Company Name: Exxon Mobil Corp.
Public Availability Date: January 31, 2008Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[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: Shareholder Proposal of Lucian Bebchuk Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, Exxon Mobil Corporation (the
"Company"), intends to omit from its proxy statement and form of proxy for its
2008 Annual Meeting of Shareholders (collectively, the "2008 Proxy Materials") a
shareholder 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 Proponents.
Rule 14a-8(k) provides that shareholder proponents are required to send
companies a copy of any correspondence that the proponents elect to submit to
the Commission or the staff of the Division of Corporation Finance (the
"Staff"). Accordingly, we are taking this opportunity to inform the Proponent
that if 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:
It is hereby RESOLVED that Article I of the corporation's by-laws is hereby
amended by adding the following new Section 8:
Section 8. Shareholder Proposals for a By-Law Amendment.
To the extent permitted under federal law and state law, the corporation shall
include in its proxy materials for an annual meeting of shareholders 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
shareholders to vote with respect to such a qualified proposal on the
corporation's proxy card. For a proposal to be qualified, the following
requirements must be satisfied:
(a) The proposed by-law amendment would be legally valid if adopted;
(b) The proponent submitted the proposal and supporting statement to the
corporation's Secretary by the deadline specified by the corporation for
shareholder 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 corporation's outstanding common stock for at least one year, and
did not submit other shareholder proposals for the annual meeting;
(d) The proposal and its supporting statements do not exceed 500 words;
(e) The proposal does not substantially duplicate another proposal previously
submitted to the corporation by another proponent that will be included in the
corporation'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 shareholders at any time during the preceding three calendar
years and failed to receive at least 3% of the votes cast when so considered.
This by-law shall be effective immediately and automatically as of the date it
is approved by the vote of shareholders in accordance with Article IX of the
corporation's by-laws.
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 Rules
14a-8(i)(1), (2), (3), (7), (8) and (10) for the reasons discussed below.
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 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
shareholder proposals that evade Rule 14a-8's limitations and the Commission's
disclosure requirements. Rule 14a-8(i)(3) permits the exclusion of a shareholder
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 shareholders without the disclosures required under the
Commission's proxy rules; and (2) creating a new unregulated shareholder
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 inconsistent
with the Commission's proxy rules.
We note that, under the Proposal, any Qualified Proposal submitted to the
Company needs to be "legally valid if adopted"; that is, valid under state law.
Thus, the issue here is not whether any particular Qualified Proposal that could
be brought before the Company's shareholders as a result of implementation of
the Proposal would be permissible under state law. As discussed below, we
believe that the process the Proposal would establish for presenting a Qualified
Proposal for a shareholder vote violates the proxy rules and state law. The
"legally valid" provision of the Proposal does not remedy the Proposal's
deficiencies in this regard.
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-8,1 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
shareholder. 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.2 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." 3
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 shareholders who submit them.
The Proposal thus would establish a process through the Company's By-Laws 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.4 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.5 Those
required disclosures include important information that is necessary for
shareholders to make an informed decision about the proposal, including
information on the person who is making the solicitation6 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.7
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 shareholders 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 shareholders. 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 shareholder 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.8 In
addition, as discussed in part I.C. below, the Commission previously has
affirmatively acted to prevent shareholders from circumventing the Commission's
proxy disclosure rules through a process similar to that which the Proposal
seeks to establish.9 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 shareholders 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
shareholder 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 shareholder 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 contains 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 shareholders 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), when a shareholder has timely
notified a company that it intends to present a proposal at the company's annual
meeting, the company may advise shareholders of the proposal by including the
proposal in its proxy statement, but need not provide for voting on the proposal
through the company's proxy card, and may exercise discretionary voting
authority to vote as the company sees fit on the proposal unless the proponent
takes the actions set forth in Rule 14a-4(c)(2).
Alternatively, the Company could inform a shareholder 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 shareholder
separately files a proxy statement with the Commission in compliance with Rule
14a-3.
Finally, the Company could inform a shareholder that it would permit a Qualified
Proposal to be included in the Company's proxy materials if the Qualified
Proposal also satisfied all of the standards under Rule 14a-8 and the
shareholder relied on that rule in submitting the Qualified Proposal to the
Company.
Applying any of these approaches under the savings clause therefore removes the
ability of a shareholder to use the Company's proxy statement and proxy card to
solicit on behalf of a Qualified Proposal and results in the shareholder 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.10 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).11 Accordingly, the savings clause does not save the
Proposal from exclusion.
C. The Proposal Creates a New, Wholly Unregulated System for Submitting
Shareholder Proposals That Violates Rule 14a-8.
The Proposal is inconsistent with the mechanism the Commission has designed for
inclusion of shareholder proposals in company proxy materialsRule 14a-8. The
Proposal would establish a wholly unregulated mechanism that removes a critical
provision under Rule 14a-8the right of a company to seek to exclude a proposal
that is not a proper proposal under Rule 14a-8and bypasses the oversight of the
Commission by permitting shareholders to submit Qualified Proposals that must be
included in the Company's proxy materials and that the Company's shareholders
would vote on without any opportunity for Commission involvement. The Proposal
would permit any shareholder holding the requisite number of shares to submit a
Qualified Proposal at any annual meeting subject to a limited number of
exceptions. The Proposal eliminates the vast majority of the exclusions
permitted by Rule 14a-8, thereby requiring the Company to include in its proxy
materials shareholder proposals that otherwise would be excludable under Rule
14a-8.
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 shareholder, or to further a personal interest of the
shareholder, which is not shared by the other shareholders at large (Rule
14a-8(i)(4)).12 The Proposal likewise eliminates many of the other exclusions in
Rule 14a-8 that were adopted by the Commission after thoughtful deliberation.13
The Proposal's requirement that the Company include shareholder proposals in the
Company's proxy materials that are excludable under Rule 14a-8 flatly
contravenes the carefully balanced shareholder proposal framework that the
Commission has established under Rule 14a-8, where both shareholders and the
Company have rights in determining whether shareholder proposals are included in
the Company's proxy statement.
The Commission previously has addressed the possibility of shareholders evading
Rule 14a-8. For example, in 1998, the Commission amended Rule 14a-4 to ensure
that shareholders seeking to obtain a vote on a non-Rule 14a-8 shareholder
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, the amendment required a proponent of a 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 shareholder 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
shareholders 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." Thus, the Commission's actions evidence its
intent to prevent the submission of shareholder proposals that attempt to evade
the Commission's established Rule 14a-8 mechanisms.
In addition, the Commission and the Staff have noted repeatedly 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 shareholder 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 shareholder proposal proper under state law, except those involving the
election of directors, based on a determination that "federal provision of [a
shareholder 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
noaction letter process, stating: "[s]ome of the proposals we are not adopting
share a common theme: to reduce the Commission's and its [S]taff'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 adopt rules that reduce the Commission's oversight role
in the shareholder proposal process would make no sense if shareholders could
use 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 shareholders 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 shareholder 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 implement a mechanism for shareholders to submit amendments to
the company's by-laws that bypasses the Commission's carefully crafted
regulatory framework. 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.
Similarly, the Staff has long maintained that a proposal does not become
permissible simply by being framed as a by-law amendment where the subject
matter of the proposal is such that exclusion of the proposal is permitted under
Rule 14a-8. See The Chase Manhattan Corp. (avail. Mar. 4, 1999); Shiva Corp.
(avail. Mar. 10, 1998). The Proposal is explicit in providing that the Company
would be required to include in its proxy materials Qualified Proposals
addressing subject matters that may be excluded under Rule 14a-8. Consequently,
shareholders who would not be permitted to have their proposals included in the
Company's proxy materials under Rule 14a-8 could simply re-characterize their
proposals as By-Law amendments and submit them as Qualified Proposals, and the
Company, under the terms of the Proposal, would be required to include these
proposals in its proxy materials. Consistent with the Staff's treatment of other
by-law amendment proposals under Rule 14a-8, the Proposal cannot be used to
circumvent the categories of proposals which, under the provisions of Rule
14a-8(i), the Commission has determined may be excluded from a company's proxy
materials, and therefore the Proposal is excludable under Rule 14a-8(i)(3).
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 shareholder 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
shareholder 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." Although not
limited to Qualified Proposals relating to proxy access, the Proposal would
permit shareholders 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.14
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 Exchange Act Release
No. 56914 (Dec. 6, 2007) (the "Adopting Release"). By doing so, the Commission
re-codified its longstanding position that shareholder 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." 15 In the 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 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 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 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 [S]taff'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 amends the By-Laws to include a shareholder By-Law
process, which provides that the Company shall include in its proxy materials
and allow shareholders to vote on "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 Proposal would amend the Company's By-Laws to require the Company
to include Qualified Proposals in the form of a proxy access proposal requiring
the names of shareholder-nominated director candidates to be included in the
Company's proxy materials. 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 Adopting Release,
the proxy rules "do not contemplate the presence of competing nominees in the
same proxy materials."
The Proposal further 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 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 establishes 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 shareholder 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 shareholder oversight. The second
consideration is "the degree to which the proposal seeks to `micro-manage' the
company by probing too deeply into matters of a complex nature upon which
shareholders, as a group, would not be in a position to make an informed
judgment."
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 shareholder
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
shareholders, 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
shareholder 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 in the exclusion under Rule 14a-8(i)(7) of a
shareholder proposal seeking additional financial information); see also
Crescent Real Estate Equities Co. (avail. Apr. 28, 2004) (concurring with the
exclusion of a shareholder 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, as noted in Section I.C. above, 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)"); see also The
Chase Manhattan Corp. (avail. Mar. 4, 1999); LTV Corp. (avail. Nov. 25, 1998);
Shiva Corp. (avail. Mar. 10, 1998, exclusion aff'd May 1, 1998).
Thus, the Commission and the Staff have confirmed that the Staff will look to
the underlying subject matter of a shareholder proposal, and will concur with
exclusion of a shareholder proposal in its entirety under Rule 14a-8(i)(7) where
the subject matter of the proposal addresses non-ordinary business matters but
also touches upon 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." 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 that the Company would
be required to include in its proxy materials Qualified Proposals dealing with
matters relating to the Company's ordinary business. For example, under the
procedures established by the Proposal, the Company would 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 shareholder oversight.16 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 shareholders that would
communicate with the company's board on shareholder 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
shareholders. Moreover, the Staff consistently has concurred that a company's
dealings and relationships with its shareholders 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
shareholder 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
shareholder 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 shareholders 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 amend its By-Laws to provide:
To the extent permitted under federal law and state law, the corporation shall
include in its proxy materials for an annual meeting of shareholders 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
shareholders to vote with respect to such a qualified proposal on the
corporation'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"; that is, valid under state law. Given the
uncertainty under state law regarding what constitutes a permissible by-law
amendment, shareholders 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 shareholder 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").
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, proposals often ask a
company to take certain actions by adopting 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 shareholder 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 shareholders 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 shareholders 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 shareholder proposals that the
Staff has concurred were 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) (shareholder
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
shareholders would not know what they were voting upon. Consistent with the
Staff's findings on numerous occasions, the Company's shareholders "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 shareholders "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).
V. The Proposal May Be Excluded under Rule 14a-8(i)(2) Because Implementation of
the Proposal Would Cause the Company To Violate State Law.
Rule 14a-8(i)(2) permits a company to exclude a shareholder proposal if
implementation of the proposal would cause it to violate any state, federal or
foreign law to which it is subject. The Company is incorporated under the laws
of the State of New Jersey. For the reasons set forth below and in the legal
opinion regarding New Jersey law from Day Pitney LLP, attached hereto as Exhibit
B (the "New Jersey Law Opinion"), the Company believes that the Proposal is
excludable under Rule 14a-8(i)(2) because, if implemented, the Proposal would
cause the Company to violate the New Jersey Business Corporation Act (the "NJBCA").
The Proposal would amend the Company's By-Laws to provide that "the corporation
shall include in its proxy materials for an annual meeting of shareholders 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
shareholders to vote with respect to such a qualified proposal on the
corporation's proxy card." Under section 14A:6-1(1) of the NJBCA, the business
and affairs of the Company are to be managed by the Board. The NJBCA further
requires that the notice of the annual meeting specify the purpose or purposes
of the meeting, and provides that only the business stated in the notice may be
transacted at the annual meeting. Thus, as stated in the New Jersey Law Opinion,
in light of the Board's power under the NJBCA to manage the business and affairs
of the Company, the Board "controls the notice of the annual meeting and the
business that comes before an annual meeting."
According to the New Jersey Law Opinion, "the power to require the board of a
New Jersey corporation to include a shareholder proposal in the notice for an
annual or special meeting can only extend to that required pursuant to [Rule
14a-8]." However, the Proposal, if implemented, would require inclusion of any
Qualified Proposal, even where such Qualified Proposal would otherwise be
properly excluded under Rule 14a-8. For example, as discussed above, under the
Proposal, the Company would be required to include in its proxy materials and
notice of annual meeting 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 shareholder, or to further a personal
interest of the shareholder, which is not shared by the other shareholders as
large. Thus, because the Proposal would require the Board to include in the
notice of the annual meeting such additional items of business (i.e.,
shareholder proposals the Company would be permitted to exclude from its proxy
materials under Rule 14a-8), as stated in the New Jersey Law Opinion, the
Proposal usurps the Board's authority to "establish the agenda for the annual
meeting of shareholders" in violation of the NJBCA.
The Staff previously has concurred with the exclusion, under Rule 14a-8(i)(2) or
its predecessor, of shareholder proposals that requested the adoption of a
by-law or charter amendment that was invalid because it would violate state law.
See, e.g., PG&E Corp. (avail. Feb. 14, 2006) (requesting the amendment of the
company's governance documents to institute majority voting in director
elections where Section 708(c) of the California Corporation Code required that
plurality voting be used in the election of directors); Hewlett-Packard Co.
(avail. Jan. 6, 2005) (recommending that the company amend its by-laws so that
no officer may receive annual compensation in excess of certain limits without
approval by a vote of "the majority of the stockholders" in violation of the
"one share, one vote" standard set forth in Delaware General Corporation Law
(the "DGCL") Section 212(a)); GenCorp Inc. (avail. Dec. 20, 2004) (concurring
with the exclusion of a proposal requesting an amendment to the company's
governing instruments to provide that every shareholder resolution approved by a
majority of the votes cast be implemented by the company, since the proposal
would conflict with Section 1701.59(A) of the Ohio Revised Code regarding the
fiduciary duties of directors); The Boeing Co. (avail. Mar. 4, 1999) (concurring
with the exclusion of a proposal requesting that every corporate action
requiring shareholder approval be approved by a simple majority vote of shares
since the proposal would conflict with provisions of the DGCL that require a
vote of at least a majority of the outstanding shares on certain issues);
Tribune Co. (avail. Feb. 22, 1991) (concurring with the exclusion of a proposal
requesting that the company's proxy materials be mailed at least 50 business
days prior to the annual meeting since the proposal would conflict with Sections
213 and 222 of the DGCL, which set forth certain requirements regarding the
notice of, and the record date for, shareholder meetings).
The Proposal would amend the Company's By-Laws to require that the Company
include in its proxy materials any Qualified Proposal to amend the Company's
By-Laws, including certain Qualified Proposals that otherwise would be
excludable under Rule 14a-8. However, as stated in the New Jersey Law Opinion,
the Board has the power to control the notice of the annual meeting, and "the
power to require the board ... to include a shareholder proposal in the notice
for an annual or special meeting can only extend to that required pursuant to
[Rule 14a- 8]."
Therefore, as the Proposal would require the Board to include in the meeting
notice Proposals that are otherwise excludable under Rule 14a-8, the Proposal is
excludable pursuant to Rule 14a-8(i)(2) because, as supported by the New Jersey
Law Opinion, the Proposal would restrict the Board's power to manage the
business and affairs of the Corporation in violation of New Jersey law.
VI. The Proposal May Be Excluded under Rule 14a-8(i)(1) Because the Proposal Is
Not a Proper Subject for Action by Shareholders under State Law.
Rule 14a-8(i)(1) permits the exclusion of a shareholder proposal if it is not a
proper subject for action by shareholders under the laws of the jurisdiction of
the company's organization. The Proposal asks the Company's shareholders to vote
on an amendment to the Company's By-Laws which attempts to accomplish a purpose
that New Jersey law permits to be achieved only by amending the Company's
Certificate of Incorporation. Consequently, the Proposal is an improper subject
for shareholder action and is excludable under Rule 14a-8(i)(1).
As discussed above, the Proposal seeks to amend the Company's By-Laws to
restrict the Board's power to manage the business and affairs of the Company by
restricting the Board's authority to control the notice for the annual meeting.
According to the New Jersey Law Opinion, the section of the NJBCA that
specifically permits the transfer of management authority from the Board to the
shareholders is not applicable to the Company because the Company is listed on
the New York Stock Exchange, a national securities exchange. Further, as stated
in the New Jersey Law Opinion, under New Jersey law, any restriction on the
Board's management authority "must be set forth in a corporation's certificate
of incorporation." In contrast, the Proposal seeks to restrict the powers of the
Board through a By-Law amendment. Because a restriction on the powers of the
Board can only be accomplished by an amendment to the Certificate of
Incorporation, as noted in the New Jersey Law Opinion, "restrictions on a
board's authority provided solely in a corporation's by-laws are invalid under
New Jersey law and of no force and effect." Therefore, the Proposal is not a
proper subject for action by the Company's shareholders under New Jersey law
because it attempts to achieve by an amendment to the Company's By-Laws that
which can only be achieved by an amendment to the Company's Certificate of
Incorporation.
We note also that this defect cannot be cured by permitting the Proponent to
revise the Proposal to characterize it as an amendment to the Company's
Certificate of Incorporation rather than its By-Laws. As the New Jersey Law
Opinion notes, "in order to amend the Certificate of Incorporation in the manner
contemplated by the Proposal, the Board must first approve the proposed
amendment and direct its submission to the shareholders, not the other way
around." In other words, "shareholders lack the authority to instruct the Board
to submit an amendment to the Certificate of Incorporation to the shareholders
for action."
Consequently, because any attempt by a shareholder to initiate an amendment to
the Certificate of Incorporation would violate New Jersey law, the Proposal's
defects cannot be cured by revision, and the Proposal may be excluded under Rule
14a-8(i)(1) as an improper subject for shareholder action under New Jersey law.
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) 955-8653 or James E. Parsons, Counsel in the Company's
Corporate and Securities Law Group, at (972) 444-1478.
Sincerely,
/s/
Amy L. Goodman
Enclosures
cc: James E. Parsons, Exxon Mobil Corporation
Lucian Bebchuk
-----FOOTNOTES-----
1 The Proposal would permit Qualified Proposals to be presented by persons who
do not qualify under Rule 14a-8for example, by shareholders 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-8for example, a Qualified Proposal that conflicts
with a proposal being introduced by the Company.
2 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
shareholder 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."
3 Exchange Act Release No. 39093 (Sept. 18, 1997) (text of Summary).
4 See Note 2, supra.
5 Rule 14a-7 does provide that in certain cases a registrant may elect to mail
copies of a shareholder's proxy statement, form of proxy or other soliciting
material to shareholders but, again, contemplates that the shareholder's
solicitation will be conducted through separate materials and not through the
registrant's proxy materials.
6 See Item 4 of Schedule 14A.
7 See Item 5 of Schedule 14A.
8 In 1982, the Commission proposed rules that would have permitted a company and
its shareholders to adopt a company-specific alternative procedure to govern the
shareholder 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).
9 See the discussion below of amendments adopted to Rule 14a-4 in the 1998
Release.
10 To be excludable under Rule 14a-8(i)(10), a shareholder 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).
11 For example, in Johnson & Johnson (avail. Feb. 17, 2006), the Staff concurred
in the exclusion of a shareholder 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 (the "IRCA") to
verify the employment eligibility of each employee and that it was further
required by the Immigration and Nationality Act (the "INA") 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 the IRCA and the
INA 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 a proposal could be
excluded under the predecessor to Rule 14a-8(i)(10) where the proposal requested
that the company disclose certain environmental compliance information and the
company represented that it complies fully with Item 103 of Regulation S-K,
which requires disclosure of substantially similar information); The Coca-Cola
Co. (avail. Feb. 24, 1988) (concurring that a proposal seeking, among other
things, that the company not make new investments or business relationships in
or within South Africa was substantially implemented where the company cited as
support for its implementation of that part of the proposal the fact that a
federal statute prohibited new investment in South Africa).
12 We note that because a Qualified Proposal would not be a Rule 14a-8 proposal
or a proxy contest, any solicitation made by the shareholder in support of the
Qualified Proposal about a matter in which the shareholder has a substantial
interest would not be exempt under Rule 14a-2 from the disclosures required by
the proxy rules. See Exchange Act Release No. 31326 (Oct. 16, 1992).
13 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 shareholders being required "to consider
matters which already have been favorably acted upon by the management."
Exchange Act Release No. 12598 (July 7, 1976). The Proposal also 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 shareholders at the same
meeting (Rule 14a-8(i)(9)), which would mislead shareholders as to the effect of
the proposal and result in shareholder confusion. In addition, as discussed in
more detail in Section III below, the Proposal would not permit the Company to
exclude a Qualified Proposal addressing ordinary business matters that the
Commission has stated are inappropriate subjects for shareholder oversight (Rule
14a-8(i)(7)). See 1998 Release.
14 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 shareholder 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 Exchange Act Release No. 56914
(Dec. 6, 2007) (the "Adopting Release") (reiterating and codifying the
Commission's longstanding interpretation after public comment).
15 Prior to its amendment, Rule 14a-8(i)(8) permitted the exclusion of a
shareholder 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.
16 Rule 14a-8(i)(7) is rooted in the state law provision that the business and
affairs of a company are to be managed by or under the direction of the board of
directors. As emphasized by the Commission in the 1998 Release, "[t]he general
underlying policy of this exclusion is consistent with the policy of most state
corporate laws: to confine the resolution of ordinary business problems to
management and the board of directors."
[APPENDIX 1]
December 12, 2007
VIA FACSIMILE AND OVERNIGHT MAIL
Mr. Henry H. Hubble
Secretary
Exxon Mobil Corporation
5959 Los Colinas Boulevard
Irving, TX 75039-2298
Re: Shareholder Proposal of Lacian Bebchuk
To Henry H. Hubble:
I am the owner of 50 shares of common stock of Exxon Mobil Corporation (the
"Company"), which I have continuously held for more than I 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 shareholders.
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.
Sincerely,
/s/
Lucian Bebchuk
[APPENDIX 2]
It is hereby RESOLVED that Article I of the corporation's by-laws is hereby
amended by adding the following new Section 8:
Section 8. Shareholder Proposals for a By-Law Amendment.
To the extent permitted under federal law and state law, the corporation shall
include in its proxy materials for an annual meeting of shareholders 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
shareholders to vote with respect to such a qualified proposal on the
corporation's proxy card. For a proposal to be qualified, the following
requirements must be satisfied:
(a) The proposed by-law amendment would be legally valid if adopted:
(b) The proponent submitted the proposal and supporting statement to the
corporation's Secretary by the deadline specified by the corporation for
shareholder 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 corporation's outstanding common stock for at lenst one year, and
did not submit other shareholder 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 corporation by another proponent that will be included in the
corporation'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 shareholders at any time during the preceding three catendar
years and failed to receive at least 3% of the votes cast when so considered.
This by-law shall be effective immediately and automatically as of the date it
is approved by the vote of shareholders in accordance with Article TX of the
corporation's by lawa.
SUPPORTING STATEMENT:
Statement of Professor Lucion Rebchuk: In my view, the ability to place
proposals for by-law amendments on the corporate ballot could in some
circumstances be essential for shareholders' ability to use their power under
state law to initiate by-law umendments. In the absence of ability to place such
a proposal on the corporate ballot the costs involved in obtaining proxies from
other shareholders could deter a shareholder from initiating a proposal even if
the proposal is one that would obtain shareholder 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 themto exclude proposals from the
corporate ballot. In my view, even when SEC rules may allow exclusion, it would
be desirable for the corporation to place on the corporate ballot proposals that
satisfy the requirements of the proposed by-law. I urge even shareholders who
believe that no changes in the corporation's by-laws are currently desirable to
vote for my proposal to facilitate shareholders' ability to initiate proposals
for by-law amendments to be voted on by their fellow shareholders.
I urge you to vote for this proposal.
[INQUIRY LETTER]
January 31, 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 Shareholder 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 Exxon Mobil Corporation (the "Company") could properly exclude from
its proxy materials for its 2008 Annual Meeting of Shareholders a shareholder
proposal and statements in support thereof (the "Proposal") received from Lucian
Bebchuk (the "Proponent").
Enclosed is a letter dated January 30, 2008, from the Proponent to the Company
stating that the Proponent voluntarily withdraws the Proposal (see Exhibit A),
and a letter dated January 30, 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) 955-8653 or James E. Parsons, Counsel
in the Company's Corporate and Securities Law Group, at (972) 444-1478 with any
questions in this regard.
Sincerely,
/s/
Amy L. Goodman
ALG/smr
Enclosure
cc: James E. Parsons, Exxon Mobil Corporation Lucian Bebchuk
[INQUIRY LETTER]
January 30, 2008
VIA FACSIMILE AND OVERNIGHT MAIL
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 2549
Re: Shareholder Proposal Submitted by Lucian Bebchuk for Inclusion in Exxon
Mobil Corporation's 2008 Proxy Statement
Ladies and Gentleman:
This letter is to inform you that our client Lucian Bebchuk has determined to
withdraw his proposal submitted to Exxon Mobil Corporation ("Exxon Mobil" or the
"Company") on December 12, 2007, for inclusion in the Company's proxy materials
for its 2008 annual meeting of shareholders (be "Annual Meeting"), and attached
as Exhibit A. A copy of Lucian Bebchuk's letter it forming Exxon Mobil is
attached as Exhibit B.
Sincerely,
/s/
Michael J. Barry
cc: Amy L. Goodman, Esquire (via fax)
[STAFF REPLY LETTER]
January 31, 2008
Amy L. Goodman
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5306
Re: Exxon Mobil Corporation
Dear Ms. Goodman:
This is in regard to your letter dated January 31,
2008 concerning the shareholder proposal submitted by Lucian Bebchuk for
inclusion in ExxonMobil's proxy materials for its upcoming annual meeting of
security holders. Your letter indicates that the proponent has withdrawn the
proposal, and that ExxonMobil 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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