Company Name: Consolidated Edison, Inc.
Public Availability Date: February 5, 2008
Document Sections: INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER
[INQUIRY LETTER]
February 5, 2008
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: Withdrawal of No-Action Letter Request Regarding the Stockholder Proposal of
Lucian Bebchuk Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
In a letter dated January 22, 2008, we requested that the staff of the Division
of Corporation Finance of the Securities and Exchange Commission (the "Staff")
concur that Consolidated Edison, Inc. (the "Company") could properly exclude
from its proxy materials for its 2008 Annual Meeting of Stockholders a
stockholder proposal and statements in support thereof (the "Proposal") received
from Lucian Bebchuk (the "Proponent").
Enclosed is a letter dated February 5, 2008, from the Proponent to the Company
stating that the Proponent voluntarily withdraws the Proposal (see Exhibit A),
and a letter dated February 5, 2008, from the Proponent's attorney to the Staff
confirming that the Proponent has voluntarily withdrawn the Proposal (see
Exhibit B). In reliance on these letters, we hereby withdraw the January 22,
2008, no-action request relating to the Company's ability to exclude the
Proposal pursuant to Rule 14a-8 under the Securities Exchange Act of 1934.
Please do not hesitate to call me at (202) 955-8671 or Saddie Smith at (212)
460-4502 with any questions in this regard.
Sincerely,
/s/
Ronald O. Mueller
ROM/smr
Enclosure
cc: Saddie Smith, Consolidated Edison, Inc.
Lucian Bebchuk
[INQUIRY LETTER]
January 22, 2008
VIA HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Stockholder Proposal of Lucian Bebchuk Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, Consolidated Edison, Inc. (the
"Company"), intends to omit from its proxy statement and form of proxy for its
2008 Annual Meeting of Stockholders (collectively, the "2008 Proxy Materials") a
stockholder proposal and statements in support thereof (the "Proposal") received
from Lucian Bebchuk (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 intends
to file its definitive 2008 Proxy Materials with the Commission; and
concurrently sent copies of this correspondence to the Proponent.
Rule 14a-8(k) provides that stockholder proponents are required to send
companies a copy of any correspondence that the proponents elect to submit to
the Commission or the staff of the Division of Corporation Finance (the
"Staff"). Accordingly, we are taking this opportunity to inform the Proponent
that if the Proponent elects to submit additional correspondence to the
Commission or the Staff with respect to this Proposal, a copy of that
correspondence should concurrently be furnished to the undersigned on behalf of
the Company pursuant to Rule 14a-8(k).
THE PROPOSAL
The Proposal states:
RESOLVED that stockholders of Consolidated Edison, Inc. recommend that the Board
of Directors adopt a charter provision, a By-law provision, or a policy under
which the Company, to the extent permitted under federal law and state law,
shall include in its proxy materials for an annual meeting of stockholders any
qualified proposal for an amendment of the By-laws submitted by a proponent, as
well as the proponent's supporting statement if any, and shall allow
stockholders to vote with respect to such a qualified proposal on the Company's
proxy card. A qualified proposal refers in this resolution to a proposal that
satisfies the following requirements:
(a) The proposed amendment of the By-laws would be legally valid if adopted;
(b) The proponent submitted the proposal and supporting statement to the
Company's Secretary by the deadline specified by the Company for stockholder
proposals for inclusion in the proxy materials for the annual meeting;
(c) The proponent beneficially owned at the time of the submission at least
$2,000 of the Company's outstanding common stock for at least one year, and did
not submit other stockholder proposals for the annual meeting;
(d) The proposal and its supporting statement do not exceed 500 words;
(e) The proposal does not substantially duplicate another proposal previously
submitted to the Company by another proponent that will be included in the
Company's proxy materials for the same meeting; and
(f) The proposal is not substantially similar to any other proposal that was
voted upon by the stockholders at any time during the preceding three calendar
years and failed to receive at least 3% of the votes cast when so considered.
A copy of the Proposal, as well as related correspondence with the Proponent, is
attached to this letter as Exhibit A.
BASES FOR EXCLUSION
We hereby respectfully request that the Staff concur in our view that the
Proposal may be excluded from the 2008 Proxy Materials pursuant to:
Rule 14a-8(i)(3) because the Proposal is inconsistent with the Commission's
proxy rules and Rule 14a-8(i)(10) because the Commission's proxy rules render
the Proposal moot;
Rule 14a-8(i)(8) because the Proposal would establish procedures relating to a
nomination or election for membership on the Company's Board of Directors (the
"Board");
Rule 14a-8(i)(7) because the Proposal deals with matters relating to the
Company's ordinary business operations; and
Rule 14a-8(i)(3) because the Proposal is impermissibly vague and indefinite so
as to be inherently misleading.
ANALYSIS
I. The Proposal May Be
Excluded under Rule 14a-8(i)(3) Because It Is Inconsistent With the Commission's
Proxy Rules and Rule 14a-8(i)(10) Because the Commission's Proxy Rules Render
the Proposal Moot.
The Proposal, if implemented, would result in any "qualified proposal," as
defined in the Proposal (a "Qualified Proposal"), being included in the
Company's proxy materials. The issue presented by the Proposal is whether Rule
14a-8 can be used to provide for access to a company's proxy materials to permit
solicitations for stockholder proposals that evade Rule 14a-8's limitations and
the Commission's disclosure requirements. Rule 14a-8(i)(3) permits the exclusion
of a stockholder proposal "if the proposal or supporting statement is contrary
to any of the Commission's proxy rules...." The Proposal seeks to circumvent the
Commission's existing proxy rules by: (1) creating a process under which
proposals would be put to a vote of stockholders without the disclosures
required under the Commission's proxy rules; and (2) creating a new unregulated
stockholder proposal process that circumvents Rule 14a-8. Thus, as discussed
further below, the Proposal is excludable under Rule 14a-8(i)(3) because it is
contrary to the Commission's proxy rules.
In analyzing the Proposal, we believe it helpful to distinguish certain aspects
of the Proposal:
We note that, under the Proposal, any Qualified Proposal submitted to the
Company needs to be "legally valid if adopted." Thus, the issue here is not
whether any particular Qualified Proposal that could be brought before the
Company's stockholders as a result of implementation of the Proposal would be
permissible under applicable law. As discussed below, we believe that the
process the Proposal would establish for presenting a Qualified Proposal for a
stockholder vote violates the proxy rules and that the Proposal itself violates
the proxy rules. The "legally valid" provision of the Proposal does not remedy
the Proposal's deficiencies in this regard.
The Proposal does not deal with so-called "private ordering" under Rule 14a-8.
With respect to subjects and procedures for stockholder votes, most state
corporation laws provide that a company's charter or by-laws can specify the
types of proposals that are permitted to be brought before the stockholders for
a vote at an annual or special meeting. Rule 14a-8(i)(1) supports these
determinations by providing that a proposal that is not a proper subject for
action by stockholders under the laws of the jurisdiction of the company's
organization may be excluded from the company's proxy materials.1 Thus, a
proposal that is submitted under Rule 14a-8 may be excluded pursuant to Rule
14a-8(i)(1) if the proposal is not a proper subject for stockholder action under
state law. In contrast, as discussed below, this Proposal seeks to establish a
process under which Qualified Proposals would be put forward to stockholders
entirely outside of the carefully developed terms of Rule 14a-8 and outside of
the Commission's other proxy rules. It is well established that a company cannot
override the federal proxy rules by implementing a charter or by-law amendment
(or for that matter, a corporate policy) that establishes a process that
violates the proxy rules.2
The Proposal also provides that a Qualified Proposal would be included in a
company's proxy materials only "[t]o the extent permitted under federal law." We
discuss in part I.B. below why this does not save the Proposal from exclusion.
A. The Proposal Permits Solicitations on Proposals Outside of Rule 14a-8 Without
the Required Disclosures.
Rule 14a-3 provides that, "[n]o solicitation subject to this regulation shall be
made unless each person solicited is concurrently furnished or has previously
been furnished with ... [a] publicly filed preliminary or definitive written
proxy statement containing the information specified in Schedule 14A...." Note B
to Schedule 14A provides that, "[w]here any item calls for information with
respect to any matter to be acted upon at the meeting, such item need be
answered in the registrant's soliciting material only with respect to proposals
to be made by or on behalf of the registrant." (emphasis added)
Outside of the context of Rule 14a-8,3 the Commission's proxy rules do not
contemplate or accommodate having the registrant's proxy materials serve as the
soliciting documents in support of a proposal made by or on behalf of a
stockholder. Instead, the Commission's proxy rules contemplate that the
solicitation in support of the proposal will be accomplished through a separate
proxy statement filed by the proponent and as to which the proponent assumes
full legal responsibility and liability for the completeness and accuracy of its
disclosures.4 Rule 14a-8 provides a carefully crafted exception from this
framework for certain proposals. Indeed, the Commission has described Rule 14a-8
as a rule "that opens, and then regulates, a channel of communication among
shareholders, and between shareholders and the management of their companies." 5
However, the Proposal would result in solicitations on Qualified Proposals
without the regulation provided for under Rule 14a-8 and, importantly, without
any accompanying disclosure of the information required under Schedule 14A with
respect to Qualified Proposals and the stockholders who submit them.
The Proposal thus would establish a process for solicitations on non-Rule 14a-8
proposals that circumvents the disclosure requirements under the Commission's
proxy rules. The Company's proxy statement would constitute a "solicitation in
opposition" (which is defined under Note 3 to Rule 14a-6(a) as any solicitation
on a proposal that is (i) not supported by the registrant, and (ii) not included
in the registrant's proxy statement under Rule 14a-8) to any Qualified Proposal.
The Commission's proxy rules contemplate that in this circumstance the proponent
of a Qualified Proposal would file its own proxy materials in support of the
Qualified Proposal and would separately seek proxies giving it voting authority
to vote in support of the Qualified Proposal.6 Rule 14a-3 would then require the
proponent of a Qualified Proposal to deliver to each person it solicits a
preliminary or definitive written proxy statement containing the information
required under Schedule 14A.7 Those required disclosures include important
information that is necessary for stockholders to make an informed decision
about the proposal, including information on the person who is making the
solicitation8 and a description of any substantial direct or indirect financial
or other interest that the proponent and other participants in the solicitation
have in the proposal.9
The Proposal, if implemented, would permit a proponent to solicit in favor of a
Qualified Proposal through the Company's proxy materials without having to file
its own proxy materials in support of the Qualified Proposal and without
disclosing to stockholders the important information that otherwise would be
required if the proponent filed its own proxy materials in support of the
Qualified Proposal. For example, Item 5(a)(2) of Schedule 14A, which would
require that a proponent disclose any substantial direct or indirect financial
interest that it has in a Qualified Proposal, demonstrates the careful balance
that exists under the Commission's proxy rules. Rule 14a-8(i)(4) allows a
registrant to exclude a proposal in which the proponent has a special interest
that is not shared by other stockholders. The Proposal seeks to circumvent that
limitation without providing for disclosure of the proponent's interest in the
proposal as required under Item 5 of Schedule 14A and without complying with any
of the other requirements of the Commission's proxy rules. Additionally, false
and misleading disclosures could be made by a stockholder proponent without
liability under Exchange Act Rule 14a-9 for material misrepresentations made in
a proxy solicitation. The procedures established by the Proposal do not provide
the Company with any assurance that the proponent will satisfy its disclosure
obligations under the proxy rules by distributing a separately filed proxy
statement containing all of the information that the proxy rules would require.
Rather, the Proposal would require the Company to include any and all Qualified
Proposals in its proxy materials.
The Commission previously has declined to adopt rules that would allow for a
regime similar to that which would be established under the Proposal.10 In
addition, as discussed in part I.C. below, the Commission previously has
affirmatively acted to prevent stockholders from circumventing the Commission's
proxy disclosure rules through a process similar to that which the Proposal
seeks to establish.11 Because implementation of the Proposal would thus result
in solicitations and voting on Qualified Proposals without compliance with the
procedural and disclosure requirements of the Commission's proxy rules and would
not afford the Company's stockholders the protections provided under the
Commission's proxy rules, implementation of the Proposal would violate the
Commission's proxy rules. The Staff has concurred that a company may exclude a
stockholder proposal under Rule 14a-8(i)(3) where the proposal, if implemented,
would establish a solicitation process that violates the Commission's proxy
rules. See General Electric Co. (avail. Feb. 7, 2007) (permitting exclusion
under Rule 14a-8(i)(3) of a stockholder proposal that, if implemented, would
have established a voting process that was contrary to Rule 14a-4(b)(1)).
Accordingly, because the Proposal would result in solicitations that violate
Rule 14a-3 and the Commission's other carefully designed proxy rules, the
Proposal is excludable under Rule 14a-8(i)(3) as contrary to the Commission's
proxy rules.
B. The "Savings Clause" Does Not Save the Proposal From Exclusion.
The Proposal is designed to allow stockholders who submit a Qualified Proposal
that would be excludable under Rule 14a-8 to be able to solicit in support of
the Qualified Proposal through the Company's proxy materials without the
stockholders separately satisfying Rule 14a-3 and the Commission's other proxy
rules.12 For the reasons discussed above, that process, which would be
established through implementation of the Proposal, violates the Commission's
proxy rules, and therefore the Proposal is excludable under Rule 14a-8(i)(3).
The Proposal, however, has a provision stating that a Qualified Proposal would
have to be included in the Company's proxy materials only "[t]o the extent
permitted under federal law." It is not clear how the Proponent intends this
"savings clause" to operate when the very process contemplated under the
Proposal would, if implemented, violate the Commission's proxy rules. However,
if the savings clause operates to prevent the Proposal from violating the
Commission's rules, it has the effect of re-establishing the existing regime
under the federal proxy rules, and thus moots the Proposal, resulting in the
Proposal being excludable under Rule 14a-8(i)(10).
There are three ways in which the savings clause could affect implementation of
the Proposal. First, the Company could include a Qualified Proposal in its proxy
statement but not provide stockholders with the ability to separately vote on
the Qualified Proposal through the Company's proxy card and instead exercise
discretionary voting authority to vote on the Qualified Proposal as the Company
determines appropriate. Under Rule 14a-4(c)(2), in order for a company to
exercise discretionary voting authority when a stockholder has timely notified
the company that it intends to present a proposal at the company's annual
meeting, the company must advise stockholders of the proposal by including the
proposal or a description of the proposal in its proxy statement, but need not
provide for voting on the proposal through the company's proxy card unless the
proponent:
(i) Provides the registrant with a written statement, within the time-frame
determined under paragraph (c)(1) of [Rule 14a-4], that the proponent intends to
deliver a proxy statement and form of proxy to holders of at least the
percentage of the company's voting shares required under applicable law to carry
the proposal;
(ii) Includes the same statement in its proxy materials filed under 240.14a-6;
and
(iii) Immediately after soliciting the percentage of stockholders required to
carry the proposal, provides the registrant with a statement from any solicitor
or other person with knowledge that the necessary steps have been taken to
deliver a proxy statement and form of proxy to holders of at least the
percentage of the company's voting shares required under applicable law to carry
out the proposal.
Rule 14a-4(c)(2).
Alternatively, the Company could inform a stockholder submitting a Qualified
Proposal that the Company is "permitted under federal law" to include the
Qualified Proposal in the Company's proxy materials only if the stockholder
separately files a proxy statement with the Commission in compliance with Rule
14a-3.
Finally, a Qualified Proposal could be included in the Company's proxy materials
if the Qualified Proposal also satisfied all of the standards under Rule 14a-8
and the stockholder relied on that rule in submitting the Qualified Proposal to
the Company.
Applying any of these approaches under the "savings clause" removes the ability
of a stockholder to use the Company's proxy statement and proxy card to solicit
on behalf of a Qualified Proposal and results in the stockholder being subject
to the same regime under the proxy rules that exists today, without
implementation of the Proposal. Without regard to whether this is what the
Proponent intended, giving any of these effects to the savings clause moots the
Proposal, because the existing federal proxy solicitation regime has the same
effect as the Proposal.13 It is well established that a company can rely on the
application of federal law in order to render a proposal moot and excludable
under Rule 14a-8(i)(10).14 Accordingly, the savings clause does not save the
Proposal from exclusion.
C. The Proposal Creates a New, Wholly Unregulated System for
Submitting Stockholder Proposals That Violates Rule 14a-8.
The Proposal is inconsistent with the mechanism the Commission has designed for
inclusion of stockholder proposals in company proxy materialsRule 14a-8. If
implemented, the Proposal would establish a wholly unregulated mechanism that
removes a critical provision under Rule 14a-8the right of a company to exclude
a proposal that is not a proper proposal under Rule 14a-8and bypasses the
oversight of the Commission by permitting stockholders to submit Qualified
Proposals that must be included in the Company's proxy materials and that the
Company's stockholders would vote on without any opportunity for Commission
involvement. The Proposal eliminates the vast majority of the exclusions
permitted by Rule 14a-8, thereby significantly expanding the Company's
obligations by requiring the Company to include in its proxy materials
stockholder proposals that are submitted by stockholders or that address topics
that otherwise would be excludable under Rule 14a-8. This attempt to exempt the
Company's stockholders from compliance with many of the requirements of Rule
14a-8 and to preclude the Company from asserting grounds for exclusion of
stockholder proposals to which it is entitled under Rule 14a-8 is clearly
contrary to the Commission's existing proxy rules.
For example, under the Proposal, the Company would be required to include in its
proxy materials Qualified Proposals that relate to the redress of a personal
claim or grievance against the Company or any other person, or are designed to
result in a benefit to the stockholder, or to further a personal interest of the
stockholder, which is not shared by the other stockholders at large (Rule
14a-8(i)(4)). The Proposal likewise eliminates many of the other exclusions in
Rule 14a-8 that were adopted by the Commission after thoughtful deliberation.15
The Proposal's requirement that the Company include stockholder proposals in the
Company's proxy materials that are not required to be included under Rule 14a-8
flatly contravenes the carefully balanced stockholder proposal framework that
the Commission has established under Rule 14a-8, where both stockholders and the
Company have rights and responsibilities in determining whether stockholder
proposals are included in the Company's proxy statement.
The Commission previously has prevented stockholders from evading Rule 14a-8.
For example, in 1998, the Commission amended Rule 14a-4 to ensure that
stockholders seeking to obtain a vote on a non-Rule 14a-8 stockholder proposal
would be required to provide the disclosures required by the proxy rules. See
Exchange Act Release No. 40018 (May 21, 1998) (the "1998 Release"). Namely, as a
condition to a company including a stockholder's non-Rule 14a-8 proposal in the
company's proxy materials, the amendment required the proponent of the non-Rule
14a-8 proposal to undertake to prepare, file with the Commission and distribute
a proxy statement, and to provide evidence to the company that the proponent
actually had solicited the percentage of stockholder votes required to carry the
proposal. At the same time the Commission added this requirement, it declined to
adopt a proposed rule that would have required a company to include on its proxy
card a box allowing stockholders to withhold discretionary authority from
management to vote on such a proposal, in light of comments the Commission
received expressing concern that the "availability of the box would in effect
create a new system for submitting shareholder proposals without having to
comply with the restrictions under rule 14a-8" and that it would "encourage the
submission of more shareholder proposals outside rule 14a-8's mechanisms." 1998
Release. Thus, the Commission's actions evidence its intent to prevent the
submission of stockholder proposals that attempt to evade the Commission's
established Rule 14a-8 mechanisms where the proponent does not distribute its
own proxy materials.
In addition, the Commission and the Staff have repeatedly noted the Commission's
role as gatekeeper to the proxy statement and form of proxy. In this regard, the
Commission and the Staff have made clear that stockholder proposals that would
curtail or reduce the Commission's role are improper. See State Street Corp.
(avail. Feb. 3, 2004) (discussed below); see also Exchange Act Release No. 20091
(Aug. 16, 1983) (rejecting proposed rules that would have required the inclusion
of any stockholder proposal proper under state law, except those involving the
election of directors, based on a determination that "federal provision of [a
stockholder proposal process] is in the best interests of shareholders and
issuers alike" and that "the basic framework of current Rule 14a-8 provides a
fair and efficient mechanism for the security holder proposal process"). In the
1998 Release, the Commission explained that it considered, but did not adopt,
certain proposals that would have reduced the Commission's involvement in the
no-action letter process, stating: "[s]ome of the proposals we are not adopting
share a common theme: to reduce the Commission's and its staff's role in the
process and to provide shareholders and companies with a greater opportunity to
decide for themselves which proposals are sufficiently important and relevant to
the company's business to justify inclusion in its proxy materials." The
Commission's refusal to adcpt rules that reduce the Commission's oversight role
in the stockholder proposal process would make no sense if stockholders could
utilize that same process to eliminate the Commission's oversight role through
submissions such as the Proposal.
Moreover, the Staff previously has granted no-action relief in a similar
situation. In State Street Corp. (avail. Feb. 3, 2004), the Staff considered a
proposal that would have amended the company's by-laws to require that any
by-law amendment proposed by stockholders and timely submitted to the company be
included in the company's proxy statement and that every change to the proposed
by-law be included in the company's proxy statement for stockholder ratification
or rejection. The Staff concurred in the exclusion of the proposal under Rule
14a-8(i)(3) as contrary to the Commission's proxy rules. Although the Proposal
contains certain restrictions on what qualifies as a Qualified Proposal, both
the Proposal and the State Street proposal seek to use the Commission's Rule
14a-8 process to impose new obligations on the company and implement a mechanism
for stockholders to submit amendments to the company's by-laws that bypasses
entirely the Commission's carefully crafted regulatory framework, thereby
eliminating the Commission's oversight role. Therefore, just as the Staff found
the proposal in State Street to be excludable under Rule 14a-8(i)(3), the
Proposal likewise is excludable under Rule 14a-8(i)(3) because it is contrary to
the Commission's proxy rules.
Finally, it is important to note that the "savings" provisions in the Proposal
do not apply to the Proposal itself, but only to Qualified Proposals that could
be presented if the Proposal were implemented. Consequently, because the
Proposal is inconsistent with the Commission's stockholder proposal regime, the
Proposal is excludable under Rule 14a-8(i)(3) as contrary to the Commission's
proxy rules.
II. The Proposal May Be Excluded under Rule
14a-8(i)(8) Because the Proposal Would Establish Procedures Relating to a
Nomination or Election for Membership on the Company's Board of Directors.
In December 2007, the Commission amended Rule 14a-8(i)(8) to state that a
stockholder proposal may be excluded if the proposal "relates to a nomination or
an election for membership on the company's board of directors or analogous
governing body or a procedure for such nomination or election." Exchange Act
Release No. 56914 (Dec. 6, 2007) (the "Rule 14a-8(i)(8) Adopting Release").
Although not limited to Qualified Proposals relating to proxy access, the
Proposal would permit stockholders to submit Qualified Proposals in the form of
a proxy access by-law. Consequently, as discussed below, the Proposal is
excludable under Rule 14a-8(i)(8) since the Proposal would establish procedures
that relate to the nomination and election of directors.16
A. Background.
In December 2007, following the analysis of comments received on its proposed
amendment to Rule 14a-8(i)(8) as set forth in Exchange Act Release No. 56161
(July 27, 2007) (the "Interpretive and Proposing Release"), the Commission
adopted an amendment to Rule 14a-8(i)(8), as proposed. See Rule 14a-8(i)(8)
Adopting Release. By doing so, the Commission re-codified its longstanding
position that stockholder proposals that may result in a contested election of
directors are excludable. The amended Rule 14a-8(i)(8) provides that a proposal
may be excluded if it "relates to a nomination or an election for membership on
the company's board of directors ... or a procedure for such nomination or
election." 17 In the Rule 14a-8(i)(8) Adopting Release, the Commission
emphasized that the term "procedures" in the election exclusion "relates to
procedures that would result in a contested election either in the year in which
the proposal is submitted or in any subsequent year," thus evidencing the
Commission's clear intent, consistent with its longstanding interpretation, that
the Rule 14a-8(i)(8) exclusion be applied to exclude proposals that would result
in a contested election of directors, regardless of whether a contest would
result immediately or subsequently. As the Commission explained in the Rule
14a-8(i)(8) Adopting Release:
We are acting today to state clearly that the phrase "relates to an election" in
the election exclusion cannot be read so narrowly as to refer only to a proposal
that relates to the current election, or a particular election, but rather must
be read to refer to a proposal that "relates to an election" in subsequent years
as well. In this regard, if one looked only to what a proposal accomplished in
the current year, and not to its effect in subsequent years, the purpose of the
exclusion could be evaded easily.
Specifically, the purpose of the exclusion in Rule 14a-8(i)(8) is to prevent the
establishment of procedures that could circumvent those protections of the
federal proxy rules that are triggered only by a proxy contest. As the
Commission stated in the Rule 14a-8(i)(8) Adopting Release, "the requirements
regarding disclosures and procedures in contested elections do not contemplate
the presence of competing nominees in the same proxy materials." The Commission
further explained:
[W]ere the election exclusion not available for proposals that would establish a
process for the election of directors that circumvents the proxy disclosure
rules, it would be possible for a person to wage an election contest without
providing the disclosures required by the Commission's present rules governing
such contests. Additionally, false and misleading disclosure in connection with
such an election contest could potentially occur without liability under
Exchange Act Rule 14a-9 for material misrepresentations made in a proxy
solicitation.
In the Rule 14a-8(i)(8) Adopting Release, the Commission also emphasized the
need for clarity and certainty in the 2008 proxy season, stating, "It is our
intention that [this amendment] will enable shareholders and companies to know
with certainty whether a proposal may or may not be excluded under Rule
14a-8(i)(8)." The Commission further stated that the amendment "will facilitate
the staff's efforts in reviewing no-action requests and in interpreting Rule
14a-8 with certainty in responding to requests for no-action letters during the
2008 proxy season."
B. The Proposal Would Establish Procedures Relating to a Nomination or Election
for Membership on the Company's Board of Directors.
In furtherance of this goal, we request that the Commission concur that the
Proposal may be excluded under Rule 14a-8(i)(8) because it would establish a
procedure that relates to the nomination and election of the Company's
directors. The Proposal seeks to implement a process under which the Company
shall include in its proxy materials "any qualified proposal [as defined in the
Proposal] for an amendment to the By-laws." Although not limited to director
nomination proxy access proposals, by eliminating the director election
exclusion, the procedures the Proposal would establish would require the Company
to include Qualified Proposals in the form of a proxy access proposal requiring
the names of stockholder-nominated director candidates to be included in the
Company's proxy materials. Implementation of the Proposal thereby could lead to
contested elections of directors: Because the Board nominates a sufficient
number of candidates for all available seats on the Board, the Proposal could
result in the establishment of procedures that would require the Company to
include in its proxy materials additional candidates who would run in opposition
to the Board's candidates for those seats. As noted by the Commission in the
Rule 14a-8(i)(8) Adopting Release, the proxy rules "do not contemplate the
presence of competing nominees in the same proxy materials."
The Proposal attempts to circumvent the Commission's recent amendments to Rule
14a-8(i)(8), which made clear that proposals that establish procedures relating
to a nomination or election of directors are excludable under Rule 14a-8(i)(8).
In the Rule 14a-8(i)(8) Adopting Release, the Commission emphasized that the
election exclusion should be applied to exclude proposals that would result in a
contested election of directors, regardless of whether a contest would result
immediately or subsequently because "if one looked only to what a proposal
accomplished in the current year, and not to its effect in subsequent years, the
purpose of the exclusion could be evaded easily." The Proposal would establish a
process that allows for that evasion. As described above, although the Proposal
would not lead to an immediate election contest, the Proposal would permit
Qualified Proposals that could lead to election contests in future years, which
would take place outside the realm of the protections of the federal proxy
rules. Thus, exclusion of the Proposal satisfies one of the primary objectives
of the election exclusionpreventing the establishment of procedures that could
circumvent the protections of the federal proxy rules that are triggered only by
a proxy contest.
Accordingly, we believe that the Proposal may properly be omitted from the 2008
Proxy Materials under Rule 14a-8(i)(8) because it seeks to establish procedures
that relate to a nomination or election for membership on the Board, and we
request that the Staff concur in our conclusion.
III. The Proposal May Be Excluded under Rule
14a-8(i)(7) Because It Deals with Matters Related to the Company's Ordinary
Business Operations.
A. Background.
Rule 14a-8(i)(7) permits the omission of a stockholder proposal dealing with
matters relating to a company's "ordinary business" operations. According to the
Commission release accompanying the 1998 amendments to Rule 14a-8, the term
"ordinary business" refers to matters that are not necessarily "ordinary" in the
common meaning of the word, but instead the term "is rooted in the corporate law
concept of providing management with flexibility in directing certain core
matters involving the company's business and operations." 1998 Release. In the
1998 Release, the Commission described the two "central considerations" for the
ordinary business exclusion. The first was that certain tasks are "so
fundamental to management's ability to run a company on a day-to-day basis" that
they could not be subject to direct stockholder oversight. The second
consideration is "the degree to which the proposal seeks to `micromanage' the
company by probing too deeply into matters of a complex nature upon which
shareholders, as a group, would not be in a position to make an informed
judgment."
The Staff consistently has concurred that a proposal may be excluded in its
entirety when it touches upon both ordinary and non-ordinary business matters.
Recently, the Staff affirmed this position in Peregrine Pharmaceuticals Inc.
(avail. July 31, 2007). In Peregrine Pharmaceuticals, the Staff concurred with
the exclusion under Rule 14a-8(i)(7) of a proposal recommending that the board
appoint a committee of independent directors to evaluate the strategic direction
of the company and the performance of the management team, noting that "the
proposal appears to relate to both extraordinary transactions and
non-extraordinary transactions." See also Medallion Financial Corp. (avail. May
11, 2004) (concurring with the exclusion of a proposal requesting that the
company consult an investment bank to evaluate ways to increase stockholder
value, and noting that it "appears to relate to both extraordinary transactions
and non-extraordinary transactions"); General Electric Co. (avail. Feb. 10,
2000) (concurring with the exclusion under Rule 14a-8(i)(7) of a proposal
requesting that the company: (i) discontinue an accounting technique; (ii) not
use funds from the company's pension trust to determine executive compensation;
and (iii) use funds from the trust only as intended and as voted on by prior
stockholders, because a portion of the proposal related to ordinary business
matters); Wal-Mart Stores, Inc. (avail. Mar. 15, 1999) (concurring with the
exclusion of a proposal requesting a report to ensure that the company did not
purchase goods from suppliers using unfair labor practices because the proposal
also requested that the report address ordinary business matters).
In determining whether a proposal implicates ordinary business matters, the
Commission and the Staff look at whether the underlying subject matter of a
proposal implicates ordinary business matters, and not at the specific manner in
which a proposal is to be implemented. Thus, when examining whether a
stockholder proposal requesting the dissemination of information may be
excludable under Rule 14a-8(i)(7), the proper focus is on whether the substance
of the information sought is within the ordinary business of the company. See
Exchange Act Release No. 20091 (Aug. 16, 1983); Johnson Controls, Inc. (avail.
Oct. 26, 1999) (concurring with the exclusion under Rule 14a-8(i)(7) of a
stockholder proposal seeking additional financial information); see also
Crescent Real Estate Equities Co. (avail. Apr. 28, 2004) (concurring with the
exclusion of a stockholder proposal requesting a comprehensive policy regarding
related party transactions that would have required annual disclosure of
information relating to transactions between the company and any executive
officer or director because the proposal involved "reporting on transactions
related to [the company's] ordinary business operations"); Conseco, Inc. (avail.
Apr. 18, 2000); Westinghouse Electric Corp. (avail. Jan. 27, 1993).
Likewise, the fact that a proposal requests or mandates a by-law amendment will
not prevent the proposal from being excluded under Rule 14a-8(i)(7) when
implementation of the requested by-law implicates ordinary business matters. See
Ford Motor Co. (avail. Mar. 26, 1999, recon. denied June 14, 1999) (concurring
with the exclusion under Rule 14a-8(i)(7) of a mandatory proposal to amend the
by-laws to require that the company not repurchase common stock except under
certain circumstances where the company argued that the fact that the proposal
was in the form of a mandatory by-law amendment "should not change the analysis
under Rule 14a-8(i)(7)"); The Chase Manhattan Corp. (avail. Mar. 4, 1999)
(concurring with the exclusion under Rule 14a-8(i)(7) of a mandatory proposal to
amend the by-laws to require the company to disclose in its financial statements
certain information about taxes where the company noted that "[t]he Staff has
analyzed proposals presented in the form of a binding by-law amendment under the
same standards as precatory proposals"); LTV Corp. (avail. Nov. 25, 1998)
(concurring with the exclusion under Rule 14a-8(i)(7) of a mandatory proposal to
amend the by-laws to require certain disclosures about the outside auditor in
the financial statements, where the Staff previously had concurred in the
exclusion under Rule 14a-8(i)(7) of two proposals that were identical to the
proposal under consideration except for the fact that they were precatory rather
than mandatory proposals).
Thus, the Commission and the Staff have confirmed that the Staff will look to
the underlying subject matter of a stockholder proposal, and will concur with
exclusion of a stockholder proposal in its entirety under Rule 14a-8(i)(7) where
the subject matter of the proposal touches upon both ordinary business matters
and non-ordinary business matters.
B. The Proposal Deals with Matters Relating to the Company's Ordinary Business
Operations.
As discussed above, in reviewing proposals under Rule 14a-8(i)(7), the
appropriate focus is upon whether implementation of the proposal implicates
ordinary business matters. This is consistent with the principal that the
Commission recently emphasized, in the context of Rule 14a-8(i)(8), that one
must look not only at the effect of a proposal in the current year, but also at
the consequences that the proposal could lead to in years to come. As the
Commission stated, "if one looked only to what a proposal accomplished in the
current year, and not to its effect in subsequent years, the purpose of the
exclusion could be evaded easily." Rule 14a-8(i)(8) Adopting Release.
Accordingly, in determining whether the Proposal is excludable under Rule
14a-8(i)(7), one must consider not only the Proposal itself, but also the
consequences that would flow in future years from adoption of the Proposal.
One of the effects of adoption of the Proposal would be the requirement that the
Company include in its proxy materials any Qualified Proposals dealing with
matters relating to the Company's ordinary business. For example, under the
procedures provided for under the Proposal, the Company could be required to
include in its proxy materials Qualified Proposals such as those relating to the
location of the Company's facilities, the Company's procedures for handling
customer complaints, retirement plans offered to Company employees, and
countless other matters that relate to the day-to-day management of the Company.
As the Staff has concluded on numerous occasions, such matters are inappropriate
subjects for stockholder oversight. Although not all Qualified Proposals would
necessarily touch upon the Company's ordinary business operations, by
eliminating the Rule 14a-8(i)(7) exclusion, the Proposal would require the
Company to include in its proxy materials many Qualified Proposals that relate
to matters of ordinary business. The Staff previously has concurred that a
proposal could be excluded under Rule 14a-8(i)(7) when it would result in both
ordinary business matters and matters that were not ordinary business being
presented to a company. In The Kroger Co. (avail. Mar. 18, 2002), the proposal
requested that the company form a committee of stockholders that would
communicate with the company's board on stockholder proposals that had been
submitted to a vote and on other matters. Because the proposal could result in
ordinary business matters being considered by the committee, the Staff concurred
that the proposal could be excluded under Rule 14a-8(i)(7) as relating to the
company's ordinary business operations, specifically, "communications with
management on matters relating to Kroger's ordinary business operations." See
also Adobe Systems Inc. (avail. Feb. 1, 2002); E*TRADE Group, Inc. (Bemis)
(avail. Oct. 31, 2000).
Just as the proposal in The Kroger Co. would have resulted in ordinary business
matters being presented to management, here the Proposal could result in
proposals involving ordinary business matters being presented to the Company's
stockholders. Moreover, the Staff consistently has concurred that a company's
dealings and relationships with its stockholders implicate ordinary business
matters. See AmSouth Bancorp. (avail. Jan. 15, 2002); Niagara Mohawk Holdings,
Inc. (avail. Mar. 5, 2001); Chevron Corp. (avail. Feb. 8, 1998); Tucson Electric
Power Co. (avail. Feb. 12, 1997); U.S. West, Inc. (avail. Sept. 21, 1993);
Minnesota Power & Light Co. (avail. Mar. 12, 1992).
Accordingly, because a portion of the Proposal touches upon the Company's
ordinary business operations, regardless of whether the Proposal would result in
some Qualified Proposals not implicating ordinary business matters, the entire
proposal may be excluded under Rule 14a-8(i)(7).
IV. The Proposal May Be Excluded under Rule
14a-8(i)(3) Because It Is Impermissibly Vague and Indefinite So As To Be
Inherently Misleading.
Rule 14a-8(i)(3) provides that a company may exclude from its proxy materials a
stockholder proposal if 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."
Because the Proposal contains unclear and ambiguous language regarding how the
Proposal would operate, the Proposal is impermissibly vague and indefinite so as
to be misleading and, therefore, is excludable under Rule 14a-8(i)(3).
The Staff consistently has taken the position that vague and indefinite
stockholder proposals are inherently misleading and therefore excludable under
Rule 14a-8(i)(3) because "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." See Staff Legal Bulletin No. 14B (Sept. 15, 2004). Moreover,
the Staff has on numerous occasions concurred that a proposal was sufficiently
misleading so as to justify exclusion where a company and its stockholders might
interpret the proposal differently, such that "any action ultimately taken by
the [c]ompany upon implementation [of the proposal] could be significantly
different from the actions envisioned by stockholders voting on the proposal."
Fuqua Industries, Inc. (avail. Mar. 12, 1991); see also Bank of America Corp.
(avail. June 18, 2007).
The Proposal on its face requests that the Board:
adopt a charter provision, a By-law provision, or a policy under which the
Company, to the extent permitted under federal law and state law, shall include
in its proxy materials for an annual meeting of stockholders any qualified
proposal for an amendment of the By-laws submitted by a proponent, as well as
the proponent's supporting statement if any, and shall allow stockholders to
vote with respect to such a qualified proposal on the Company's proxy card.
The Proposal is vague and indefinite because the Proposal's operative text is
subject to varying interpretations, thereby making it "impossible for either the
board of directors or the stockholders at large to comprehend precisely what the
proposal would entail." Dyer v. SEC, 287 F.2d 773, 781 (8th Cir. 1961).
Specifically, at least three of the Proposal's provisions are unclear and are
subject to different interpretations:
First, the Proposal would require that any proposed amendment to the Company's
By-laws be "legally valid if adopted" and thus be valid under state law. Given
the uncertainty under state law regarding what constitutes a permissible by-law
amendment, stockholders cannot possibly know what matters would be addressed by
Qualified Proposals required to be submitted for a vote under the Proposal or
the consequences for the Company that may flow were the Proposal or a Qualified
Proposal adopted. Notably, at the Commission's recent proxy roundtables,
numerous participants echoed the view that there is uncertainty as to what types
of stockholder proposals are permissible under state law. See Jill E. Fisch,
Fordham University School of Law, Transcript of Roundtable Discussion on
Proposals for Shareholders, at 93-94, May 25, 2007 ("May 25th Roundtable")
("Just because something is in the form of a bylaw amendment doesn't
automatically make it a proper subject for a shareholder vote. And state law has
not addressed that question."); Donald C. Langevoort, Georgetown University Law
Center, May 25th Roundtable, at 95 (concurring with the statements made by Jill
E. Fisch); Leo E. Strine Jr., Vice Chancellor, Court of Chancery of the State of
Delaware, May 25th Roundtable, at 105-108 (discussing the recent amendment to
the Delaware constitution that permits the Commission to bring questions of law
directly to the Delaware Supreme Court, including questions regarding the
validity of by-law amendments under state law); Amy L. Goodman, Gibson Dunn &
Crutcher LLP, Transcript of Roundtable on the Federal Proxy Rules and State
Corporation Law, at 181, May 7, 2007 (noting "it's still not clear under state
law what is an appropriate subject for a shareholder bylaw").
Of special importance, there is no limitation under the Proposal on the ways in
which or degree to which the discretion of the Board in managing the Company's
business may be constrained by a Qualified Proposal, nor is there any
requirement that such matter be addressed by a Qualified Proposal. The Board
nevertheless would be divested under the Proposal of discretion as to whether or
not to include a Qualified Proposal in the Company's proxy materials, without
regard to the costs that would be incurred by the Company in doing so or in
implementing a Qualified Proposal. Consequently, stockholders voting on the
Proposal or a Qualified Proposal will not be in a position to make a judgment as
to whether the resulting limitation of the Board's discretion is desirable.
Second, the Proposal is vague as to what type of proposals would qualify for
inclusion in the Company's proxy materials, because the reference to a "proposal
for an amendment of the By-laws" is vague. For example, the Proposal itself asks
the Company to adopt a charter amendment, by-law amendment or corporate policy.
When such a proposal includes a by-law amendment as only one alternative means
of implementation, it is unclear whether that proposal is "for an amendment of
the By-laws." Likewise, it is vague and uncertain whether a precatory proposal
seeking an amendment to the Company's By-laws would qualify as a "proposal for
an amendment of the By-laws" or whether only a binding By-law amendment would so
qualify.
Third, the Proposal states that Qualified Proposals submitted under procedures
established by the Proposal must be submitted to the Company's Secretary "by the
deadline specified by the Corporation for Stockholder proposals for inclusion in
the proxy materials for the annual meeting." It is unclear from the language of
this provision what deadline the Proposal is referring to. Rule 14a-5(e)
requires a company to include in its proxy statement the deadline "for
submitting shareholder proposals for inclusion in the registrant's proxy
statement and form of proxy for the registrant's next annual meeting, calculated
in the manner provided in" Rule 14a-8(e) and "[t]he date after which notice of a
shareholder proposal submitted outside the processes of [240.14a-8] is
considered untimely." Here, the Proposal would establish a process for Qualified
Proposals that are intended "for inclusion in the registrant's proxy statement"
under Rule 14a-5(e)(1), but that are "submitted outside the processes of
[240.14a-8]" under Rule 14a-5(e)(2). Thus, the Proposal is vague as to how a
critical aspect of the procedures it establishes would work, as neither the
Company nor its stockholders would know whether the deadline for submitting a
Qualified Proposal is one calculated under Rule 14a-8(e), one determined in the
procedure described under Rule 14a-5(e)(2), or a third deadline that could be
established by the Company.
As illustrated above, the Proposal's language is subject to varying
interpretations such that the Company and its stockholders would not be able to
determine how to interpret the Proposal if it was included in the 2008 Proxy
Materials. Thus, the Proposal is similar to other stockholder proposals that the
Staff has concurred are excludable as vague and indefinite for purposes of Rule
14a-8(i)(3) because they were subject to varying interpretations. See, e.g.,
Alaska Air Group Inc. (avail. Apr. 11, 2007) (proposal asking that the board
"amend the company's governance documents (certificate of incorporation and or
[sic] bylaws) to assert, affirm, and define the rights of owners of the company
to set the standards of corporate governance" was excludable under Rule
14a-8(i)(3) as vague and indefinite); International Business Machines Corp.
(avail. Feb. 2, 2005) (proposal asking that "the officers and directors
responsible for" a certain event have their "pay reduced to the level prevailing
in 1993" was excludable under Rule 14a-8(i)(3) because it was subject to
numerous interpretations); Bank Mutual Corp. (avail. Jan. 11, 2005) (stockholder
proposal asking that "a mandatory retirement age be established for all
directors upon attaining the age of 72 years" was subject to multiple
interpretations and thus excludable as vague and indefinite); Peoples Energy
Corp. (avail. Nov. 23, 2004) (proposal to amend the company's articles of
incorporation and by-laws to provide that officers and directors shall not be
indemnified from liability for acts or omissions involving gross negligence or
"reckless neglect" was excludable because it was vague and indefinite); Puget
Energy, Inc. (avail. Mar. 7, 2002) (proposal requesting that the board
"implement a policy of improved corporate governance" was excludable under Rule
14a-8(i)(3)); The Boeing Co. (avail. Mar. 18, 1998) (proposal requesting that
the board amend the by-laws to limit the number of terms directors can serve on
the board was vague and ambiguous).
Similarly, the Proposal is vague and indefinite because the uncertainty
regarding what constitutes compliance with the Proposal makes it inevitable that
stockholders would not know what they were voting upon. Consistent with the
Staff's findings on numerous occasions, the Company's stockholders "cannot be
expected to make an informed decision on the merits of the [p]roposal without at
least knowing what they are voting on." The Boeing Co. (avail. Feb. 10, 2004);
see also New York City Employees' Retirement System v. Brunswick Corp., 789 F.
Supp. 144, 146 (S.D.N.Y. 1992) ("Shareholders are entitled to know precisely the
breadth of the proposal on which they are asked to vote."); Capital One
Financial Corp. (avail. Feb. 7, 2003) (excluding a proposal under Rule
14a-8(i)(3) where the company argued that its stockholders "would not know with
any certainty what they are voting either for or against"); Occidental Petroleum
Corp. (avail. Feb 11, 1991) ("The staff, therefore, believes that the proposal
may be misleading because any action(s) ultimately taken by the [c]ompany upon
implementation of this proposal could be significantly different from the
action(s) envisioned by shareholders voting on the proposal.").
Accordingly, we believe that as a result of the vague and indefinite nature of
the Proposal, the Proposal is impermissibly misleading and, thus, excludable
under Rule 14a-8(i)(3).
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff concur
that it will take no action if the Company excludes the Proposal from its 2008
Proxy Materials. We would be happy to provide you with any additional
information and answer any questions that you may have regarding this subject.
Moreover, 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) 955-8671 or Saddie Smith at (212) 460-4502.
Sincerely,
/s/
Ronald O. Mueller
Enclosures
cc: Saddie Smith, Consolidated Edison, Inc.
Lucian Bebchuk
-----FOOTNOTES-----
1 Exchange Act Release No. 56914 at n.5 (Dec. 6, 2007) (the "Rule 14a-8(i)(8)
Adopting Release")
2 SEC v. Transamerica Corp.,
163 F.2d 511 (3rd Cir. 1947) (invalidating a by-law
that attempted to override now-repealed rule X-14A-7, an early predecessor to
Rule 14a-8).
3 The Proposal, if implemented, would permit Qualified Proposals to be presented
by persons who do not qualify under Rule 14a-8for example, by stockholders who
submitted a proposal the previous year but did not appear to introduce the
proposaland would permit Qualified Proposals to be presented on topics that
would be excludable under Rule 14a-8 for example, a Qualified Proposal that
conflicts with a proposal being introduced by the Company.
4 Exchange Act Release No. 40018 (May 21, 1998) (the "1998 Release"), at part
IV, describes the process provided for under the Commission's proxy rules if a
stockholder proponent chooses not to use Rule 14a-8's procedures as follows:
"This [a proponent choosing not to use Rule 14a-8's procedures] may occur if the
proponent notifies the company in advance of the meeting of his or her intention
to present the proposal from the floor of the meeting, and commences his or her
own proxy solicitation, without ever invoking rule 14a-8's procedures."
5 Exchange Act Release No. 39093 (Sept. 18, 1997) (text of Summary).
6 See Note 4, supra.
7 Rule 14a-7 does provide that in certain cases a registrant may elect to mail
copies of a stockholder's proxy statement, form of proxy or other soliciting
material to stockholders, but again contemplates that the stockholder's
solicitation will be conducted through separate materials and not through the
registrant's proxy materials.
8 See Item 4 of Schedule 14A.
9 See Item 5 of Schedule 14A.
10 In 1982 the Commission proposed rules that would have permitted a company and
its stockholders to adopt a company-specific alternative procedure to govern the
stockholder proposal process. See Exchange Act Release No. 19135 (Oct. 14,
1982). In 1983, the Commission declined to adopt the proposed regime. See
Exchange Act Release No. 20091 (Aug. 16, 1983).
11 See the discussion below of amendments adopted to Rule 14a-4 in the 1998
Release.
12 The supporting statement indicates that this is the Proponent's intention, by
repeatedly referring to stockholder-initiated By-law proposals being placed on
"the corporate ballot," although the actual text of the resolution never refers
to "the corporate ballot."
13 To be excludable under Rule 14a-8(i)(10), a stockholder proposal need only be
"substantially implemented," not "fully effected." See 1998 Release at n.30 and
accompanying text; Exchange Act Release No. 20091 (Aug. 16, 1983). The Staff
further has stated, "a determination that the company has substantially
implemented the proposal depends upon whether [the] particular policies,
practices and procedures compare favorably with the guidelines of the proposal."
See Texaco, Inc. (avail. Mar. 28, 1991).
14 For example, in Johnson & Johnson (avail. Feb. 17, 2006), the Staff concurred
in the exclusion of a stockholder proposal as substantially implemented by
federal law. In Johnson& Johnson, the proposal requested that the company
"verify the employment legitimacy of all current and future U.S. workers and to
immediately terminate any workers not in compliance." The company noted that it
was required by the Immigration Reform and Control Act of 1986 to verify the
employment eligibility of each employee and that it was further required by the
Immigration and Nationality Act to terminate the employment of individuals found
to be ineligible to work in the United States. The company argued that its
compliance with these provisions of these federal laws substantially implemented
the proposal, and the Staff concurred in the exclusion of the proposal under
Rule 14a-8(i)(10) as substantially implemented. See AMR Corp. (avail. Apr. 17,
2000) (permitting exclusion of a proposal requiring members of "key board
committees" to be independent where the compensation/nominating committee
complied with the definition of "non-employee director" under Exchange Act Rule
16b-3(b)(3) and "outside director" under Internal Revenue Code Section 162(m),
and the audit committee complied with the definition of independence under the
New York Stock Exchange listing standards); Eastman Kodak Co. (avail. Feb. 1,
1991) (concurring that disclosure of certain environmental compliance
information under Item 103 of Regulation S-K substantially implemented a
proposal calling for disclosure of similar information); The Coca-Cola Co.
(avail. Feb. 24, 1988) (concurring that a federal statute prohibited new
investment in South Africa substantially implemented a proposal calling on the
company to not make new investments or business relationships in or within South
Africa).
15 For example, the Proposal would not permit the Company to exclude a Qualified
Proposal that the Company has already substantially implemented (Rule
14a-8(i)(10)), thereby resulting in stockholders being required "to consider
matters which already have been favorably acted upon by the management."
Exchange Act Release No. 12598 (July 7, 1976). In addition, the Proposal would
not permit the Company to exclude a Qualified Proposal that directly conflicts
with one of the Company's own proposals to be submitted to stockholders at the
same meeting (Rule 14a-8(i)(9)), which would mislead stockholders as to the
effect of the proposal and result in stockholder confusion.
16 The Proposal would be excludable under Rule 14a-8(i)(8), even if that
provision had not been amended, in light of the provision's text and its
longstanding interpretation by the Commission, including the Commission's
authoritative interpretation in the recent rulemaking. See Exchange Act Release
No. 56161 (July 27, 2007) (the "Interpretive and Proposing Release") (confirming
the Commission's longstanding position that stockholder proposals that would
result in an election contest, either in the current year or a subsequent year,
may be excluded under Rule 14a-8(i)(8)); see also Rule 14a-8(i)(8) Adopting
Release (reiterating and codifying the Commission's longstanding interpretation
after public comment).
17 Prior to its amendment, Rule 14a-8(i)(8) permitted the exclusion of a
stockholder proposal that "relates to an election for membership on the
company's board of directors or analogous governing body." The Staff's
longstanding interpretation of this provision held it to apply to proposals that
would establish procedures that resulted in a contested election.
[APPENDIX 1]
December 5, 2007
VIA FACSIMILE AND OVERNIGHT MAIL
Consolidated Edison, Inc.
Attn: Corporate Secrelary
4 Irving Plaza
New York, New York 10003
Re: Shareholder Propusal of Lucian Bebchuk
Dear Saddie L. Smith:
I am the owner of 60 shares of common stock of Consolidated Edison, Inc. (the
"Company"), which I have continuously held for more than 1 year as of today's
date. I intend to continue to hold these securities through the date of the
Company's 2008 annual meeting of sharcholders.
Pursuant to Rule 14a-8, I enclose herewith a shareholder proposal and supporting
statement (the "Proposal") for inclusion in the Company's proxy materials and
for presentation to a vote of shareholders at the Company's 2008 annual meeting
of shareholders.
Please let me know if you would like to discuss the Proposal or if you have any
questions.
Sinecrely.
/s/
Lucian Bebchuk
[APPENDIX 2]
RESOLVED that stockholders of Consolidated Edison, Inc. recommend that the Board
of Directors adopt a charter provision. a By-law provision, or a policy under
which the Company, to the extent permitted under federal law and state law,
shall include in its proxy materials for an annual meeting of stockholders any
qualified proposal for an amendment of the By-laws submitted by a proponent, as
well as the proponent's supporting statement if any, and shall allow
stockholders to vote with respect to such a qualified proposal on the Company's
proxy card. A qualified proposal refers in this resolution to a proposal that
satisfies the following requirements:
(a) The proposed arnendment of the By-laws would be legally valid if adopted;
(b) The proponent submitted the proposal and supporting statement to the
Company's Secretary by the deadline specilied by the Company for stockholder
proposals for inclusion in the prosy materials for the annual meeting;
(c) The proponent beneficially owned at the time of the submission at least
$2,000 of the Company's outstanding common stock for at least one year, and did
not submit other stockholder proposals for the annual meeting;
(d) The proposal and its supporting statement do not enceed 500 words;
(e) The proposal does not substantially duplicate another proposal previously
submitted to the Company by another proponent that will be included in the
Company's proxy materials for the same meeting; and
(f) The proposal is not substantially similar to any other proposal that was
voted upon by the stockholders at any time during the preceding three calendar
years and failed to receive at least 3% of the votes cast when so considered.
SUPPORTING STATEMENT:
Statement of Professor Lucian Bebchuk: In my view, the ability to place a
proposal for a By-law amendment on the corporate ballot could in some
circumstances be essential for stockholders' ability to use their power under
state law to initiate By-law amendments. In the absence of ability to place such
a proposal on the corporate ballot, the costs involved in obtaining proxies from
other stockholders could deter a stockholder from initiating a proposal even if
the proposal is one that would obtain stockholder approval were it to be placed
on the corporate ballot. Current and future SEC rules may in some cases allow
companies - but do not currently require them to exclude proposals from the
corporate ballot. In my view, even when SEC rules may allow exclusion, it would
be desirable for the Company to place on the corporate ballot proposals that
satisfy the requirements of a qualified proposal. I urge even sharcholders who
believe that no changes in the Company's By-laws are currently desirable to vote
for the proposal to facilitate sharcholders' ability to initiate proposals for
By-law amendments and to deeide whether to adopt such proposals.
I urge you to vote for this proposal.
[STAFF REPLY LETTER]
February 5, 2008
Ronald O. Mueller
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5306
Re: Consolidated Edison, Inc.
Dear Mr. Mueller:
This is in regard to your letter dated February 5,
2008 concerning the shareholder proposal submitted by Lucian Bebchuk for
inclusion in Con Edison's proxy materials for its upcoming annual meeting of
security holders. Your letter indicates that the proponent has withdrawn the
proposal, and that Con Edison therefore withdraws its January 22, 2008 request
for a no-action letter from the Division. Because the matter is now moot, we
will have no further comment.
Sincerely,
/s/
William A. Hines
Special Counsel
cc: Michael J. Barry
Grant & Eisenhofer P.A.
Chase Manhattan Centre
1201 North Market Street
Wilmington, DE 19801
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