Company Name: Burlington Northern Santa Fe Corp.
Public Availability Date: January 22, 2008Document Sections:INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 13, 2007
BY UPS OVERNIGHT COURIER
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Burlington Northern Santa Fe Corporation - Shareholder Proposal Submitted by
Emil Rossi
Ladies and Gentlemen:
On behalf of Burlington Northern Santa Fe Corporation ("BNSF") and pursuant to
Rule 14a-8(j) under the Securities Exchange Act of 1934, I hereby request
confirmation that the Staff of the Securities and Exchange Commission will not
recommend enforcement action if, in reliance on Rule 14a-8, the Company excludes
a proposal submitted by Emil Rossi (the "Proponent") from the proxy materials
for BNSF's 2008 annual shareholders' meeting (the "2008 Proxy Materials"), which
we expect to file in definitive form with the Commission more than 80 calendar
days from the date hereof.
On November 2, 2007, we received a notice on behalf of the Proponent dated
October 5, 2007, submitting the following proposal for consideration at our 2008
annual shareholders meeting (a copy of which, together with the supporting
statement, is attached as Exhibit A) (the "Proposal"):
RESOLVED, that shareholders of our company request our board of directors to
adopt a policy to give shareholders the opportunity at each annual shareholder
meeting to vote on an advisory resolution, proposed by management, to ratify the
compensation of the named executive officers (NEOs) set forth in the proxy
statement's Summary Compensation Table (SCT) and the accompanying narrative
disclosure of material factors provided to understand the SCT (but not the
Compensation Discussion and Analysis). The proposal submitted to shareholders
should make clear that the vote is non-binding and would not affect any
compensation paid or awarded to any NEO.
Pursuant to Rule 14a-8(j), I have enclosed six copies of the proposal and this
letter, which sets forth the grounds upon which we deem omission of the proposal
to be proper. Pursuant to Rule 14a-8(j), a copy of this letter is being sent to
the Proponent to notify him of our intention to omit the proposal from our 2008
annual meeting proxy materials.
We believe that the Proposal may be properly omitted from BNSF's 2008 proxy
materials pursuant to Rule 14a-8 for the reasons set forth below.
BASES FOR EXCLUSION
I. BNSF may exclude the Proposal in reliance on Rule
14a-8(i)(3) because it is materially misleading in violation of Rule 14a-9
Rule 14a-8(i)(3) permits a company to exclude a proposal "[i]f the proposal or
supporting statement is contrary to any of the Commission's proxy rules,
including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials." SEC Staff Legal Bulletin No. 14 (July 13, 2001).
The Proponent's proposal is misleading in a number of respects.
(a) The Proposal is Materially Misleading Because its Exclusion of the
Compensation Discussion and Analysis From the Materials to be Voted on Creates a
Result That Could be Significantly Different From That Envisioned by
Shareholders.
The SEC has consistently found that a shareholder's proposal is misleading if
implementation of the proposal would lead the company to take actions that are
significantly different from those envisioned by the stockholders who voted on
the proposal. See Occidental Petroleum Corp. (Feb. 11, 1991). In this case, the
Proposal's supporting statement gives shareholders the impression that their
vote will have a significant influence on BNSF's important executive
compensation disclosures, which will in turn allow them to play a role in
setting executive compensation. However, the Proposal explicitly excludes the
Compensation Discussion and Analysis (the "CD&A") from the materials on which
the shareholders will vote. In light of recent changes to SEC Rules
(specifically Item 402 of Regulation S-K) regarding disclosure requirements for
executive compensation, the CD&A is now one of the most important elements of a
company's executive compensation disclosure. Therefore, its exclusion from the
"advisory resolution" that the Proposal requests makes the Proposal misleading
in that the vote would be far less relevant than the supporting statement
indicates. Simply put, under the new executive compensation disclosure rules it
is difficult to express an informed view on a company's executive compensation
program without considering the CD&A.
In adopting its new rules on executive compensation disclosure, the SEC
explained that "[t]he purpose of the Compensation Discussion and Analysis
disclosure is to provide material information about the compensation objectives
and polices of named executive officers without resorting to boilerplate
disclosure." Adopting Release, Executive Compensation and Related Person
Disclosure, Exchange Act Release No. 8732A (August 29, 2006). Instead of just
providing mundane or irrelevant details, the CD&A is "intended to put into
perspective for investors the numbers and narrative that follow it." Id. The
sorts of issues that the CD&A is intended to outline include the objectives of
the company's compensation program, each element of compensation, how the
company chooses to pay each element, and how each element of compensation fits
into the company's overall compensation objectives. Id. According to the
adopting release, examples of such issues include "policies for allocating
between long-term and currently paid out compensation; policies for allocating
between cash and non cash compensation, and among different forms of non-cash
compensation;... how the determination is made as to when awards are granted,
including awards of equity-based compensation such as options; what specific
items of corporate performance are taken into account in setting compensation
policies and making compensation decisions" as well as a litany of other
compensation-related matters. Id. Also, the CD&A must be "sufficiently precise
to identify material differences in compensation policies and decisions for
individual named executive officers." This is exactly the sort of information
that would allow a shareholder to engender a relevant viewpoint on the matter of
compensation. In excluding these materials from the proposed advisory vote the
proponent eviscerates any possible effect that such a vote might have on
executive compensation, as a shareholder could not possibly be expected to
express a relevant view on the matter if the shareholder is not considering the
CD&A. Because the Proposal's supporting statement excludes the CD&A, and instead
gives the impression that the proposed advisory vote would be very influential,
a shareholder's expectations regarding the outcome of the vote would be very
different from the actual outcome. Accordingly, the Proposal is misleading.
A series of recent SEC decisions support this position. Within the past year,
the SEC allowed a number of companies to exclude shareholder proposals that
requested an advisory vote on their respective compensation committees' reports.
See Sara Lee Corporation (Sep. 11, 2006); PG&E Corporation (Jan. 30, 2007); The
Bear Stearns Companies Inc. (Jan. 30, 2007); Allegheny Energy, Inc. (Jan. 30,
2007); Burlington Northern Santa Fe Corp. (Jan. 31, 2007); Johnson & Johnson
(Jan. 31, 2007); Energy East Corporation (Feb. 12, 2007); WellPoint, Inc. (Feb.
12, 2007); Entergy Corp (Feb. 14, 2007); Safeway Inc. (Feb. 14, 2007). One
common thread running throughout these decisions was that, in light of the
recent SEC rule changes, such proposals were misleading, "as shareholders would
be voting on the limited content of the new Compensation Committee Report...
rather than the company's objectives and policies for named executive officers
described in the Compensation Discussion and Analysis." Sara Lee Corporation
(Sep. 11, 2006). The exact same logic applies to the Proponent's Proposal: in
excluding the CD&A from the advisory vote, shareholders will not be voting on
the material that is most pertinent to determining executive compensation.
Furthermore, voting to ratify compensation disclosures in the Summary
Compensation Table is essentially a vote by looking in the rear view mirror: the
shareholder is being asked to ratify what has already been paid rather than the
basis on which compensation is intended to be made going forward. A shareholder
vote based on such a view would not be informed by how and why the company
arrives at specific executive compensation decisions and policies or by what
factors it considers in awarding compensation. Finally, the fact that the
Proposal does not specifically request a vote on the report of our Compensation
Committee (as was the case with the above-cited proposals) is not sufficient to
distinguish this proposal from those precedents. Just as with the proposals in
the above-cited decisions, the Proponent's Proposal requests a vote on a variety
of materials, but excludes the CD&A, an integral part of our executive
compensation disclosure. In light of the above-cited decisions, the Proposal
should therefore be excluded.
Finally, the SEC explained in its adopting release that companies' CD&As will
obtain even greater import in future years, because they will have the ability
to "effectively elicit meaningful disclosure, even as new compensation vehicles
develop over time." This factor is particularly critical to this analysis, as it
makes the Proponent's Proposal even more troublesome. Specifically, the Proposal
seeks to implement an advisory vote "at each annual shareholder meeting,"
(emphasis added), and each such advisory vote would fail to include the
important information located in our future CD&As. As our company evolves over
time, so too will our compensation programs, and these changes will be reflected
in our future CD&As. Therefore, if one of the proposed advisory votes were to
take place in the future, it is likely that a shareholder taking part in such a
vote would be in an even worse position to evaluate relevant information than
the shareholder would be today. Therefore, the misleading effect of the
Proponent's proposal will only be magnified as time goes on.
(b) The Proposal is Materially Misleading Because it Contains False, Impugning,
and Manipulative Information.
The Proposal may also be excluded because its supporting statement contains
language that falls squarely within the text of Rule 14a-9(a), which prohibits
"any statement which, at the time and in the 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 or necessary to correct any statement in any
earlier communication with respect to the solicitation of a proxy for the same
meeting or subject matter which has become false or misleading."
In his supporting statement, the Proponent states that the BNSF "directors
prevented [BNSF shareholders] from voting on this topic in 2007 by capitalizing
on a technicality." The Proponent is referring to a similar proposal that we
received last year requesting an advisory vote on the Compensation Committee
Report. We excluded that proposal from our 2007 proxy statement after the SEC
agreed that its inclusion would be materially false or misleading. Burlington
Northern Santa Fe Corp. (Jan. 31, 2007). In claiming that the previous proposal
was excluded because of a "technicality" the Proponent masks the truth of the
matter, that the proposal was actually excluded because it would have misled
shareholders voting on the issue. The wording of the statement gives the
impression that BNSF precluded shareholders from seizing a valuable opportunity
last year, when in actuality, we, in accordance with SEC guidelines and with SEC
approval through the no-action letter process, protected them from being
deceived by a misleading proposal. Accordingly, this portion of the supporting
statement is patently false, and provides grounds for exclusion.
Additionally, this aspect of the supporting statement is materially false or
misleading because it attempts to manipulate other shareholders by impugning the
character of BNSF directors. The SEC has made clear that a proposal may be
excluded as misleading if it contains "statements [that] directly or indirectly
impugn character, integrity, or personal reputation, or directly or indirectly
make[s] charges concerning improper, illegal, or immoral conduct or association,
without factual foundation." SEC Staff Legal Bulletin No. 14B (Sep 15, 2004);
Securities Exchange Act of 1934, Rule 14a-9, Note b. In this instance, by
claiming that "our directors prevented us" from voting on the issue and by
accusing the directors of "capitalizing on a technicality," the Proponent
attempts to impugn the character of the BNSF directors, portraying them as
actively attempting to hide important material from shareholders. As discussed
above, this characterization is completely false, as the previous year's
proposal was excluded because it would have misled shareholders. Moreover, SEC
precedent indicates that when a proposal uses manipulative language or
references polarizing issues in an attempt to provoke a shareholder into making
a particular vote, the proposal may qualify as misleading. See The Bear Stearns
Companies Inc. (Dec. 15, 2006) (allowing the company to exclude a proposal that
"used the hot topic of corporate governance" in an attempt to manipulate
shareholders into voting for it). In this case, the impugning language is
clearly an attempt to manipulate other shareholders into voting for this
proposal. Specifically, the Proponent is attempting to prejudice shareholders
against the BNSF directors, and then convince them that a vote for his proposal
is akin to a vote against the directors.
Furthermore, the Proposal's supporting statement attempts to impugn the
directors by making vague and misleading assertions regarding their
independence. Specifically, the Proposal cites the following as "Independence
Concerns": BNSF has no independent Chairman; the Lead Director was potentially
conflicted; three BNSF Directors reported non-director links with the company
and; the chairman of the audit committee had a 27 year tenure. Not only are
these claims irrelevant to the requested advisory vote (as discussed below), but
they are also clearly attempts to convince the shareholders that the directors
lack the necessary qualifications to be effective. This blatant attempt to curry
support against the directors is simply another attempt at manipulating the
shareholders into voting for the proposal.
Moreover, the "Independence Concerns" cited in the above paragraph, while not
completely false, are presented in a manner that qualifies as misleading under
Rule 14a-9(a). First, while it is technically true that BNSF had no independent
Chairman, that statement on its own is misleading, because it omits important
information that mitigates against any independence concerns resulting from the
lack of an independent Chairman. Specifically, it neglects to point out that the
Board of Directors has established the position of "Lead Director," which shall
be filled by an independent director anytime the Chairman is not independent.
This position is currently held by an independent director, so the fact that the
current Chairman is not independent is essentially a non-issue. Moreover, the
claims that the Lead Director was potentially conflicted and that three other
directors reported non-director links with the company are significant
exaggerations that appear far more dire when taken out of context. Specifically,
the potential conflicts and non-director links that the Proposal is referencing
here were reported in our 2007 Proxy Materials and are simply that these
directors worked for companies that either made payments to or received payments
from BNSF which represented less than .1% of their respective companies'
revenues. Indeed, when our Directors and Corporate Governance Committee reviewed
these relationships, it found that they were not significant enough to preclude
a finding that the relevant directors were independent. Because the Proposal
does not contextualize its assertions with these important facts, the statements
will likely mislead shareholders into thinking that our directors are not
sufficiently independent, a claim that is simply not true. Accordingly, these
assertions provide grounds for exclusion.
(c) The Proposal is Materially Misleading Because it Contains Vague, Indefinite,
and Irrelevant Statements
According to the SEC, a proposal qualifies as misleading if it "is so inherently
vague or indefinite that neither the stockholders voting on the proposal, nor
the company in implementing the proposal (if adopted), would be able to
determine with any reasonable certainty exactly what actions or measures the
proposal requires." SEC Staff Legal Bulletin No. 14B; see also Sara lee
Corporation (June 29, 2006); Sensar Corporation (April 23, 2001). In this case,
the Proposal and its supporting statement are replete with vague terms and
ambiguities that could easily mislead shareholders. For example, key terms in
the resolved clause, like the terms "advisory resolution" and "approve," are
undefined. Perhaps more importantly, the purpose of the policy and advisory vote
is unclear. The resolved clause contained in a stockholder proposal is the
"action" item, and it is supposed to tell stockholders voting on the proposal
what the proposal intends to do. However, the lack of clarity cited above will
prevent stockholders from obtaining those insights. Also, some statements made
in the supporting statement conflict with statements made in the resolved
clause, which will only heighten shareholder confusion. Specifically, the
supporting statement gives shareholders the impression that the vote could
significantly impact executive compensation, purporting to be a potential
counter-measure to "mushrooming executive pay." However, the Proposal makes
clear that "the vote is non-binding and would not affect any compensation paid
or awarded to any NEO." When these two concepts are juxtaposed, they create an
ambiguity that would leave shareholders uncertain as to the impact of their
vote.
Furthermore, these ambiguities and unclear statements are material because there
is a substantial likelihood that a reasonable stockholder would consider the
meaning of these terms (particularly the scope and impact of the Proposal) to be
important in deciding how to vote on the Proposal. Accordingly, the Proposal
falls squarely within parameters of proposals that the Staff has agreed may be
excluded in reliance on Rule 14a-8(i)(3). For example, in Sensar Corporation,
the Staff agreed with Sensar that it could rely on Rule 14a-8(i)(3) to exclude a
stockholder proposal that proposed to allow stockholders to provide an advisory
vote on compensation matters. The proposal in that letter provided that "The
stockholders 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 stockholders wish to express
displeasure over the seemingly unclear or misleading disclosures relating to
those options." Sensar argued that the proposal was materially misleading on the
basis that a stockholder voting on the proposal would not he able to determine
what measures Sensar would be required to take under the proposal if it were
adopted. The Staff agreed and granted relief under Rule 14a-8(i)(3).
Analogously, in this instance, a shareholder would not know what measures BNSF
would be required to take upon implementation of the Proposal, because the
impact of the vote remains very unclear.
Moreover, the supporting statement makes a number of vague assertions without
contextualizing them in any way. For example, it claims that one of BNSF's
directors "was potentially conflicted" without giving any kind of description as
to what the conflict might have been, or how it could affect the proposal for an
advisory vote on executive compensation. Also, towards the end of the supporting
statement, the Proponent lists a number of other boards of directors that BNSF
Directors have served on, along with the rating given to those boards by an
independent rating firm. Directly after this list, the Proponent writes that "[t]he
above status shows there is room for improvement." The vagueness of this
statement raises a number of questions. For example, exactly what requires
improvement? The other companies' boards of directors? The fact that BNSF
directors sit on those Boards? Moreover, the statement fails to describe how the
advisory vote that the Proposal requests might create such "improvement." In the
past, the SEC has found similar vague language to be excludable because it could
create uncertainty for voters. For example, in Puget Energy, Inc. (Mar. 7,
2002), the term "improved corporate governance" was considered too vague, and
therefore misleading, because the proponent did not provide any explanation as
to what that term meant. See also CBRL Group (Sep. 6, 2001) (excluding a
proposal requesting "full and complete disclosure in its annual report of all
expenses relating to corporate monies being used for personal benefit of the
officers and directors and their friends" where none of the material terms were
adequately defined); IDACORP, Inc. (Jan. 9, 2001) (excluding a proposal that
required the company to determine the meaning of the phrase "service area ...
outside the United States" as overly vague and indefinite); Bristol-Myers Squibb
Co. (Feb. 1, 1999) (excluding a proposal requesting "the Company adopt a policy
not to test its products on unborn children or cannibalize their bodies, but
pursue preservation, not destruction, of their lives"). Accordingly, the
vagueness of the Proponent's Proposal and its supporting statement render it
misleading.
Finally, according to the SEC, a proposal may be excluded as misleading when
"substantial portions of the supporting statement are irrelevant to a
consideration of the subject matter of the proposal, such that there is a strong
likelihood that a reasonable shareholder would be uncertain as to the matter on
which she is being asked to vote." SEC Staff Legal Bulletin No. 14B; see also
Burlington Northern Santa Fe Corp. (January 31, 2001) (permitting exclusion of
supporting statements involving racial and environmental policies as irrelevant
to a proposal seeking stockholder approval of poison pills); Boise Cascade Corp.
(January 23, 2001) (permitting exclusion of supporting statements regarding the
director election process, environmental and social issues and other topics
unrelated to a proposal calling for the separation of the CEO and chairman). In
this case, there are numerous aspects of the supporting statement that are
irrelevant to an advisory vote on the compensation of NEOs. First, the
supporting statement spends a significant amount of space raising concerns
regarding the independence of BNSF directors1an issue that is totally
unconnected to compensation of NEOs. Also, as discussed above, the final portion
of the supporting statement provides a long list of other boards of directors
that BNSF Directors have served on, along with the rating given to those boards
by an independent rating firm. This information is wholly irrelevant to the
Proposal's main topic, compensation of NEOs of BNSF. Moreover, the Proponent
does not make any attempt to explain how such statements and allegations relate
to an advisory vote on executive compensation, so these accusations do nothing
to inform stockholders of the Proposal's import. In fact, in light of all of the
information in the supporting statement regarding our Board of Directors, a
shareholder voting on the proposal may confuse it for one that attempts to
impose some kind of limitation on the Board of Directors. Because such a
significant portion of the supporting statement is irrelevant to the Proposal,
it may be misleading to shareholders, so the Proposal should be excluded.
II. BNSF may exclude the Proposal pursuant to Rule
14a-8(a) because it seeks an advisory vote and does not require or recommend
that BNSF take action within the meaning of Rule 14a-8(a)
The Proposal is not a proposal for purposes of Rule 14a-8 because it does not
present a proposal for shareholder action or require or recommend a particular
course of action be taken by BNSF or its board of directors. Instead it seeks to
provide a mechanism that would allow shareholders to express their opinion on a
specified topic. According to (a) the Commission's rules and statements in
Commission releases, (b) Staff responses to no-action requests under Rule
14a-8(a) and (c) other Staff precedent, such an advisory vote is not a proper
subject of a proposal under Rule 14a-8(a).
(a) Requests for Advisory Votes are Excludable According to the Text and Meaning
of Rule 14a-8(a)
The text of Rule 14a-8(a), and the Commission's statements explaining its
meaning, clearly demonstrate 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. Your proposal
should state as clearly as possible the course of action that you believe the
company should follow.
Rule 14a-8(a) [Emphasis added.].
Rule 14a-8(a) was adopted as part of the Commission's 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.].
In this case, the Proposal is of the type considered by the Commission in the
release cited above. The Proposal makes clear that it does not request any kind
of action on behalf of BNSF or its Board, as it states that "the vote is
non-binding and would not affect any compensation paid or awarded to any NEO."
Since the outcome of such an advisory vote would not yield any specific action,
all that it could possibly yield is a vague expression of shareholders' views.
Thus, according to the text of Rule 14a-8(a) and the meaning ascribed to it by
the Commission in its rulemaking history, the Proposal is not a proper subject
of a proposal under Rule 14a-8.
(b) Staff Precedent Indicates that the Proponent's Proposal is Not a Proposal
for Purposes of Rule 14a-8(a)
Staff interpretations of Rule 14a-8(a) subsequent to its adoption have confirmed
the Commission's position that a shareholder proposal is excludable if it
"merely purports to express shareholders' views" on a subject matter. For
example, in Sensar Corp., the Staff concurred that a proposal 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. See also CSX Corp. (avail. Feb.
1, 1999) (concurring that a proposal was excludable under Rule 14a-8(a) where a
shareholder submitted three poems for consideration but did not recommend or
require any action by the company or its board of directors).
The Proposal is analogous to the proposal in Sensan it seeks an advisory vote on
the compensation of executives set forth in the Summary Compensation Table, and
the vote merely allows shareholders to express their opinion as to that
information. The Proposal's Resolved Clause clearly demonstrates that this is
the Proponent's objective, as it makes clear that the vote is only "advisory,"
and that it is completely "non-binding." A shareholder vote that has no binding
effect can only possibly be regarded as an expression of shareholder views.
The Proposal's formulation as a request that BNSF adopt a policy of submitting
an advisory vote to shareholders does not change the Proposal's status for
purposes of Rule 14a-8(a). In Exchange Act Release No. 20091 (Aug. 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 14a-8 Under the Securities Exchange Act of
1934 Relating to Proposals by Security Holders, Exchange Act Release No. 20091
(Aug. 16, 1983).
The Staff applies this same approach to interpretations of provisions throughout
Rule 14a-8. For instance, when evaluating a proposal that requests that a
company's board of directors 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. Similarly, 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:
(i) 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. (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.").
(ii) 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.
(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).
(iii) In determining whether a shareholder proposal conflicts with a company
proposal for purposes of Rule 14a-8(i)(9), the Staff looks at the subject matter
of the proposals, even if one requests the company to adopt a policy and the
other is implemented through a different process. See, e.g., Baxter
International Inc. (avail. Jan. 6, 2002) (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).
(iv) -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 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 the
company's mandatory expensing of stock options under SFAS 123(R)).
(v) 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).
(vi) For further examples, 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); Intl,
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); 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) when the
company did not engage in the activity that was the subject of the proposed
policy); Intl. 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 14a8(i)(5) because the subject matter of the policy-the
actions its directors were to take at other companies-did not relate to the
company's business); 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
satisfied-i.e., that the chairman retain his or her independence at all
times-and no mechanism was provided to cure a failure); Ford Motor Co. (avail.
Feb. 27, 2005) (same); 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, the Proposal asks for adoption of a policy, but the subject matter of the
Proposal 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 BNSF 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 in
interpreting other aspects of Rule 14a-8 as reflected in the precedent above,
the subject matter of the policy set forth under the Proposal, and not the
policy itself or the form of the proposal, is to be evaluated for purposes of
assessing compliance with Rule 14a-8. Accordingly, the Proposal does not
constitute a proposal for purposes of Rule 14a-8(a) and so may be excluded from
BNSF's 2008 Proxy Materials.
We note that similar arguments have been made in such letters as Jones Apparel
Group, Inc. (Mar. 28, 2007), Verizon Communications, Inc. (Feb. 19, 2007), and
AT&T, Inc. (Feb. 16, 2007) and acknowledge that the Staff did not allow similar
shareholder proposals to be excluded on these grounds.
III. BNSF may exclude the Proposal pursuant to Rule 14a-8(i)(3) because it is
contrary to the Commission's Proxy Rules
Rule 14a-8(i)(3) allows exclusion of a proposal "[i]f the proposal or supporting
statement is contrary to any of the Commission's proxy rules..." We respectfully
request that the Staff concur in our view that the Proposal is excludable, as
explained below, as it is contrary to Rule 14a-4(a)(3) and the procedural
safeguards under Rule 14a-8.
(a) The Proposal Bundles Together Separate Matters for Consideration by a Single
Vote and is Contrary to Rule 14a-4(a)(3)
Rule 14a-4(a)(3) requires that the form of proxy "shall identify clearly and
impartially each separate matter intended to be acted upon, whether or not
related to or conditioned on the approval of other matters, and whether proposed
by the registrant or by security holders." The rulemaking history of Rule
14a-4(a)(3) indicates that the purpose of the rule is to prevent the bundling
together of shareholder proposals. The Commission explains that:
[T]he amended rule ... prohibits electoral tying arrangements that restrict
shareholder voting choices on matters put before shareholders for approval.
Final Release, Regulation of Communications Among Shareholders, Exchange Act
Release No. 31326 (October 16, 1992).
The Proposal presents exactly the kind of "electoral tying arrangement" the
Commission wishes to prohibit because it seeks a single vote on the Summary
Compensation Table and related narrative disclosures when each of the Summary
Compensation Table and the narrative disclosures present and discuss a variety
of different types of executive compensation, including stock awards, option
grants, salaries, bonuses and other forms of compensation. The Staff has
explicitly required, pursuant to Rule 14a-4(a)(3), that proxy issuers "unbundle"
such proposals relating to executive compensation where those proposals
contemplate more than a single type of compensation. See, e.g., SEC Staff
Comment Letter to Daleco Resources Corp. (February 8, 2006) (asking that the
proxy issuer unbundle a proposal to ratify certain past stock awards from a
proposal to approve the future granting of common stock to compensate directors
for special services rendered in the future).
To the extent that the Proposal seeks a single vote to ratify multiple forms of
compensation, it constitutes an "electoral tying" or bundling of those separate
matters in a single proposal in such a way that restricts shareholder voting
choices contrary to Rule 14a-4(a)(3). The Proposal is therefore excludable under
Rule 14a-8(i)(3) as contrary to the Commission's proxy rules.
(b) The Proposal Amounts to a Request for Future Votes and is Contrary to the
Procedural Safeguards of Rule 14a-8
The Proposal is not a proper form under Rule 14a-8 because it seeks to implement
a policy that would provide for a matter to be submitted for a shareholder vote
each year, without satisfying any of the procedural requirements of Rule 14a-8
with respect to those future years.
It is inconsistent with the structure and intent of Rule 14a-8 to allow a
shareholder to propose that management submit the shareholder's proposal to an
annual vote at an indefinite number of future meetings because the procedural
safeguards of Rule 14a-8 are thereby violated. For example, Rule 14a-8(b)
requires a shareholder to satisfy certain ownership requirements: 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 a particular
shareholders' meeting. Rule 14a-8(i)(9) and (i)(11) allow a proposal to be
excluded when it conflicts with a proposal submitted by the company or
duplicates a topic that is the subject of a previously submitted proposal.
The aforementioned rules clearly provide 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. 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. The Resolved
Clause explicitly cites as the purpose of the Proposal "giv[ing] shareholders
the opportunity at each annual shareholder meeting to vote on an advisory
resolution." [Emphasis added.] To allow the Proponent to establish such an
annual vote would amount to a circumvention of the requirements of Rule 14a-8
described above, as 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 Proposal. The Proposal is therefore excludable under Rule
14a-8(i)(3) as contrary to the Commission's proxy rules.
We note that similar arguments have been made in such letters as Jones Apparel
Group, Inc. (Mar. 28, 2007), Verizon Communications, Inc. (Feb. 19, 2007), and
AT&T, Inc. (Feb. 16, 2007) and acknowledge that the Staff did not allow similar
shareholder proposals to be excluded on these grounds.
IV. BNSF may exclude the Proposal pursuant to Rule
14a-8(i)(7) because it relates to ordinary business matters
Rule 14a-8(i)(7) permits a company to exclude a stockholder proposal if it
pertains to "a matter relating to the company's ordinary business operations."
The Commission has stated that the purpose of Rule 14a-8(i)(7) is "to confine
the resolution of ordinary business problems to management and the board of
directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." SEC Release No. 34-40018 (May
28, 1998).
While past SEC decisions, like Eastman Kodak Company (Feb, 13, 1992), have taken
the position that shareholder proposals relating to the determination of senior
executive compensation do not qualify as ordinary business matters, the
Proponent's Proposal does not qualify as such, because it pertains to the
Company's disclosure of compensation information rather than its executive
compensation practices. Specifically, the Proposal, by its own terms, does not
seek to alter BNSF's executive compensation policies or awards, because "the
vote is non-binding and would not affect any compensation paid or awarded to any
NEO." Instead, the Proposal requests that shareholders be allowed to weigh in on
the information disclosed in BNSF's Summary Compensation Table and any
accompanying narrative disclosures. The SEC has found that decisions with
respect to the content and presentation of standard company reports, like the
Summary Compensation Table and its accompanying narrative disclosures, qualify
as ordinary business matters. See Long Island Lighting Company (Feb. 22, 1996)
(excluding a proposal that the company expand its proxy statement disclosures as
a matter within the ordinary business of the company). Accordingly, the material
found in BNSF's Summary Compensation Table and the accompanying narrative
disclosures is also a matter of ordinary business, so any shareholder review of
the matter violates Rule 14a-8(i)(7).
Moreover, the Proposal meets the SEC's criteria for determining ordinary
business matters. According to SEC Release No. 34-40018 the two "central
considerations" in determining whether the ordinary business exception of Rule
14a-8(i)(7) applies are (i) whether the proposal relates to tasks that 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." SEC Release No. 34-40018. Exclusion would be appropriate where the
proposal "prob[es] too deeply into matters of a complex nature upon which
shareholders, as a group, would not be in a position to make an informed
judgment." Id. (citing Exchange Act Release No. 12999 (Nov. 22, 1976)). BNSF is
responsible for the full, timely and accurate disclosure for the compensation
information required by Item 402 of Regulation S-K and the members of its
Compensation and Development Committee are responsible for recommending to the
Board its inclusion in the Proxy Statement. The process by which the Company
creates, presents, and discloses this information is an ongoing matter that must
delve into the minutiae of the Company's compensation policies in order to be
effective. Giving shareholders direct oversight over this disclosure process is
simply not practical. Moreover, the development and presentation of the relevant
compensation materials requires a deep understanding of BNSF's intricate
compensation policies and programs, which the average shareholder simply does
not have. Accordingly, any attempt to oversee such a dynamic and complex process
would qualify as micro-managing.
Further, to the extent that the Proposal seeks to ensure that the disclosures
are complete and comply with Item 402, BNSF may exclude the Proposal in reliance
on the grounds that it relates to legal compliance. Halliburton Company (Mar.
10, 2006) (proposal requesting a report on the policies and procedures adopted
and implemented to reduce or eliminate the reoccurrence of violations and
investigations discussed in the proposal and the potential damage to the
company's reputation and stock value, excludable as relating to a legal
compliance program); Allstate Corporation (Feb. 16, 1999) (proposal requesting
the investigation of illegal activity at Allstate, excludable as relating to the
general conduct of a legal compliance program).
Finally, the fact that the Proposal simply requests shareholder approval of
BNSF's executive compensation disclosures does not affect the above analysis.
The SEC has frequently found that stockholder proposals seeking shareholder
approval of an ordinary business matter, like disclosure practices, can also be
excluded under Rule 14a-8(i)(7). See e.g., Chevron Corporation (Feb. 24, 2006)
(excluding proposal that requested shareholder approval of the withdrawal of
corporate funds for special purposes exceeding $100,000).
We note that similar arguments have been made in such letters as Sara Lee
Corporation (Sept. 11, 2006) and acknowledge that the Staff did not allow
similar shareholder proposals to be excluded on these grounds.
Conclusion
For the foregoing reasons, I request your confirmation that the Staff will not
recommend any enforcement action to the Commission if the Proposal is omitted
from BNSF's 2008 Proxy Materials. To the extent that the reasons set forth in
this letter are based on matters of law, pursuant to Rule 14a-8(j)(2)(iii) this
letter also constitutes an opinion of counsel of the undersigned as an attorney
licensed and admitted to practice in the States of Illinois and Texas.
If the Staff has any questions with respect to the foregoing, or if for any
reason the Staff does not agree that we may omit the Proposal from our 2008
Proxy Materials, please contact me at (817) 352-3466. 1 may also be reached by
facsimile at (817) 352-2397 and would appreciate it if you would send your
response to us by facsimile to that number. We request that the Staff notify the
undersigned if it receives any correspondence on the Proposal from the Proponent
or other persons, unless that correspondence has specifically confirmed to the
Staff that BNSF or its undersigned counsel have timely been provided with a copy
of the correspondence. In addition,
Text is illegible
Roger Nober
Enclosures
BNSF agrees to promptly forward to the Proponent any response from the Staff to
this no-action request that the Staff transmits by facsimile to BNSF only.
Please acknowledge receipt of this letter and the enclosures by date-stamping
the enclosed copy of this letter and returning it in the enclosed stamped,
self-addressed envelope.
Very truly yours,
/s/
Jeffrey T. Williams
Senior General Attorney
cc: Emil Rossi
John Chevedden
Roger Nober
Enclosures
-----FOOTNOTES-----
1 As mentioned above, the Proposal cites the following as "Independence
Concerns:" BNSF has no independent Chairman; one director might have been
potentially conflicted; three BNSF Directors reported non-director links with
the company; the chairman of the audit committee had a 27 year tenure.
[APPENDIX 1]
Exhibit A
Emil Ross.
P. O Box 249
Boonville, CA 95415-0249
Mr. Matthew K. Rose
Chairman
Burlington Northern Santa Pe Corporation (BNI)
2650 Lou Menk Dr Fl 2
Fort Worth TX 76131
Rule 14a-8 Proposal
Dear Mr. Rose,
This Rule 14a-8 proposal is respectfully submitted in support of the long-term
performance of our company. This proposal is submitted for the next annual
shareholder meeting. Rule 14a-8 requirements are intended to be met including
the continuous ownership of the required stock value until after the date of the
respective shareholder meeting and the presentation of this proposal at the
annual meeting. This submitted format, with the shareholder-supplied emphasis,
is intended to be used for definitive proxy publication. This is the proxy for
John Chevedden and/or his designee to act on my behalf regarding this Rule 14a-8
proposal for the forthcoming shareholder meeting before, during and after the
forthcoming shareholder meeting. Please direct all future communication to John
Chevedden at:
olmsted7p (at) earthlink.net
(In the interest of company efficiency and cost savings please communicate via
email.)
PH: 310-371-7872
2215 Nelson Ave., No. 205
Redondo Beach, CA 90278
Your consideration and the consideration of the Board of Directors is
appreciated in support of the long-term performance of our company. Please
acknowledge receipt of this proposal by email.
Sincerely,
/s/
Oct 5-2007
cc: Roger Nober
Corporate Secretary
PH: 800 795-2673
FX: (817) 352-7111*
FX: 817-333-2377
Jeffrey T. Williams<Jeffrey.williams@bnsf.com>
Senior General Attorney
PH: 817-352-3466
FX: 817-352-7635
FX: 817-352-2397
[APPENDIX 2]
[BNI: Rule 14a-8 Proposal, November 1, 2007]
3 - Shareholder Say on Executive Pay
RESOLVED, that shareholders of our company request our board of directors to
adopt a policy to give shareholders the opportunity at each annual shareholder
meeting to vote on an advisory resolution, proposed by management, to ratify the
compensation of the named executive officers (NEOs) set forth in the proxy
statement's Summary Compensation Table (SCT) and the accompanying narrative
disclosure of material factors provided to understand the SCT (but not the
Compensation Discussion and Analysis). The proposal submitted to shareholders
should make clear that the vote is non-binding and would not affect any
compensation paid or awarded to any NEO.
Investors are increasingly concerned about mushrooming executive pay which often
appears to be insufficiently aligned with the creation of shareholder value. As
a result, in 2007 shareholders filed more than 60 "say on pay" resolutions with
companies, averaging a 42% vote. In fact, seven resolutions exceeded a majority
vote, Verizon Communications (VZ), under fire from shareholders over executive
pay practices, and Aflac (AFL) decided to present such a resolution to a
shareholder vote. A bill to provide for annual advisory votes on executive pay
passed in the U.S. House of Representatives by a 2-to-1 margin.
Our directors prevented us from voting on this topic in 2007 by capitalizing on
a technicality, Please see: Burlington Northern Santa Fe Corp. (January 31,
2007).
The advantage of adopting this proposal should also be considered in the context
of our company's overall corporate governance. For instance in 2007 the
following governance status was reported (and certain concerns are noted):
The Corporate Library http://www.thecorporatelibrary.com, an independent
investment research firm said total actual compensation for our CEO, Mr. Rose
was $14 million in 2006 - more than 20% greater than compensation at other
similarly sized firms. Our company's share price underperformed the S&P 500 by
10% in 2006.
We had no Independent Chairman - Independent oversight concern.
Plus our lead director, Mr. Whitaere, was potentially conflicted and had
14-years director tenure - Independence concerns.
No shareholder right to cumulative voting or acting by written consent.
Three directors reported non-director links with our company - Independence
concern.
Our full Board met only 6-times in a year.
The chairman of our Audit Committee had 27-years director tenure -
Independence concern.
Additionally:
Our following directors served on boards rated D by the Corporate Library: |[NCCDEF]
|[UCA1] |[TDC4,M'1)0',QR] |[TCC4,M'Mr. Whitacre',QL] |[TCC4,MP1,QL] |[XT]
|[ST]1) |[TA]Ms. Martinez |[TA]Anheuser-Busch (BUD) |[ST]2) |[TA]Mr. Whitacre |[TA]Anheuser-Busch
(BUD) |[ST]3) |[TA]Mr. Racicot |[TA]Allied Capital (ALD) |[ST]4) |[TA]Mr. Watts
|[TA]Clear Channel (CCU) |[ST] |[TA] |[TA]Dillard's (DDS) |[ST]5) |[TA]Mr.
Roberts |[TA]Abbott Laboratories (ABT) |[ST]6) |[TA]Mr. Cook |[TA]Crane (CR)
|[ST]7) |[TA]Mr. Rose |[TA]Centex (CTX) |[ET]
45% of our Board receive more than 10% withhold votes in 2007 including:
Ms. Martinez
Mr. Rose
Mr. Whisler
Mr. Whitaore
Mr. Racicot
The above status shows there is room for improvement and reinforces the reason
to take one step forward now and vote yes:
Shareholder Say on Executive Pay - Yes on 3
Notes:
Emil Rossi. P.O. Box 249, Boonville. Calif. 95415 sponsors this proposal.
The above format is requested for publication without re-editing or
re-formatting.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2.
This proposal is believed to conform with Staff Legal Bulletin No. 14B (CF),
September 15, 2004 including:
Accordingly, going forward, we believe that it would not be appropriate for
companies to exclude supporting statement language and/or an entire proposal in
reliance on rule 14a-8(i)(3) in the following circumstances:
the company objects to factual assertions because they are not supported;
the company objects to factual assertions that, while not materially false or
misleading, may be disputed or countered;
the company objects to factual assertions because those assertions may be
interpreted by shareholders in a manner that is unfavorable to the company. its
directors, or its officers; and/or
the company objects to statements because they represent the opinion of the
shareholder proponent or a referenced source, but the statements are not
identified specifically as such.
See also: Sun Microsystems. Inc. (July 21, 2005).
Please note that the title of the proposal is part of the argument in favor of
the proposal. In the interest of clarity and to avoid confusion the title of
this and each other ballot item is requested to be consistent throughout all the
proxy materials.
Please advise if there is any typographical question.
Stock will be held until after the annual meeting and the proposal will be
presented at the annual meeting.
Please acknowledge this proposal promptly by email and advise the most
convenient fax number and email address to forward a broker letter, if needed,
to the Corporate Secretary's office.
[INQUIRY LETTER]
December 30, 2007
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Burlington Northern Santa Fe Corporation (BNI)
Shareholder Position on Company No-Action Request
Rule 14a-8 Proposal: Say on Executive Pay
Emil Rossi
Ladies and Gentlemen:
This responds to Burlington Northern Santa Fe's December 13\th/ letter to the
SEC challenging the resolution by Mr. Emil Rossi asking for an Advisory Vote on
executive pay. This resolution topic, with text essentially similar to this
resolution, was filed with approximately 60 companies in 2007 and then
approximately 75 companies for 2008. In June 2007 Institutional Shareholder
Services (now RiskMetrics) reported that 41 such proposals had thus far received
an average support of 42%. Eight such proposal received a majority vote by
December 2007. In other words billions upon billions of shareholder votes were
cast in favor of this rule 14a-8 topic.
The rangc of investors involved in sponsoring this resolution is an impressive.
It includes TIAA CREF, CalPERS, City of New York Pension Funds, State of
Connecticut Pension Funds, various religious investors, and social investment
firms such as Walden Asset Management, union pension funds such as AFSCME and
the AFL-CIO, several foundations as well as individual investors such as Mr.
Rossi.
Already AFLAC and Verizon have agreed to have an Advisory Vote. More than 20
other companies have the issue on the Board agenda for study. As you know, the
House passed a bill supporting the Advisory Vote with a 2 to 1 ratio of support.
A group of investors and companies have also created a Working Group that is
looking at practical ways to utilize the Advisory Vote in the U.S. market.
The company arguments are unpersuasive in an attempt to avoid a well-accepted
rule 14a-8 proposal on an increasingly important topic.
The first argument is that the proposal is materially misleading. The company
letter argues the resolution is misleading since it "gives the impression that
their vote will have a significant influence on the company's important
executive compensation disclosure which will in turn allow them to play a role
in setting executive compensation."
While the company is free to have its own set of fears and doubts about a
proposal, it is not free to allege to the SEC that a proposal makes claims that
it clearly does not.
This argument, as are a number of others in this letter, is foolish on the face
of it.
How can an Advisory Vote be the equivalent of a "role in setting executive
compensation?" A parallel makes the point - when investors vote on the
ratification of auditors are they given the power to "select" the auditors?. The
answer is NO - the Audit Committee chooses the auditor and the investors simply
"ratify" that choice providing an avenue for feedback. Similarly on Advisory
Vote is not setting executive compensation.
We agree the CD & A is important and of course if Burlington Northern Santa Fe
wanted to include the CD & A in their own Advisory Vote proposal by management,
they are free to do so, but we choose not to recommend its inclusion. We assume
an investor reads the CD & A but they don't have to vote on it.
The resolution is not misleading and in fact both Verizon and AFLAC, who are
putting this into effect, seem to understand full-well what it means as do the
investors which voted in such large numbers in 2007. This argument is a red
herring.
A number of the 2007 SEC decisions, if not all, cited on page 3 refer to
resolutions with an outdated "Resolved" text that has been properly updated here
and the company knows this.
For instance the company-cited 2007 proposal to PG&E Corporation had this
outdated text that clearly has no relevance to the proposal under consideration
now:
RESOLVED, shareholders ask our board of directors to adopt a policy that
shareholders be given the opportunity to vote on an advisory management
resolution at each. annual meeting to approve the Compensation Committee report
in the proxy statement.
The company letter goes on to argue that the resolution made false and
misleading statements about the Directors. These statements are reasonable
descriptions of the Directors and issues related to the Board and governance.
The company objections can certainly be added to the management position
statement in the proxy but are not grounds for omitting it.
The company essentially claims that any criticism of directors is tantamount to
accusing the directors of lacking the "necessary qualifications." The company
then claims that any criticism of directors must include any information that
could partially mitigate that criticism. On the other hand the company does not
promise that its annual proxy objection statement to this proposal will include
information that would offset its objection. The company objects to the word
"technicality" and then in a paradox gives its own version of the technicality.
The company is free to add context, if it wishes, as it argues against the
resolution in the proxy This proposal should "be considered in the context of
our company's overall corporate governance." These points are relevant as
shareholders look at our executive pay and governance. Additionally companies
have long used their own version of this argument in their published responses
to rule 14a-8 proposals. For instance it is a standard practice of companies to
cite a number of good corporate governance practices in an attempt to lull
shareholders into voting against a current rule 14a-8 proposal.
In addition, these are not attempts to "impugn the directors." They are an
attempt to raise important governance issues that deserve to be addressed and
argue for additional accountability including an Advisory Vote on pay.
The company argument regarding false, etc. is fundamentally flawed because it
does not begin by addressing these points in Staff Legal Bulletin No. 14B (CF),
September 15, 2004 which were included with the rule 14a-8 proposal submittal as
a reminder to the company to prevent its frivolous arguments (bold added):
This proposal is believed to conform with Staff Legal Bulletin No. 14B (CF),
September 15, 2004 including:
Accordingly, going forward, we believe that it would not be appropriate for
companies to exclude supporting statement language and/or an entire proposal in
reliance on rule 14a-8(i)(3) in the following circumstances:
the company objects to factual assertions because they are not supported;
the company objects to factual assertions that, while not materially false or
misleading, may be disputed or countered;
the company objects to factual assertions because those assertions may be
interpreted by shareholders in a manner that is unfavorable to the company, its
directors, or its officers; and/or
the company objects to statements because they represent the opinion of the
shareholder proponent or a referenced source, but the statements are not
identified specifically as such.
On page 7 the company letter argues that "the independence of its directors is
totally unconnected to the compensation of NGO's. This is foolish on its face.
Of course an independent Board and Compensation Committee are important for
compensation.
Thus the requirement that the Compensation Committee be comprised of only
independent directors. It would not be so if having inside Directors on the
Compensation Committee was not considered a conflict of interest.
This company repeatedly cited the 49-word proposal to Sensar (bold added) and
this is clearly irrelevant to this rule 14a-8 proposal:
January 15, 2001
Sensar Corporation
50 West Broadway, Suite 501
Salt Lake City, UT 84101
Dear Sirs:
Please include the following shareholder proposal on the next proxy notice:
"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."
I recently provided ownership information to Mr. Pope concerning my ownership of
Sensar shares. That information has not changed.
Sincerely,
Alan L. Rockwood, Shareholder
The company claim that this proposal does not require or recommend that the
company take action within the meaning of 14a-8 is again a red herring, a
deliberate attempt to confuse. This resolution clearly asks the Board to adopt a
policy to establish an annual Advisory Vote which would be presented by
management. It is a clear and understandable request and requests a specific
action be taken.
The company argues that this established proposal is analogous to voting on
three poems by citing CSX Corp. (February 1, 1999) as a precedent.
Again the company cites the irrelevant proposal to Sensar: "The shareholders
wish to express displeasure over the terms of the options on 2.2 million shares
of Sensar that were recently granted to management, the board of directors, and
certain consultants, and the shareholders wish to express displeasure over the
seemingly unclear or misleading disclosures relating to those options."
The letter goes on to argue an advisory non-binding vote can "only be regarded
as an expression of shareholder views." The ratification of auditors and vote on
the Board slate of Directors are not automatically binding either but they
perform an exceptionally important role yet the company docs not argue that
those annual votes be eliminated.
On pages 10, 11 and 12 the company argues at length that the SEC should look at
the subject of the proposed policy. We agree and further note that the SEC has
ruled that the subject matter of executive compensation IS an acceptable matter
for shareholder vote.
The company essentially argues that company efforts to dodge rule 14a-8
proposals encourage companies to multiply the forms of executive pay in order to
bolster a argument of bundling against rule 14a-8 proposals.
One of the more illogical arguments in the company letter is on page 13 when the
point is argued that the resolution would "provide for a matter to be submitted
to a shareholder vote each year" without satisfying 14a-8 requirements.
This appears to be a deliberate misreading of the resolution. In fact, the
resolution does not ask for an annually sponsored SHAREHOLDER RESOLUTION but for
management to present an Advisory vote just like they do for ratification of
auditors. There is nothing confusing about this request yet the company tries to
make it something it is not.
Finally this request is not under the Ordinary Business exclusion since it deals
with a major policy issue and certainly does not attempt to micromanage it.
The company essentially argues that company efforts to avoid rule 14a-8
proposals encourage companies to multiply the "minutiae" in executive pay in
order to bolster an ordinary business argument against rule 14a-8 proposals.
A copy of this letter is forwarded to the company in a non-PDF email. In order
to expedite the rule 14a-8 process it is requested that the company forward any
addition rule 14a-8 response in the same type format to the undersigned.
For these reasons it is requested that the staff find that this resolution
cannot be omitted from the company proxy. It is also respectfully requested that
the shareholder have the last opportunity to submit material in support of
including this proposal - since the company had the first opportunity.
Sincerely,
Jolm Chevedden
cc:
Emil Rossi
Jeffrey T. Williams<Jeffrey.williams@bnsf.com>
Senior General Attorney
[STAFF REPLY LETTER]
January 22, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Burlington Northern Santa Fe Corporation
Incoming letter dated December 13, 2007
The proposal requests the board to adopt a policy that shareholders be given the
opportunity at each annual meeting to vote on an advisory resolution to ratify
the compensation of the named executive officers set forth in the Summary
Compensation Table of the company's proxy statement.
We are unable to concur in your view that BNSF may
exclude the proposal under rule 14a-8(a). Accordingly, we do not believe that
BNSF may omit the proposal from its proxy materials in reliance on rule
14a-8(a).
We are unable to concur in your view that BNSF may
exclude the proposal under rule 14a-8(i)(3). Accordingly, we do not believe that
BNSF may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(3).
We are unable to concur in your view that BNSF may
exclude the proposal under rule 14a-8(i)(7). Accordingly, we do not believe that
BNSF may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(7).
Sincerely,
/s/
Song Brandon
Attorney-Adviser |
