CompanyName: Electronic Data Systems Corp.
Public Availability Date: January 24, 2008
Document Sections:INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 14, 2007
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington D.C. 20549
Re: Electronic Data Systems Corporation Shareholder Proposal of AFL-CIO
Ladies and Gentlemen:
Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, this letter
notifies you of the intention of Electronic Data Systems Corporation ("EDS") to
omit from its proxy statement and form of proxy for its 2008 Annual Meeting of
Stockholders ("2008 Proxy Materials") the stockholder proposal submitted by the
AFL-CIO Reserve Fund (the "Proponent") in connection with EDS' 2008 Annual
Meeting of Shareholders (the "Proposal"). A copy of the Proposal is attached as
Exhibit A.
In accordance with Rule 14a-8(j), enclosed are six copies of this letter and the
attachment to this letter. By copy of this letter, EDS notifies the Proponent of
its intention to omit the Proposal (including the resolution and supporting
statement) from its 2008 Proxy Materials.
Background
EDS received a letter dated November 7, 2007 from the Proponent containing the
following Proposal:
Resolved: Shareholders request that the Board of Directors adopt a policy
addressing conflicts of interest involving board members with health industry
affiliations. The policy shall provide for recusal from voting and from chairing
board committees when necessary. The policy shall address conflicts associated
with company involvement in public policy issues related to their health
industry affiliations and shall be explicitly integrated with the company's
existing policies regarding related party transactions. For the purposes of this
policy, "board members with health industry affiliations" means any Board member
who is also a director, executive officer or former executive officer of a
company or trade association whose primary business is in the health insurance
or pharmaceutical industries.
EDS requests the concurrence of the Staff that it will not recommend enforcement
action if EDS omits the Proposal from its 2008 Proxy Materials under (i) Rule
14a-8(i)(7) on the basis that the Proposal deals with a matter relating to EDS'
ordinary business operations and (ii) Rule 14a-8(i)(10) because EDS has
substantially implemented the Proposal.
Analysis
Rule 14a-8(i)(7)
Rule 14a-8(i)(7) permits a company to omit a shareholder proposal from its proxy
materials if it deals with a matter relating to the company's ordinary business
operations. The general policy underlying the "ordinary business" exclusion is
"to confine the resolution of ordinary business problems to management and the
board of directors, since it is impracticable for shareholders to decide how to
solve such problems at an annual shareholders meeting." See Exchange Act Release
No. 34-40018 (May 21, 1998). This general policy reflects two central
considerations: (i) "[c]ertain tasks are so fundamental to management's ability
to run a company on a day-to-day basis that they could not, as a practical
matter, be subject to direct shareholder oversight"; and (ii) the "degree to
which the proposal seeks to `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." See Exchange Act Release No. 34-40018
(May 21, 1998).
The Proposal requests that the Board of Directors adopt a policy addressing
conflicts of interest involving board members with health industry affiliations.
Assuring compliance with legal and regulatory requirements, as well EDS'
internal policies, is a fundamental management function. As discussed in greater
detail on EDS' website at http://www.eds.com/investor/govermance/code.aspx, EDS
is committed to conducting business ethically and with integrity. The EDS Code
of Business Conduct was written to help us achieve that goal. The Director's
Addendum to the EDS Code of Business Conduct provides that "Directors should (a)
ethically handle situations that could give rise to a conflict of interest
including the appearance of a conflict, (b) fully and promptly disclose any
conflict of interest to the General Counsel as set forth in this Code, and (c)
take appropriate preventative or corrective actions (e.g., recusal from certain
decisions), as determined by the Board or a designated committee."
The Staff has consistently determined that proposals that relate to the
promulgation of, and monitoring of compliance with, codes of ethics may be
excluded pursuant to Rule 14a-8(i)(7) because they relate to matters involving
ordinary business operations. See, e.g., Chrysler Corp. (February 18, 1998)
(proposal requesting that the board of directors review or amend Chrysler's code
of standards for its international operations and present a report to Chrysler's
shareholders); Lockheed Martin Corp. (January 29, 1997) (proposal requesting the
audit and ethics committee to determine whether the company has an adequate
legal compliance program and prepare a report); AT&T Corp. (January 16, 1996)
(ordinary business operations exception applied to a proposal requesting that
the company's board of directors initiate a review of certain employment
practices in light of the company's code of ethics); and NYNEX Corp. (February
1, 1989) (proposal related to the formation of a special committee of the
registrant's board of directors to revise the existing code of corporate
conduct). The Staff has also determined that proposals relating to conflict of
interest transactions may be excluded pursuant to Rule 14a-8(i)(7) because they
relate to matters involving ordinary business operations. See Genotrenics
Biomedical Corporation (April 4, 2003) (proposal that company shall not do
business with any company in which board member has a financial stake considered
ordinary business because includes matters relating to "non-extraordinary
transactions").
EDS believes that the Proposal may properly be excluded under Rule 14a-8(i)(7)
because the matter covered by the Proposal addresses an ordinary business
matter, namely compliance with the conflict of interest provisions of the
Directors Addendum to the EDS Code of Business Conduct.
Rule 14a-8(i)(10)
Rule 14a-8(i)(10) permits the omission of a shareholder proposal if "the company
has already substantially implemented the proposal." The "substantially
implemented" standard reflects the Staff's interpretation of the predecessor
rule (allowing omission of a proposal that was "moot") that a proposal need not
be "fully effected" by the company to meet the mootness test so long as it was
"substantially implemented." See SEC Release No. 34-20091 (August 16, 1983).
Pursuant to the 1983 interpretation, the Staff has stated that "a determination
that the company has substantially implemented the proposal depends upon whether
its particular policies, practices and procedures compare favorably with the
guidelines of the proposal." See Texaco, Inc. (March 28, 1991). See also
Nordstrom Inc. (February 8, 1995) (proposal that company commit to code for
overseas suppliers that was substantially covered by existing company
guidelines) and The Gap. Inc. (March 8, 1996) (same). Other Staff no-action
letters have established that a company need not comply with every detail of a
proposal in order to exclude it under Rule 14a-8(i)(10). Differences between a
company's actions and a proposal are permitted so long as a company's actions
satisfactorily address the proposal's underlying concerns. See Masco Corporation
(March 29, 1999).
As noted above, the Directors Addendum to the EDS Code of Conduct, adopted by
the EDS Board of Directors on February 2004, provides that "Directors should (a)
ethically handle situations that could give rise to a conflict of interest
including the appearance of a conflict, (b) fully and promptly disclose any
conflict of interest to the General Counsel as set forth in this Code, and (c)
take appropriate preventative or corrective actions (e.g., recusal from certain
decisions), as determined by the Board or a designated committee." EDS believes
that the provisions in the Code of Conduct substantially implement the Proposal,
which requests that "the Board of Directors adopt a policy addressing conflicts
of interest involving board members with health industry affiliations." A
director potentially faces numerous conflicts of interest in the ordinary course
of business. EDS does not believe it is practical for a Code of Conduct to
address the specific nature of each type of potential conflict of interest that
may arise related to a director's service, particularly for a large, global
company such as EDS. The provisions in the EDS Code of Conduct are intentionally
broad enough to cover a potential conflict of interest related to health care
affiliations or any other matter. Because the existing provisions in the EDS
Code of Conduct would already cover any conflict of interest situation intended
to be covered by the Proposal, EDS believes the Proposal has been substantially
implemented for purposes of Rule 14a-8(i)(10).
Request
Based on the foregoing analysis, EDS requests the concurrence of the Staff that
it will not recommend enforcement action if EDS omits the Proposal from its 2008
Proxy Materials. EDS requests that the Staff fax a copy of its determination of
this matter to the undersigned at (972) 605-5613.
Please acknowledge receipt of this letter by date-stamping the extra enclosed
copy of this letter and returning it in the enclosed, self-addressed stamped
return envelope. If you have any questions with respect to this matter please
call me at 972-605-5486.
Very truly yours,
/s/
David B. Hollander
Legal Manager - Corporate Acquisitions & Finance
cc: AFL-CIO Reserve Fund
[APPENDIX 1]
EXHIBIT A
November 7, 2007
By UPS Next Day Air
Mr. Storrow M. Gordon, Secretary
Electronic Data Systems Corporation
5400 Legacy Drive
Mail Stop H3-3A-05
Piano, Texas 75024-3199
Dear Mr. Gordon:
On behalf of the AFL-CIO Reserve Fund (the "Fund"), I write to give notice that
pursuant to the 2007 proxy statement of Electronic Data Systems Corporation (the
"Company"), the Fund intends to present the attached proposal (the "Proposal")
at the 2008 annual meeting of shareholders (the "Annual Meeting"). The Fund
requests that the Company include the Proposal in the Company's proxy statement
for the Annual Meeting. The Fund is the beneficial owner of 400 shares of voting
common stock (the "Shares") of the Company and has held the Shares for over one
year. In addition, the Fund intends to hold the Shares through the date on which
the Annual Meeting is held.
The Proposal is attached. I represent that the Fund or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Fund has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please direct all questions or
correspendence regarding the Proposal to me at (202) 637-5379.
Sincerely,
/s/
Daniel F. Pedrotry
Director
Office of Investment
[APPENDIX 2]
Resolved: Shareholders request that the Board of Directors adopt a policy
addressing conflicts of interest involving board members with health industry
affiliations. The policy shall provide for recusal from voting and from chairing
board committees when necessary. The policy shall address conflicts associated
with company involvement in public policy issues related to their health
industry affiliations and shall be explicitly integrated with the company's
existing policies regarding related party transactions. For the purposes of this
policy, "board members with health industry affiliations" means any Board member
who is also a director, executive officer or former executive officer of a
company or trade association whose primary business is in the health insurance
or pharmaceutical industries.
Supporting Statement
Electronic Data Systems Corporation (the "Company") directors W. Roy Dunbar, S.
Malcom Gillis, Ellen M. Hancock, Edward A. Kangas and David R. Yost also serve
as directors of Humana, Introgen Therapeutics, Aetna, Tenet Healthcare
Corporation, and PharMerica, respectively, and Company Board Chairman, Michael
H. Jourdan, was a director of Aetna until 2007. Directors Dunbar, Hancock and
Yost have holdings in health insurance or pharmaceutical companies that outweigh
their holdings in the Company.
In our view, our Company's existing director independence policies do not
adequately address the financial and professional interests of our Company's
health industry affiliated directors, nor does our Company require that health
industry affiliated directors recuse themselves from Board decisions related to
pharmaceutical or health insurance issues that are significant social policies.
Access to affordable, comprehensive health care insurance is the most
significant social policy issue in America, according to polls by NBC News/The
Wall Street Journal, the Kaiser Foundation, and The New York Times/CBS News.
John Castellani, president of the Business Roundtable has stated that 52 percent
of his members say health costs represent their biggest economic challenge,
explaining that, "The current situation is not sustainable in a global,
competitive workplace." (BusinessWeek, 7/3/2007)
We are concerned that the financial and professional interests of health
industry affiliated directors could improperly influence our Company's position
on significant social policy issues. For example, a director affiliated with a
pharmaceutical company could oppose allowing Medicare to negotiate reduced
prescription drug costs. A director affiliated with a health insurance company
could oppose universal health insurance reform to insure all Americans.
We also believe that the participation of health industry affiliated directors
in Board decisions on health issues may create the appearance of a conflict of
interest. General Motors, for example, kept an expensive brand name prescription
drug on its fonnulary at a cost of $110 million a year despite the existence of
a cheaper generic alternative. The former CEO of the drug's manufacturer is the
policy committee chair of the General Motors' Board of Directors. (The New York
Times, 10/5/2007)
We believe that this proposal will help prevent health industry affirated
directors from [Text Illegible]
[INQUIRY LETTER]
January 11, 2008
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Electronic Data Systems Corporation's Request to Exclude Proposal Submitted
by the AFL-CIO Reserve Fund
Dear Sir/Madam:
This letter is submitted in response to the claim of Electronic Data Systems
Corporation ("EDS" or the "Company"), by letter dated December 14, 2007, that it
may exclude the shareholder proposal ("Proposal") of the AFL-CIO Reserve Fund
("Fund" or the "Proponent") from its 2008 proxy materials.
I. Introduction
Proponent's shareholder proposal to EDS urges:
that the Board of Directors adopt a policy addressing conflicts of interest
involving board members with health industry affiliations. The policy shall
provide for recusal from voting and from chairing board committees when
necessary. The policy shall address conflicts associated with company
involvement in public policy issues related to their health industry
affiliations and shall be explicitly integrated with the company's existing
policies regarding related party transactions. For the purposes of this policy,
"board members with health industry affiliations" means any Board member who is
also a director, executive officer or former executive officer of a company or
trade association whose primary business is in the health insurance or
pharmaceutical industries (emphasis added).
EDS' letter to the Commission stated that it intends to omit the Proposal from
its proxy materials to be distributed to shareholders in connection with the
Company's 2008 annual meeting of shareholders. EDS argues that the Proposal is
excludable under Rule 14a-8(i)(7) as relating to the Company's ordinary business
operations. As set forth more fully herein, the Proposal may not be omitted
pursuant to Rule 14a-8(i)(7) because health industry affiliated director
conflicts of interest related to health care reform are significant policy
issues. EDS also contends that it has substantially implemented the Proposal and
it may therefore be excluded under Rule 14a-8(i)(10). The Fund disagrees and
describes below how EDS has failed to prevent both the appearance of and actual
conflicts of interest among its health industry affiliated directors.
II. Background: health industry affiliated director conflicts of interest are
significant public policy issues.
A. Health care reform is a significant social policy issue.
The Commission stated in Exchange Act Release No. 40018 that "proposals that
relate to ordinary business matters but that focus on `sufficiently significant
social policy issues ... would not be excludable, because the proposals would
transcend day-to-day business matters....'" The Proposal before EDS is just such
a proposal. It addresses the significant social policy issue of health care
reform and conflicts of interest that are presented by the Company's health
industry affiliated directors on this issue. The Proposal does not ask the
Company to provide any information or reports on its internal operations, nor
does it attempt to micromanage the Company. Instead it urges the Board to
integrate the Company's existing policies with a new policy on health industry
affiliated directors.
Health care reform is, in fact, the most important domestic issue in America.
Public opinion polls by The Wall Street Journal/ NBC News, the Kaiser Foundation
and The New York Times all document its significance. In the latest Wall Street
Journal/NBC News poll, for example, 52 percent of Americans "say the economy and
health care are most important to them in choosing a president, compared with 34
percent who cite terrorism and social and moral issues.... That is the reverse
of the percentages recorded just before the 2004 election. The poll also shows
that voters see health care eclipsing the Iraq war for the first time as the
issue most urgently requiring a new approach." 1
Many businesses now cite health care costs as their biggest economic challenge.
Indeed, EDS is a member of the Business Roundtable, whose president, John
Castellani, has called health care reform a top priority for business and
Congressional action." 2 In September, the CEOs of Kelly Services and Pitney
Bowes, Inc, together with GE's Global Health Director, called on Congress to
enact health care reform.3 They joined other leading business coalitions,
including the National Coalition on Health Care and the National Business Group
on Health. The latter's membership consists of 245 major companies, including 60
of the Fortune 100.4 Each organization maintains that the cost of health care
for business is now greater than it should be and will continue to rise as long
as 47 million Americans who have no health insurance remain without coverage.
Other leading business organizations have recently announced their support for
health care reform: Divided We Fail, a coalition of the AARP, the Business
Roundtable, the Service Employees International Union (SEIU) and the National
Federation of Independent Business, states that it will "make access to quality,
affordable health care and long-term financial security top issues in the
national political debate." 5 In addition, Wal-Mart has joined with SEIU,
calling on Congress to enact health care reform.6
Underscoring the significance of health care reform as a major social policy
issue, the American Cancer Society has taken the unprecedented step of
redirecting its entire $15 million advertising budget "to the consequences of
inadequate health care coverage" in the United States.7
B. Health industry affiliated director conflicts on health care reform are
significant social policy issues.
Health industry affiliated director conflicts of interest are themselves a
significant policy issue in the media and in Congress. During Congressional
consideration of amendments to the Hatch-Waxman Act, for example, directors at
both Verizon and Georgia-Pacific were instrumental in terminating each company's
support for and involvement in Business for Affordable Medicine, a business
coalition supporting federal legislation to strengthen the Act.8 The coalition
had been organized by the governors of 12 states, Verizon, Georgia-Pacific and
other major corporations to reduce expenditures on prescription drugs, a major
problem for business and state Medicaid programs. The Congressional Budget
Office estimated that the legislation would reduce total spending on
prescription drugs by $60 billion, or 1.3 percent, over the next 10 years. An
examination of Verizon's proxy revealed that its CEO, Ivan Seidenberg, the
chairman of its Human Resources Committee, Walter Shipley, John R. Stafford,
retired CEO of Wyeth, and Richard L. Carrion, were each directors of Wyeth,
which lobbied Verizon to end its involvement in the coalition.9
At General Motors, where health care costs have long been a central concern,
three of the eleven independent directors on the board are directors of
pharmaceutical companies. The Company's Presiding Director, George Fisher, also
serves as a director of Eli Lilly and Company. Percy N. Barnevik, a director
since 1997, retired as CEO of AstraZeneca PLC in 2004 and serves as Chairman of
GM's Public Policy Committee. Director Karen Katen retired as executive vice
president of Pfizer in 2007, served as an officer of PhRMA and continues to
serve as chair of the Pfizer Foundation. Each director's holdings in Eli Lilly,
AstraZeneca and Pfizer, respectively, vastly outweigh his or her holdings in GM.
In 2007, The New York Times reported that GM was the only U.S. auto company
purchasing the brand-name drug, Nexium, manufactured by AstraZeneca, at a cost
to GM of $110 million per year. Senior management and labor leaders at GM had
decided to eliminate Nexium from the GM formulary.10 That decision was
overturned, according to senior labor and management leaders at GM, after the GM
board of directors reviewed it. At the same time, and despite its extensive
federal legislative activity, GM failed to take any action to support
legislation to reform the Medicare prescription drug program to require
prescription drug price negotiations between pharmaceutical companies and the
federal government.11
Conflicts of interest among health industry affiliated directors have also been
documented by Chrysler Corporation's former vice president of public policy,
Walter B. Maher. Writing in the American Journal of Public Health, Maher
described how "a representative of the insurance industry" [the CEO of
Prudential Insurance] successfully blocked Chrysler Corporation's efforts to
persuade Business Roundtable members to support health care reform." 12
At least 21 major companies (Attachment "A"), including EDS, have multiple
health industry affiliated directors serving on their boards of directors.13
Electronic Data Systems' directors W. Roy Dunbar, S. Malcom Gillis, Ellen M.
Hancock, Edward A. Kangas and David R. Yost also serve as directors of Humana,
Introgen Therapeutics, Aetna, Tenet Healthcare Corporation, and PharMerica,
respectively, and Company Board Chairman, Michael H. Jourdan, was a director of
Aetna until 2007. Directors Dunbar, Hancock and Yost have holdings in health
insurance or pharmaceutical companies that outweigh their holdings in the
Company. EDS, in fact, contracts with Aetna for health insurance for its
employees. The Company's Addendum to the EDS Code of Business Conduct for
Directors has never been invoked to prevent health industry affiliated directors
from reviewing and selecting Company managers responsible for EDS contracts with
Aetna.
At the same time Proponent filed the Proposal at EDS, Proponent filed virtually
identical public policy conflicts of interest proposals for health industry
affiliated directors at the American Express Company and the McGraw-Hill
Companies. Rather than seek the Commission's approval to exclude the proposal,
American Express and McGraw-Hill commenced a dialogue with the Proponent and
have now each agreed to revise their board if directors codes of conduct
accordingly. As a result, the Proponent has agreed to withdraw the proposals at
American Express and McGraw-Hill.
III. Analysis
A. The Proposal presents a significant public policy issue that is not a matter
of ordinary business before EDS.
Rule 14a-8(i)(7) permits a company to exclude a proposal if it "deals with a
matter relating to the company's ordinary business operations." The Commission
has stated that a proposal that is otherwise excludable under the ordinary
business exclusion is includable, however, if it raises a significant policy
issue. (Securities Exchange Act Release No. 40,018 (May 21, 1998)).
EDS appears to have ignored the fact that the Proposal specifically states that
the Proposal urges the Board to adopt a policy addressing:
conflicts associated with company involvement in public policy issues related to
their [directors'] health industry affiliations and shall be explicitly
integrated with the company's existing policies regarding related party
transactions (emphasis added).
Instead, the Company repeatedly misconstrues the Proposal as a broad conflicts
of interest policy request. It is not. It focuses on conflicts associated with
Company involvement in public policy issues related to the health industry
affiliations of directors. Moreover, the Company cites Commission decisions in
support of its request to exclude the Proposal that are inapposite:
Chrysler Corporation, 1998 SEC No-Act. LEXIS 282 (February 18, 1998), involved a
proposal requesting that the board initiate a review of the company's code or
standards for its international operations and prepare a report to be made
available to shareholders by September 1998. The Commission noted that "the
balance of the proposal and supporting statement appears to address matters
outside the scope of ordinary business," but since it included one paragraph
that related to ordinary business matters, the proposal could not be revised by
the proponents and could, therefore, be excluded. The Proposal before EDS
contains no such paragraph and is clearly focused on public policy issues.
Lockheed Martin Corporation, 1997 SEC No-Act. LEXIS 208 (January 29, 1997), was
a proposal that mandated the board of directors to evaluate whether the company
had a legal compliance program that adequately reviewed conflicts of interest
and the hiring of former government officials and employees and to prepare a
report on its findings. There was nothing in the Lockheed proposal that focused
on public policy issues. Instead, the Lockheed proposal called for a broad
review of the company's ordinary business operations.
AT&T Corporation, 1996 SEC No-Act. LEXIS 41 (January 16, 1996), involved a
proposal asking the board of directors to initiate a review of the standards and
practices in the company's maquiladora operations and prepare a report to be
made available to shareholders, including recommendations for changes. The
Proposal before EDS contains no call for a report or a review of its standards
and practices on labor and production operations. The Proposal is a clear
request for a conflicts of interest policy dealing with public policy issues
before the board of directors.
NYNEX Corporation, 1989 SEC No-Act. LEXIS 95 (February 1, 1989), was a proposal
calling for the formation of a special committee of the board of directors to
revise the existing code of corporate conduct. The proposal called for special
assistance to needy customers and safety protections for company employees. The
Proposal before EDS is narrowly focused on public policy issues related to
directors with health industry affiliations.
Commission decisions in both McDonald's Corporation, 2007 SEC No-Act. LEXIS 378
(March 22, 2007), and Costco Wholesale Corporation, 2004 SEC No-Act. LEXIS 806
(October 26, 2004), are relevant to the Proposal before EDS. Like EDS,
McDonald's and Costco each cited "ordinary business operations," to exclude
proposals on significant social policy issues that called for the adoption of a
company code of conduct. The Staff denied each company's request.
B. EDS has failed to demonstrate that it has substantially implemented the
Proposal because it neither addresses significant public policy issues in its
Code of Conduct, nor does it prescribe appropriate action to remedy the
conflict.
The Company would have the Commission believe it has substantially implemented
the Proposal, thereby permitting its exclusion under Rule 14a-8(i)(10). A
comparison of the Proposal and EDS' Code of Conduct clearly shows that the
Company has not adopted what the Proposal calls for, namely, a policy addressing
conflicts associated with company involvement in public policy issues related to
directors' health industry affiliations. The Proposal further states that the
new policy should be explicitly integrated with the Company's existing policies
on related party transactions.
EDS cites its existing Code of Conduct to support its claim that it has
substantially implemented the Proposal. But the EDS Code is focused exclusively
on business transactions, not public policy. Moreover, the EDS policy is merely
conditional. It does not require directors to take action to protect
shareholders. The EDS Code of Conduct is entirely silent on significant policy
issues. It neither describes nor does it recognize such issues. It does not deal
with the fact that EDS directors with health industry affiliations are in a
position to influence, lead or produce Company decisions on significant policy
matters in which they have a conflict of interest. The EDS Code of Conduct
leaves any reporting or remedial action entirely up to the individual director.
The Proposal, however, would require directors to not only disclose conflicts of
interest on significant policy matters affecting their health care interests,
but it would include a requirement, if adopted by the board, that directors
refrain from chairing meetings discussing such policies and recuse themselves
from voting on significant policy matters affecting their health industry
affiliations.
The Company cites Texaco, Inc., 1991 SEC No-Act. LEXIS 500 (March 28, 1991), in
support of its claim that it may exclude the proposal because it has been
substantially implemented. In Texaco, however, the company was able to
convincingly demonstrate that it had an external review process in place that
was almost identical to the "Valdez Principles" called for in the proposal. EDS
cannot make such a claim. Its Code of Conduct neither addresses the public
policy matters described by the Proposal, nor does it require any action by
directors to protect shareholders from conflicts of interest by health industry
affiliated directors. EDS states that its Code of Conduct is "intentionally
broad enough to cover a potential conflict of interest related to health care
affiliations or any other matter." Yet the very breadth and conditionality of
the EDS Code point to its failure to substantially implement the Proposal. The
EDS Code, in fact, contains a glaring loophole, which the Proposal is designed
to correct. In contrast, the Proposal's plain language urges the board of
directors to both address significant policy issues and require action by health
industry affiliated directors not addressed by the EDS Code.
In Nordstrom Inc., 1995 SEC No-Act. LEXIS 226 (February 8, 1995), the company
was able to show that its own code of conduct was virtually identical to the
language of the proposal. EDS makes no such claim. The Company maintains that
the broad language of its Code is inclusive when it is, in reality, a loophole
that permits conduct by health industry affiliated directors that harm the
rights of shareholders.
The Gap, Inc., 1996 SEC No-Act. LEXIS 337 (March 8, 1996), also involved a
company code of conduct that covered each and every activity described in the
proposal before the company. Here, EDS makes the claim that its Code of Conduct
covers public policy issues before the Company, but there is nothing in the Code
that demonstates that it covers anything other than commercial transactions.
Finally, EDS cites Masco Corporation, 1999 SEC No-Act. LEXIS 390 (March 29,
1999), in support of its request to exclude the Proposal. Yet a review of that
decision reveals that Masco's board of directors had announced its intention to
approve a resolution in substantially the form submitted by the proponent. EDS
proposes to take no action whatsoever. Indeed, EDS wrongly contends that it has
already taken the actions requested by the Proposal, when the Company's own Code
demonstrates that it has not done so.
IV. Conclusion
EDS has failed to meet its burden of demonstrating that it is entitled to
exclude the Proposal under Rule 14a-8(g).
The Proposal is inherently a significant social policy issue that transcends
day-to-day business matters at EDS. It is, therefore, not excludable under Rules
14a-(i)(7) and 14a-8(j).
A review of the EDS Code of Conduct with respect to Company involvement in
public policy issues related to their health industry affiliations clearly shows
that EDS has not substantially implemented the Proposal. It may not be excluded
under Rules 14a-8(i)(10) and 14a-8(j).
Consequently, since EDS has failed to meet its burden of demonstrating that it
is entitled to exclude the Proposal under Rule 14a-8(g), the Proposal should
come before EDS' shareholders at the 2008 annual meeting.
If you have any questions or need additional information, please do not hesitate
to call me at 202-637-5335. I have enclosed six copies of this letter for the
Staff, and I am sending a copy to Counsel for the Company.
Sincerely,
/s/
Robert E. McGarrah, Jr.
Counsel
Office of Investment
REM/ms opeiu, #2, afl-cio
cc: David B. Hollander, Legal Manager, EDS Corporate Acquisitions and Finance
-----FOOTNOTES-----
1 The Wall Street Journal, December 4, 2007, p Al.
2 "Business Roundtable Unveils Principles for Health Care Reform," Press
Release, June 6, 2007,
http://www.businessroundtable.org//newsroom/document.aspx?qs=5886BF807822BOF19D5448322FB51711FCF50
C8. Accessed December 4, 2007.
3 Presentations by Carl Camden, CEO, Kelly Services; Michael Critelli, Chairman
and CEO, Pitney Bowes, Inc.; and Robert Galvin, M.D., Director, Global Health,
General Electric Corporation, at Conference on Business and National health care
Reform, sponsored by the Century Foundation and the Commonwealth Fund,
Washington, DC, September 14, 2007.
4 "National Health Care Reform: The Position of the National Business Group on
Health," National Business Group on Health, Washington, DC (July, 2006),
http://www.businessgrouphealth.org/pdfs/nationalhealthcarereformpositionstatement.pdf.
(Accessed December 4, 2007).
5 The Wall Street Journal, November 13, 2007, p. B4.
6 The New York Times, February 7, 2007.
7 The New York Times, August 31, 2007.
8 The New York Times, September 4, 2002.
9 Verizon Communications, SEC Def. 14A, 2003.
10 The New York Times, October 5, 2007.
11 Correspondence: John J. Sweeney, President, AFL-CIO, and G. Richard Wagoner,
CEO, General Motors Corporation, June 14, 2007 and August 8, 2007.
12 Maher, W.B., "Rekindling ReformHow Goes Business?" 93 Am J Pub Health 92
(2003).
13 Letter and Report to SEC Chairman Christopher Cox from AFL-CIO Office of
Investment Director, Daniel F. Pedrotty, October 4, 2007.
[STAFF REPLY LETTER]
January 24, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Electronic Data Systems Corporation Incoming letter dated December 14, 2007
The proposal requests that the board adopt a policy addressing conflicts of
interest involving board members with health industry affiliations, including
conflicts associated with company involvement in public policy issues related to
these affiliations.
There appears to be some basis for your view that EDS may exclude the proposal
under rule 14a-8(i)(7), as relating to EDS's ordinary business operations (i.e.,
terms of its conflicts of interest policy). Accordingly, we will not recommend
enforcement action to the Commission if EDS omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(7). In reaching this position, we have
not found it necessary to address the alternative basis for omission upon which
EDS relies.
Sincerely,
/s/
Craig Slivka
Attorney-Adviser
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