Company Name: WellPoint, Inc.
Public Availability Date: February 12, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 10, 2007
Direct Dial
(202) 955-8653
Fax No.
(202) 530-9677
Client No.
C 98407-00001
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: Shareholder "Proposal" of the Connecticut Retirement Plans & Trust Funds
Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, WellPoint, Inc. (the "Company"),
intends to omit from its proxy statement and form of proxy for its 2007 Annual
Shareholders Meeting (collectively, the "2007 Proxy Materials") a purported
shareholder proposal and statements in support thereof (the "Submission")
received from the Connecticut Retirement Plans & Trust Funds (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 the Company 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 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 Submission, a copy of that correspondence should
concurrently be furnished to the undersigned on behalf of the Company pursuant
to Rule 14a-8(k).
BASES FOR EXCLUSION
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(i)(3), because it is materially misleading, and pursuant to Rule 14a-8(a),
because it does not present a proposal for shareholder action.
THE SUBMISSION
The Submission requests that the Company's Board of Directors (the "Board")
adopt a policy of allowing shareholders "the opportunity at each annual meeting
of stockholders to vote on an advisory resolution, to be proposed by Wellpoint's
[sic] management, to approve the report of the Compensation Committee as
presented in the Compensation Discussion and Analysis section of the proxy
statement." The Submission underscores that the vote is intended to be purely
advisory, and should not abrogate any employment agreement or affect the
approval of any compensation-related proposal submitted for a vote of
shareholders at the same or any other meeting of shareholders. The supporting
statement describes the Submission as allowing shareholders to "express their
opinion about senior executive compensation practices by establishing an annual
referendum process."
A copy of the Submission and supporting statements, as well as related
correspondence from the Proponent, is attached to this letter as Exhibit A. We
hereby respectfully request that the Staff concur in our view that the
Submission may be excluded from the 2007 Proxy Materials for the reasons
described below.
ANALYSIS
I. The Submission May Be Excluded Under Rule 14a-8(i)(3) Because It Is
Materially False Or Misleading.
Under Rule 14a-8(i)(3), a company may omit a shareholder proposal if the
proposal is contrary to any of the Commission's proxy rules and regulations,
including Rule 14a-9. Rule 14a-9(a) provides that "[n]o solicitation ... shall
be made by means of any proxy statement ... containing any statement which, at
the time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading...." The Submission requests that the Board "adopt a policy that
Wellpoint [sic] stockholders be given the opportunity at each annual meeting of
stockholders to vote on an advisory resolution ... to approve the report of the
Compensation Committee as presented in the Compensation Discussion and Analysis
section of the proxy statement."
The Staff recently addressed a very similar proposal in Sara Lee Corp. (avail.
Sept. 11, 2006). The proposal in Sara Lee requested the company to adopt a
policy that the company's shareholders "be given the opportunity ... to vote on
an advisory resolution ... to approve the report of the Compensation and
Employee Benefits Committee set forth in the proxy statement." The Staff
concurred that the proposal was materially false or misleading under Rule
14a-8(i)(3), stating:
The proposal's stated intent to "allow stockholders to express their opinion
about senior executive compensation practices" would be potentially materially
misleading as shareholders would be voting on the limited content of the new
Compensation Committee Report, which relates to the review, discussions and
recommendations regarding the Compensation Discussion and Analysis disclosure
rather than the company's objectives and policies for named executive officers
described in the Compensation Discussion and Analysis.
Like the proposal in Sara Lee, the Submission requests that the Company submit
for a shareholder vote an advisory resolution to approve the report of the
Compensation Committee. Moreover, as with the Sara Lee proposal, the Submission
is materially misleading because, following the Commission's adoption of new
compensation disclosure rules, the Compensation Committee Report will not
contain the information that the Submission indicates shareholders will be
voting on, namely, the Company's executive compensation policies. See Adopting
Release, Executive Compensation and Related Person Disclosure, Exchange Act
Release No. 8732A (August 29, 2006). If a shareholder casts a vote "for" or
"against" the Submission, such a shareholder likely would believe, based on the
representations in the Submission, that the Submission is seeking the adoption
of a policy that would, if implemented, allow shareholders an advisory vote on
the Company's executive compensation policies. If the Submission is implemented,
however, shareholders would not be voting on executive compensation policies,
but instead on the limited content of the new Compensation Committee Report. The
Submission is further materially misleading because it suggests that the
Compensation Committee Report is part of the Compensation Discussion and
Analysis section of the proxy statement, which it is not. Consequently, the
Submission's inclusion in the 2007 Proxy Materials would be materially
misleading to the Company's shareholders.
While in Sara Lee the Staff permitted the proponent to revise its proposal "to
make clear that the advisory vote would relate to the description of the
company's objectives and policies regarding named executive officer
compensation," the Staff stated that it was doing so "because the requirements
for the Compensation Committee Report were revised following the deadline for
submitting proposals" to Sara Lee. Here, unlike in Sara Lee, the Submission was
submitted well after the adoption and public release of the SEC's new rules
regarding executive compensation disclosure. The Proponent submitted the
Submission to the Company on December 13, 2006, more than four months after the
Commission adopted the new rules on July 26, 2006. Moreover, the Proponent
submitted the Submission more than three months after the new rules were
publicly released on August 29, 2006. Consequently, the Submission is excludable
under Rule 14a-8(i)(3) because it is materially misleading, and the Staff should
not permit its revision.
II. 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 shareholder action but instead seeks to provide a
mechanism that would allow shareholders 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 shareholder 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 shareholders
to "express their opinion about senior executive compensation practices by
establishing an annual referendum process." 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
shareholder 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
shareholder vote to express shareholder 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 Committee Report, and the advisory vote merely allows
shareholders 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
advisory vote on the Compensation Committee Report in the proxy statement will
allow shareholders "to express their opinion about senior executive compensation
practices."
The Submission's formulation as a request that the Company adopt a policy of
submitting an advisory vote to shareholders 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 shareholder proposal is a proper
matter for a shareholder 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 14 a-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. When evaluating a
proposal that requests that a company's board adopt a policy, the Staff has
consistently looked at the subject underlying the proposed policy to determine
whether a proposal is excludable under Rule 14a-8, and has not considered the
request to adopt a policy itself as the subject of the proposal. Likewise, 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 shareholders 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 shareholder 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 shareholder 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 shareholder 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 shareholder 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
shareholder 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). See also Ford Motor Co. (avail. Feb. 27, 2005)
(same).
In determining whether a shareholder 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 shareholders approve a new executive
incentive compensation plan).
In determining whether a company has, for purposes of Rule 14a-8(i)(10),
substantially implemented a shareholder 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 shareholder 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 shareholder 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 shareholder support).
Here, regardless of whether one views the Submission as asking for adoption of a
policy or asking that management propose an annual advisory vote for
stockholders, the subject matter of the Submission concerns providing
shareholders an advisory vote, a matter that is not a proper subject of a
shareholder 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 the Company adopt a
policy on (or submit for a vote) a matter that, if proposed directly by the
shareholder, 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 the Company's 2007 Proxy Materials.
C. A Request For Future Votes Is Not A Proper Form For A Shareholder 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 shareholder
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
proposal 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 shareholder vote.
In those situations, the underlying subject of the proposal is a specific
corporate action and the future shareholder 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
shareholders' sentimentbe placed before shareholders for an annual vote. Rule
14a-8 prescribes the procedures that a shareholder is to follow if it wishes a
particular matter to be placed before shareholders at a particular meeting;1 it
is inconsistent with the structure and intent of Rule 14a-8 to allow a
shareholder to circumvent these standards by proposing that management submit
the shareholder's proposal to an annual vote at an indefinite number of future
meetings. Instead, Rule 14a-8 requires the shareholder 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 shareholder'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 shareholder 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." Rule 14a-8(c) limits a
proponent to submitting no more than one proposal for consideration at a
particular shareholders' meeting. Rules 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 shareholder 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 the Company 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, 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.
If we can be of any further assistance in this matter, please do not hesitate to
call me at (202) 955-8653 or Kathleen Kiefer, the Company's Associate General
Counsel, at (317) 488-6562.
Sincerely,
/s/
Amy L. Goodman
Enclosures
cc: Kathleen Kiefer, WellPoint, Inc.
Donald Kirshbaum, Connecticut Retirement Plans & Trust Funds
Howard Rifkin, Connecticut Retirement Plans & Trust Funds
-----FOOTNOTES-----
1 Allowing shareholders to submit a subject for vote at an indefinite number of
annual meetings is inconsistent with Rule 14a-8(c), which instructs shareholders
that "Each shareholder may submit no more than one proposal to a company for a
particular shareholders' meeting."
[INQUIRY LETTER] December 13, 2006
Nancy L. Purcell
Vice President and Corporate Secretary
WellPoint Inc.
120 Monument Circle
Indianapolis, Indiana 46204
Re: Shareholder Resolution
Dear Ms. Purcell,
The purpose of this letter is to submit a shareholder resolution on behalf of
the Connecticut Retirement Plans & Trust Funds (CRPTF) for consideration and
action by shareholders at the next annual meeting of Wellpoint.
As the Deputy State Treasurer, I hereby certify that the CRPTF has been a
shareholder of the minimum number of shares required of your company for the
past year. Furthermore, as of December 12, 2006, the CRPTF held 172,980 shares
of Wellpoint valued at approximately $13,290,053. The CRPTF will continue to own
Wellpoint shares through the annual meeting date.
Please do not hesitate to contact Donald Kirshbaum, Investment Officer for
Policy at (860) 702-3164, if you have any questions or comments concerning this
resolution.
Sincerely,
/s/
Howard Rifkin
Deputy Treasurer
Attachment
[APPENDIX] Co-Filer The Connecticut Retirement Plans and Trust Funds ("CRPTF")
RESOLUTION REQUESTING ANNUAL VOTE ON EXECUTIVE COMPENSATION REPORT
RESOLVED, that stockholders of Wellpoint urge the board of directors to adopt a
policy that Wellpoint stockholders be given the opportunity at each annual
meeting of stockholders to vote on an advisory resolution, to be proposed by
Wellpoint's management, to approve the report of the Compensation Committee as
presented in the Compensation Discussion and Analysis section of the proxy
statement. The policy should provide that appropriate disclosures will be made
to ensure that stockholders fully understand that the vote is advisory; will not
affect any person's compensation; and will not affect the approval of any
compensation-related proposal submitted for a vote of stockholders at the same
or any other meeting of stockholders.
SUPPORTING STATEMENT
We believe that the current rules governing senior executive compensation do not
give stockholders enough influence over pay practices. In the United Kingdom,
public companies allow stockholders to cast an advisory vote on the "directors'
remuneration report." Such a vote isn't binding, but allows stockholders a clear
voice which could help reduce excessive pay. U.S. stock exchange listing
standards do 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 input 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 also broad and do not
constrain compensation committees in setting performance targets for particular
executives. Withholding votes from compensation committee members who are
standing for reelection is a blunt instrument for registering dissatisfaction
with the way in which the committee has administered compensation plans and
policies in the previous year.
Currently shareholders can, and often do, express their opinion on the
performance of compensation committee members by withholding their vote for
their election to the Board. This process, however, is not directly tied to the
compensation report. In addition, it is preferable to vote for board members
based on their overall performance, rather that their actions on one board
committee.
Accordingly, we urge Wellpoint's board to allow stockholders to express their
opinion about senior executive compensation practices by establishing an annual
referendum process. The results of such a vote would, we think, provide
Wellpoint with useful information about whether stockholders view the company's
compensation practices, as reported each year in the Compensation Discussion and
Analysis, to be in stockholders' best interests.
We urge stockholders to vote for this proposal.
[INQUIRY LETTER]
January 31, 2007
By Overnight Delivery
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.W.
Washington, D.C. 20549
Re: Shareholder Proposal Submitted by Connecticut Retirement Plans & Trust Funds
for Inclusion in WellPoint, Inc.'s 2007 Proxy Statement
Ladies and Gentlemen:
It has come to our attention that there was a line of text missing between pages
1 and 2 of our letter dated January 30, 2007, which we submitted on behalf of
the Connecticut Retirement Plans & Trust Funds ("CRPTF"), in response to the
letter dated January 10, 2007, sent on behalf of WellPoint, Inc. ("WellPoint" or
the "Company"). Enclosed are the original and six copies of a corrected letter,
which we respectfully request that you substitute for the letter dated January
30, 2007 in your files. We have also enclosed an additional copy, which we ask
that you kindly date-stamp and return to us in the enclosed, self-addressed
stamped envelope.
We apologize for any inconvenience.
Respectfully,
/s/
Megan D. McIntyre
Enclosure
cc: Amy L. Goodman, Esquire (with enclosure, by facsimile)
[INQUIRY LETTER]
January 31, 2007
By Overnight Delivery
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.W.
Washington, D.C. 20549
Re: Shareholder Proposal Submitted by Connecticut Retirement Plans & Trust Funds
for Inclusion in WellPoint, Inc.'s 2007 Proxy Statement
Ladies and Gentlemen:
This letter is submitted on behalf our client, the Connecticut Retirement Plans
& Trust Funds ("CRPTF"), in response to the letter dated January 10, 2007, sent
on behalf of WellPoint, Inc. ("WellPoint" or the "Company") to the Division of
Corporation Finance of the Securities and Exchange Commission (the "Division")
(the "January 10 Letter"), in which the Company maintains that the shareholder
proposal submitted by CRPTF may be excluded from the Company's 2007 proxy
statement pursuant to Rules 14a-8(i)(3) and 14a-8(a).
The burden is on WellPoint to establish that it has a reasonable basis for
excluding CRPTF's proposal from its proxy materials. See Staff Legal Bulletin No
14 (CF) (July 13, 2001). As demonstrated herein, WellPoint has failed to meet
that burden.
I. The Proposal Is Not Excludable Under Rule 14a-8(i)(3), Because It Is Not
Materially False Or Misleading
CRPTF's proposal (the "Proposal") seeks a resolution urging the Company's Board
of Directors (the "Board") "to adopt a policy that WellPoint stockholders be
given the opportunity at each annual meeting of stockholders to vote on an
advisory resolution, to be proposed by Wellpoint's management, to approve the
report of the Compensation Committee as presented in the Compensation Discussion
and Analysis section of the proxy statement."
WellPoint claims that the Proposal may be excluded from its proxy materials
pursuant to Rule 14a-8(i)(3), on the grounds that the Proposal violates Rule
14a-9's prohibition against materially false or misleading statements in a proxy
solicitation. In doing so, WellPoint does not contend that the Proposal contains
any false statements. Rather, it argues that the Proposal is "materially
misleading because, following the Commission's adoption of new compensation
disclosure rules, the Compensation Committee Report will not contain the
information that the [Proposal] indicates shareholders will be voting on,
namely, the Company's executive compensation policies." See January 10 Letter,
at 3. In other words, WellPoint believes that shareholders will be misled into
thinking that they are requesting a policy allowing them to cast an advisory
vote regarding the substance of the Company's executive compensation policies,
when the Proposal would actually allow the Company to submit only the contents
of the Compensation Committee Report up for an advisory vote.
By way of background, prior to 2007 the details regarding the Company's
executive compensation policies were required to be set forth in the
Compensation Committee's report in the Company's proxy statement. However, in
light of amendments to the SEC's proxy disclosure rules which took effect in
late 2006, those details now must be set forth in the Compensation Discussion
and Analysis section of the proxy statement, and are not required to be
contained in the Compensation Committee's report.1 Nonetheless, the Compensation
Committee report must state that the committee has reviewed and discussed the
Compensation Discussion and Analysis with management and has recommended its
inclusion in the proxy statement. See 17 C.F.R. §229.407(e)(5)(i). Accordingly,
while the Compensation Committee Report itself is no longer required to include
the substance of the Company's executive compensation policies and practices, it
still represents an endorsement of those policies and practices by the
Compensation Committee. A vote to approve the report is therefore akin to a vote
to approve the policies and decisions themselves. Thus, CRPTF does not believe
its Proposal is misleading simply because it seeks a vote to approve the
Compensation Committee report, rather than a vote to approve the compensation
policies.
However, in order to eliminate any uncertainty regarding the effect of a vote in
favor of the Proposal, and if the Staff deems it necessary, CRPTF will modify
its Proposal to make clear that the advisory vote will be to approve the
Company's executive compensation objectives, policies and decisions, not merely
the disclosures in the Compensation Committee Report. Specifically, CRPTF is
prepared to modify the first sentence of the Proposal to read as follows:
RESOLVED, that the stockholders of WellPoint urge the board of directors to
adopt a policy that WellPoint stockholders be given the opportunity at each
annual meeting of stockholders to vote on an advisory resolution, to be proposed
by WellPoint's management, to approve the company's objectives, policies and
decisions regarding executive officer compensation, as presented in the
Compensation Discussion and Analysis section of the proxy statement.
This modification of the Proposal is precisely what the Staff stated would be
sufficient to resolve a Rule 14a-8(i)(3) objection to a similar proposal
submitted to Sara Lee Corporation. See Sara Lee Corp. (publicly available Sept.
11, 2006). There, the proposal asked the company "to adopt a policy that Sara
Lee shareholders be given the opportunity at each annual meeting of stockholder
to vote on an advisory resolution, to be proposed by Sara Lee's management, to
approve the report of the Compensation and Employee Benefits Committee set forth
in the proxy statement." In response to a Rule 14a-8(i)(3) objection similar to
that posed by WellPoint, the Staff concluded that "the proposal may ... be
revised to make clear that the advisory vote would relate to the description of
the company's objectives and policies regarding named executive officer
compensation that is included in the Compensation Discussion Analysis," and that
such a revised proposal could not be omitted from the proxy statement under Rule
14a-8(i)(3). To the extent the Staff finds the Proposal to be misleading as
submitted, it should similarly decline to issue a no-action letter, provided
that CRPTF modify the Proposal as described above.
The Staff should reject WellPoint's suggestion that CRPTF should be precluded
from revising its Proposal. The Staff routinely permits proposals to be modified
in order to resolve objections pursuant to Rule 14a-8(i)(3), as it did in
response to the Sara Lee no-action request.2 Moreover, it is irrelevant that the
Proposal was submitted after the adoption of the new SEC rules which give rise
to the Rule 14a-8(i)(3) objection. First, as stated above, CRPTF does not
believe those rule amendments render the Proposal misleading. Second, the Staff
has never espoused the view, nor should it, that proposals may be revised only
when they are rendered misleading by events occurring after their submission. To
the contrary, revisions are routinely permitted for proposals that were false or
misleading at the time of their submission. See supra note 2.
II. The Proposal Seeks Action By The WellPoint Board, And Is Thus Not Excludable
Under Rule 14a-8(a)
WellPoint also argues that, because the Proposal seeks to enable shareholders to
cast advisory votes, it "is not a proposal for purposes of Rule 14a-8." (January
10 Letter, at 4.) This argument is misguided. While a proposal may be improper
when the vote on the proposal itself would merely be an expression of
shareholders' views - i.e., when the proposal seeks no action by the board -
this is not such a proposal. Here, the Proposal urges the WellPoint Board to
adopt a policy whereby certain matters will be presented for an annual advisory
vote, and therefore it seeks specific board action.
Rule 14a-8(a) defines a shareholder proposal as a "recommendation or requirement
that the company and/or its board of directors take action ..." 17 C.F.R.
§240.14a-8(a). In the release proposing this language, the Commission explained
that the definition reflected the Commission's belief that "a proposal that
seeks no specific action, but merely purports to express shareholders' views, is
inconsistent with the purpose of rule 14a-8 and may be excluded from companies'
proxy materials." Proposing Release, Amendments to Rules on Shareholder
Proposals, Exchange Act Release No. 39093 (Sept. 18, 1997) (emphasis added).
Applying this definition, the Staff has found a shareholder proposal excludable
when it merely expresses a sentiment, and "does not recommend or require that
[the company] or its board of directors take any action." See Sensar Corp.
(publicly available July 17, 2001) (proposal stated: "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.").
WellPoint's reliance on the Staff's no-action letter to Sensar Corp. is
misplaced, because CRPTF's Proposal is completely different from the Sensar
proposal. CRPTF's Proposal does not express an opinion,3 but rather requests
that the board adopt a policy that will require the company to give shareholders
the opportunity to cast advisory votes regarding compensation issues on a
regular basis. Thus, unlike the Sensar proposal, this Proposal seeks specific
action by the WellPoint board, in the form of the adoption of a new corporate
policy. The Staff has declined to issue no-action letters on many proposals
similarly urging the adoption of policies. See, e.g., Sara Lee Corp. (publicly
available Sept. 11, 2006) (proposal urging board to adopt virtually the
identical policy requested here by CRPTF); Verizon Communications Inc. (publicly
available Feb. 6, 2006) (proposals that board adopt policies requiring certain
percentages of executive compensation to be performance-based); Qwest
Communications Int'l Inc. (publicly available Mar. 4, 2005) (proposal asking
board to adopt a policy that it will take certain specified actions regarding
executive compensation in the event of a substantial restatement of financial
results); Amgen Inc. (publicly available Jan. 26, 2005) (proposal urging board
to adopt a policy requiring senior executives to retain a significant percentage
of shares acquired through equity compensation programs); Cintas Corp. (publicly
available Aug. 13, 2004) (proposal urging board to adopt a policy of recognizing
cost of stock options in income statement).
It is thus well-established that a shareholder proposal urging the adoption of a
corporate policy is a legitimate "proposal" under Rule 14a-8. WellPoint tries to
sidestep this issue by asking the Staff to ignore the fact that the Proposal
seeks adoption of a policy, and to focus instead on the substance of the policy
to determine whether this is a "proposal" under Rule 14a-8(a). In support,
WellPoint cites to no-action letters where the Staff looked to the substance of
a proposed policy to determine whether a proposal to adopt that policy was
excludable under Rule 14a-8(i). See January 10 Letter, at 6-9. Of course, the
fact that the Staff was even considering Rule 14a-8(i) exclusions means that it
was understood that these requests for the adoption of company policies were
"proposals" within the meaning of Rule 14a-8(a). In any event, while WellPoint's
suggested "form over substance" approach may make sense when evaluating Rule
14a-8(i) exclusions where the applicability of those exclusions turns on the
substance of the action being sought, the question WellPoint raises under Rule
14a-8(a) is quintessentially a question of form - i.e., whether or not the
proposal takes the form of a request for action, or merely the expression of an
opinion. Because the Proposal seeks action by the board, it is a "proposal"
under Rule 14a-8(a).
Moreover, even if the Staff were to consider the substance of the proposed
policy when determining whether CRPTF's submission is a "proposal," the Proposal
should not be excluded. CRPTF's proposed policy would give WellPoint's
shareholders an opportunity to cast annual advisory votes on the Company's
senior executive compensation policies and practices. Issues of senior executive
compensation are appropriate subjects for shareholder proposals. See Eastman
Kodak Company (publicly available Feb. 13, 1992). Furthermore, the Staff has
declined to issue no-action letters with respect to proposals that would provide
a mechanism for future advisory votes. See, e.g., Sara Lee Corp. (publicly
available Sept. 11, 2006) (involving a virtually identical proposal to CRPTF's);
General Motors Corp. (publicly available Mar. 29, 2001) (proposal recommending
that the shareholders "have the opportunity for an advisory vote on the members
of the board audit committee"); The Boeing Company (publicly available Feb. 8,
2001) (same); Electromagnetic Sciences, Inc. (publicly available Mar. 9, 1993)
(proposal to amend by-laws to require an advisory vote of shareholders before
the implementation of increases in certain executives' compensation). The
substance of CRPTF's proposed policy therefore provides no basis to exclude the
Proposal.
Finally, there is no merit to WellPoint's argument that the Proposal is improper
"because it seeks to achieve an annual shareholder vote on a matter in future
years without satisfying any of the procedural requirements of Rule 14a-8 with
respect to those future years." CRPTF is not seeking to require that its own
resolution be repeated in future proxy statements, but instead is submitting a
single proposal which asks the Company to adopt a policy that future years'
proxy statements will include "an advisory resolution, to be proposed by
Wellpoint's management ..." It will be up to the Company decide whether or not
to adopt this policy, and if it does, to propose the actual resolution for
inclusion in future proxy statements. The fact that the idea for the advisory
resolution originated with CRPTF does not warrant exclusion of the Proposal, as
the Staff has frequently declined to issue no-action letters for proposals
seeking future shareholder votes on particular matters, including a proposal
virtually identical to this one. See, e.g., Sara Lee Corp. (publicly available
Sept. 11, 2006); Hewlett-Packard Company (publicly available Dec. 21, 2006);
Wells Fargo & Company (publicly available Feb. 23, 2006); McDonald's Corp.
(publicly available Feb. 13, 2006); General Motors Corp. (publicly available
Mar. 29, 2001); The Boeing Company (publicly available Feb. 8, 2001); Frontier
Corp. (publicly available Jan. 23, 1997); Electromagnetic Sciences, Inc.
(publicly available Mar. 9, 1993).
Conclusion
Because WellPoint has not met its burden of establishing a reasonable basis for
excluding CRPTF's Proposal from its proxy materials, the Company's request for a
no-action letter should be denied. In the event that the Staff disagrees with
CRPTF's position, or requires any additional information, we would appreciate
the opportunity to meet and confer to discuss these issues. Please feel free to
call the undersigned at your convenience.
In accordance with Rule 14a-8(k), we have enclosed six (6) copies of this
letter. We have also enclosed an additional copy, which we ask that you kindly
date-stamp and return to us in the enclosed, self-addressed stamped envelope.
Respectfully,
/s/
Megan D. McIntyre
cc: Amy L. Goodman, Esquire (by facsimile)
-----FOOTNOTES-----
1 These amendments apply to proxy statements filed after December 15, 2006, for
years ending on or after December 15, 2006. See 71 Fed. Reg. 53158-01.
2 See, e.g., Bob Evans Farms, Inc. (publicly available June 26, 2006); Steris
Corp. (publicly available June 14, 2004); General Motors Corp. (publicly
available Apr. 7, 2004); Southwest Airlines Co. (publicly available March 31,
2004); Post Properties, Inc. (publicly available March 26, 2004); Tidewater Inc.
(publicly available March 26, 2004); Amerada Hess Corp. (publicly available
March 15, 2004); SI Handling Systems, Inc. (publicly available May 5, 2000);
Sempra Energy (publicly available Feb. 24, 2000); J.P. Morgan & Co., Inc.
(publicly available Jan. 24, 2000).
3 In fact, the proposed resolution - as reflected in the "RESOLVED" clause of
the Proposalexpresses no value judgments whatsoever. Even if it did, however,
the fact that it also seeks specific board action means it is a legitimate
"proposal" for purposes of Rule 14a-8(a). See Minnesota Mining & Mfg. Co.
(publicly available May 15, 1974) (declining to permit exclusion of proposal
which expressed views of stockholders but also proposed corporate action to
implement those views, stating: "In the Division's opinion, shareholder
proposals are generally expressions of the views of shareholders which are
accompanied, as this one is, by a request with respect to the method by which
those views may be implemented.")
[STAFF REPLY LETTER] February 12, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: WellPoint, Inc. Incoming letter dated January 10, 2007
The proposal urges the board to adopt a policy that stockholders be given the
opportunity at each annual meeting to vote on an advisory management resolution
to approve the report of the Compensation Committee as presented in the
Compensation Discussion and Analysis section of the proxy statement.
There appears to be some basis for your view that WellPoint may exclude the
proposal under rule 14a-8(i)(3), as materially false or misleading under rule
14a-9. Accordingly, we will not recommend enforcement action to the Commission
if WellPoint omits the proposal from its proxy materials in reliance on rule
14a-8(i)(3). In reaching this position, we have not found it necessary to
address the alternative basis for omission upon which WellPoint relies.
Sincerely,
/s/
Gregory Belliston
Attorney-Adviser
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