that board committees be
comprised of independent directors, or urging other similar actions. Such
proposals differ significantly from the instant Proposal, which requests
disclosure in connection with legal compliance to which Verizon is already
subject. As a result, the no-action letters cited by the Proponent do not
address the subject of director independence in a similar manner as the instant
Proposal, and thus do not form a basis for including the instant Proposal.
IV. Conclusion
For the reasons set forth above and in the December 27 Letter, Verizon continues
to believe that the Proposal may properly be omitted from the Proxy Materials
pursuant to Rule 14a-8(i)(10) and Rule 14a-8(i)(7), and requests the Staff's
concurrence with its views.
Kindly acknowledge receipt of this letter by stamping and returning the extra
enclosed copy of this letter in the enclosed self-addressed, stamped envelope.
If you have any questions with respect to this matter, please telephone me at
(908) 559-5636.
Very truly yours,
/s/
Mary Louise Weber
Assistant General Counsel
cc: SEIU Master Trust
1313 L Street, N.W.
Washington, D.C. 20005
[STAFF REPLY LETTER]
February 21, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Verizon Communications Inc. Incoming letter dated December 27, 2006
The proposal urges the board to adopt a policy requiring disclosure in the proxy
statement of the material terms of all relationships between each director
nominee deemed to be independent and the company, or any of its executive
officers, that were considered by the board in determining whether such nominee
is independent.
There appears to be some basis for your view that
Verizon may exclude the proposal under rule 14a-8(i)(10). Accordingly, we will
not recommend enforcement action to the Commission if Verizon omits the proposal
from its proxy materials in reliance on rule 14a-8(i)(10). In reaching this
position, we have not found it necessary to address the alternative basis for
omission upon which Verizon relies.
Sincerely,
/s/
Ted Yu
Special Counsel
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