Company Name: General Electric Co. (Bugzavich)
Public Availability Date: January 9, 2008
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER
[INQUIRY LETTER]
December 7, 2007
Direct Dial (202) 955-8671
Fax No. (202) 530-9569
Client No. C 32016-00092
VIA HAND DELIVERY
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Shareowner Proposal of Rita Bugzavich Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, General Electric Company ("GE"),
intends to omit from its proxy statement and form of proxy for its 2008 Annual
Shareowners Meeting (collectively, the "2008 Proxy Materials") a shareowner
proposal and statements in support thereof (the "Proposal") received from Rita
Bugzavich (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 GE intends to file
its definitive 2008 Proxy Materials with the Commission; and
concurrently sent copies of this correspondence to the Proponent.
Rule 14a-8(k) provides that shareowner 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 GE pursuant to Rule
14a-8(k).
THE PROPOSAL
The Proposal states:
The Stockholders request that the Board of Directors establish an independent
committee to prepare a report on the potential for damage to GE's brand name and
reputation as a result of the sourcing of products and services from the
People's Republic of China and make copies available to shareholders upon
request.
A copy of the Proposal, as well as related correspondence from 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 (i) Rule
14a-8(i)(7) because it pertains to GE's ordinary business operations, and (ii)
Rule 14a-8(i)(4) because it relates to the redress of a personal claim or
grievance against GE, and is designed to result in a personal benefit to the
Proponent.
ANALYSIS
I. The Proposal May Be Excluded under Rule 14a-8(i)(7) Because It Deals with
Matters Related to GE's Ordinary Business Operations.
Rule 14a-8(i)(7) permits the omission of a shareowner 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
underlying policy of 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." Exchange Act Release No. 40018
(May 21, 1998) (the "1998 Release"). In Staff Legal Bulletin No. 14C (June 28,
2005) ("SLB 14C"), the Staff stated that "[i]n determining whether the focus of
these proposals is a significant social policy issue, we consider both the
proposal and the supporting statement as a whole." While that statement was made
specifically with respect to proposals that address environmental or public
health issues, we understand that the statement reflects the standard generally
applied by the Staff in evaluating whether proposals may be excluded under Rule
14a-8(i)(7).
In the 1998 Release, the Commission described the two "central considerations"
for the ordinary business exclusion. The first was that certain tasks were "so
fundamental to management's ability to run a company on a day-to-day basis" that
they could not be subject to direct shareowner oversight. Examples of such tasks
cited by the Commission were "management of the workforce, such as the hiring,
promotion, and termination of employees, decisions on production quality and
quantity, and the retention of suppliers." The second consideration related to
"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 also has stated that a proposal requesting the dissemination of a
report may be excludable under Rule 14a-8(i)(7) if the substance of the report
is within the ordinary business of the issuer. See Exchange Act Release No.
20091 (Aug. 16, 1983). In addition, the Staff has indicated, "[where] the
subject matter of the additional disclosure sought in a particular proposal
involves a matter of ordinary business ... it may be excluded under rule
14a-8(i)(7)." Johnson Controls, Inc. (avail. Oct. 26, 1999).
For the reasons addressed below, the Proposal relates to GE's ordinary business
operations because: (A) the Proposal requests that GE engage in an internal
assessment of the risks or liabilities that GE faces as a result of its
operations; (B) the Proposal attempts to interfere with management's ability to
make decisions regarding vendor and supplier relations; (C) the Proposal relates
to GE's ordinary business decisions regarding management of the workforce; and
(D) the Proposal relates to the location of GE's operating facilities.
A. The Proposal Focuses on GE Engaging in an Internal Assessment of the Risks or
Liabilities That GE Faces as a Result of Its Operations.
The Proposal requests the Board of Directors to prepare a report evaluating "the
potential for damage" to GE's brand name and reputation "as a result of the
sourcing of products and services from the People's Republic of China."
Moreover, the Proposal's supporting statements refer to financial harms that GE
could face in this regard, referring to GE's brand name as "its most important
asset," claiming that "the value of a company's reputation may be as much as 40%
of its total market value" and warning of "potential product recalls" and
vulnerability to "consumer disaffection." Thus, the Proposal is excludable under
Rule 14a-8(i)(7) because it seeks an assessment of the financial risks arising
from GE's workforce and employment decisions, which are fundamental tasks in
management's obligation to run GE on a day-to-day basis.
It is well established that shareowner proposals seeking detailed information on
a company's assessment of the financial implications of aspects of its business
operations do not raise significant policy issues and instead delve into the
minutiae and details of the ordinary conduct of business. This line of
precedents was summarized in SLB 14C, in which the Staff stated: "To the extent
that a proposal and supporting statement focus on the company engaging in an
internal assessment of the risks or liabilities that the company faces as a
result of its operations ..., we concur with the company's view that there is a
basis for it to exclude the proposal under rule 14a-8(i)(7) as relating to an
evaluation of risk."
Previously, the Staff concurred that GE could exclude a shareowner proposal
substantially similar to the Proposal requesting that GE produce a report
"evaluating the risk of damage to GE's brand name and reputation" as a result of
outsourcing work to foreign countries (the "2005 Proposal"). The Staff concurred
with GE that the 2005 Proposal was excludable under Rule 14a-8(i)(7) as relating
to GE's ordinary business operations (i.e., evaluation of risk). See General Electric Co. (avail. Jan. 13, 2006). Just as the 2005 Proposal requested a
report on "the risk of damage to GE's brand name and reputation," the Proposal
here requests a report on "the potential for damage to GE's brand name and
reputation." Other recent precedent affirms the Staff's long-held position that
shareowner proposals requesting an evaluation of risk are excludable under Rule
14a-8(i)(7) because they deal with ordinary business operations. For example, in
Newmont Mining Corp. (avail. Jan. 12, 2006), the Staff concurred that the
company could exclude a proposal seeking a report on the company's operations in
Indonesia, including the "potential financial and reputational risk" arising
from such operations. In Union Pacific Corp. (avail. Feb. 21, 2007), the Staff
reaffirmed this position, concurring under Rule 14a-8(i)(7) that the company
could exclude a proposal requesting information relevant to the company's
efforts to safeguard operations and minimize financial risk arising from a
terrorist attack. In its response, the Staff stated that the proposal could
properly be excluded because it entailed an "evaluation of risk."
While the Proponent does not specifically use the word "risk," the substance of
the assessment sought in the Proposal is the same risk analysis of GE's vendor
and workforce employment decisions that were raised in the 2005 Proposal. This
conclusion is supported by the comparability of other statements in the 2005
Proposal that are repeated (at times verbatim) in the Proposal's supporting
statement, including references to potential damage to GE's reputation.1
Moreover, references in the Proposal's supporting statement to the risk of
"potential product recalls [turning] consumers away from goods" and "vulnerab[ility]
to consumer disaffection in the U.S." further emphasize the financial risks and
liabilities that the Proposal asks GE to assess.
The excludability of the Proposal is further supported by the Staff's responses
to other no-action requests which make it clear that the Staff looks beyond
whether the shareowner proposal refers specifically to an assessment of risk and
instead looks to the underlying focus of the proposal. For example, in Pulte
Homes Inc. (avail. Mar. 1, 2007), the Staff concurred that the company could
exclude as relating to "evaluation of risk" a proposal requesting that the
company "assess its response" to rising regulatory, competitive, and public
pressure to increase energy efficiency. See also Great Plains Energy Inc.
(avail. Feb. 27, 2007) (proposal demanding a "financial analysis of the impact"
of a carbon dioxide emissions tax excludable as calling for an evaluation of
risk); Wells Fargo & Co. (avail. Feb. 16, 2006) (proposal requesting a report on
the effect on Wells Fargo's business strategy of the challenges created by
global climate change called for an evaluation of risk); The Dow Chemical Co.
(avail. Feb. 23, 2005) (concurring with the exclusion under Rule 14a-8(i)(7) of
a shareowner proposal requesting a report describing the reputational and
financial impact of the company's response to pending litigation because it
related to an evaluation of risks and liabilities); American International
Group, Inc. (avail. Feb. 19, 2004) (concurring that the company could exclude a
proposal that requested the board of directors to report on "the economic
effects of HIV/AIDS, tuberculosis and malaria pandemics on the company's
business strategy," because it called for an evaluation of risks and benefits)
(emphasis supplied).
The Proposal is distinguishable from proposals that "focus on the company
minimizing or eliminating operations that may adversely affect the environment
or the public's health." In SLB 14C, the Staff addressed this "significant
social policy" exclusion and stated that, "[i]n determining whether the focus of
these proposals is a significant social policy issue, we consider both the
proposal and the supporting statement as a whole." Where a proposal does not
seek an internal assessment of the company's risks and liabilities arising from
operations, but instead focuses on the company acting to alter or eliminate
activities that have an adverse effect on the environment or that have other
significant social policy implications, it may not be properly excluded. For
example, in 3M Co. (avail. Mar. 7, 2006), a proposal which requested the board
to implement and/or increase activity on specific principles relating to human
and labor rights in the People's Republic of China could not be excluded. See
also McDonald's Corp. (avail. Mar. 16, 2001); Microsoft Corp. (avail. Sept. 14,
2000) (denying no-action relief with respect to two additional identical
proposals relating to "China principles"). In contrast, rather than focusing on
GE eliminating operations in China, the main focus of the Proposal is GE
engaging in an internal assessment of the risks and benefits GE faces as a
result of its sourcing decisions. Thus, the Proposal is comparable to the
proposal at issue in Newmont Mining Corp. (avail. Jan. 12, 2006), in which the
Staff concurred with the exclusion under Rule 14a-8(i)(7) of a shareowner
proposal requesting that management review operations in Indonesia and
referencing "potential financial and reputational risks incurred by the company
as an outgrowth of these operations" because the proposal related to "evaluation
of risk."
Based on the Staff's guidance in SLB 14C and the precedent discussed above
(including the Staff's response with respect to the 2005 Proposal), in
requesting a report "on the potential for damage to GE's brand name and
reputation," the Proposal focuses on "an internal assessment of the risks or
liabilities" that GE faces as part of its day-to-day operating decisions. Thus,
the Proposal addresses GE's ordinary business operations and is excludable under
Rule 14a-8(i)(7).
B. The Proposal Relates to Ordinary Business Matters Because It Attempts to
Micromanage Management's Decisions Relating to GE's Vendors and Suppliers of
Products and Services.
The Proposal addresses GE's day-to-day decisions regarding "the sourcing of
products and services," including products manufactured by GE personnel and
vendors. As noted above, the Commission explicitly stated in the 1998 Release
that "the retention of suppliers" is a task "so fundamental to management's
ability to run a company on a day-to-day basis" that they could not be subject
to direct shareowner oversight.
Similarly, the Staff has concurred with the exclusion of shareowner proposals
under Rule 14a-8(i)(7) as relating to ordinary business matters where the
proposal relates to decisions regarding vendor and supplier relationships. See,
e.g., Dean Foods Co. (avail. Mar. 9, 2007, recon. denied Mar. 22, 2007)
(permitting the omission of a shareowner proposal under Rule 14a-8(i)(7) that
requested the company report on its policies to address consumer and media
criticism of the company's production and sourcing practices as relating to
"customer relations and decisions relating to supplier relationships");
International Business Machines Corp. (avail. Dec. 29, 2006) (concurring that a
proposal regarding company practices with respect to vendors related to ordinary
business matters, specifically, "decisions relating to supplier relationships");
PepsiCo, Inc. (avail. Feb. 11, 2004) (concurring in the exclusion of a proposal
under Rule 14a-8(i)(7) relating to the company's relationships with different
bottlers because it involved "decisions relating to vendor relationships");
Seaboard Corp. (avail. Mar. 3, 2003) (permitting exclusion of a proposal under
Rule 14a-8(i)(7) regarding the company's policies relating to the use of certain
antibiotics at its facilities and those of its suppliers). Thus, shareowner
proposals that attempt to regulate aspects of a company's decision making
process with respect to its product sourcing activities and that improperly seek
to involve shareowners in day-to-day decisions regarding whether and when to use
vendors are excludable as relating to ordinary business matters. By analogy, the
Proposal may properly be excluded under Rule 14a-8(i)(7) because it attempts to
micro-manage GE's decisions relating to vendor relationships. In the supporting
statement, the Proponent notes GE's decision to produce goods in China "at GE
facilities or by Chinese vendors," references GE's "heavy dependence" on such
vendors, and asserts that "the Company's procurement from Chinese vendors
appears to exceed $5 billion [Taipei Times, 9/18/03]." Based on these
statements, it is clear that the Proposal seeks to micro-manage GE's vendor
selection process.
Additionally, the Staff consistently has granted no action relief where a
shareowner proposal relates to management's selection of specific suppliers or
vendors. See, e.g., Pfizer Inc. (avail Jan. 31, 2007) (relief granted where the
proposal requested "an annual formal review and presentation of advertising
agencies"); The Charles Schwab Corp. (avail. Feb. 23, 2005) (concurring with
exclusion of a proposal that sought shareowner ratification of independent
auditor); General Electric Co. (avail Jan. 5, 2005) (relief granted where
proposal sought shareowner ratification of board's selection of a transfer
agent/registrar). The above parties constituted "vendors" in that each company
contracted with or retained them in order to supply services. Thus, in the
above-cited letters, the Staff confirmed its position that a shareowner proposal
may be excluded under Rule 14a-8(i)(7) because it impermissibly attempts to
micro-manage management's decisions regarding the sourcing of its products and
services.
Accordingly, based on the precedent described above and the Proposal's emphasis
on ordinary business matters regarding vendor relationships, the Proposal may be
excluded in its entirety under Rule 14a-8(i)(7).
C. The Proposal Involves Ordinary Business Matters Because It Relates to
Employment Decisions and Employee Relations.
The Proposal's request for a report evaluating "the potential for damage to GE's
brand name and reputation as a result of the sourcing of products and services
from the People's Republic of China" addresses precisely the type of "management
of the workforce, such as the hiring, promotion, and termination of employees"
that the Commission identified in the 1998 Release as relating to ordinary
business operations. Decisions regarding the location of employees and sourcing
of goods implicate the type of fundamental and complex matters that are not
proper for shareowner proposals because they involve tasks that are fundamental
to management's ability to run GE on a day-to-day basis, and because they delve
too deeply into the complex operations of GE. Accordingly, as discussed further
below, the Staff has issued no-action action relief under Rule 14a-8(i)(7)
concurring that proposals addressing management of the workforceincluding
outsourcingconstitute ordinary business matters.
The Staff consistently has stated that shareowner proposals may be excluded
pursuant to Rule 14a-8(i)(7) where the proposals related to the company's
management of its workforce. In 2005, the Staff addressed seven identical
proposals relating to outsourcing/offshoring and concluded that they could be
excluded on Rule 14a-8(i)(7) grounds. See Boeing Co. (avail. Feb. 25, 2005);
Citigroup Inc. (avail. Feb. 4, 2005); Mattel, Inc. (avail. Feb. 4, 2005); SBC
Communications Inc. (avail. Feb. 4, 2005); Capital One Financial Corp. (avail.
Feb. 3, 2005); Fluor Corp. (avail. Feb. 3, 2005); General Electric Co. (avail.
Feb. 3, 2005). Those proposals requested that the companies issue a "Job Loss
and Dislocation Impact Statement" concerning the elimination of jobs and
relocation of jobs to foreign countries. Similarly, in International Business Machines Corp. (avail. Feb. 3, 2004; recon. denied Mar. 8, 2004), a proposal
requested that the company's board of directors "establish a policy that IBM
employees will not lose their jobs as a result of IBM transferring work to lower
wage countries." The Staff concurred with the exclusion of the proposal under
Rule 14a-8(i)(7) on the grounds that it related to "employment decisions and
employee relations."
The Proposal addresses exactly the same issue as each of the precedents cited
above: workforce management decisions. The emphasis on workforce management
decisions is evidenced by the Proposal's statements that "[t]wo in three
Americans think that job losses to China are a `serious issue,' [Greenberg
Quinlan Rosner Research, 2003]" and that "[t]he China price is forcing down
compensation for American workers [U.S.-China Economic and Security Review
commission, 1/11/2005]." As discussed above, in SLB 14C the Staff confirmed
that, "[i]n determining whether the focus of these proposals is a significant
social policy issue, we consider both the proposal and the supporting statement
as a whole." The foregoing quotes from the supporting statement make clear that
the Proposal implicates the issue of job loss, employment decisions and employee
relations. Thus, following the precedents cited above, we believe that the
Proposal properly may be excluded from the 2008 Proxy Materials under Rule
14a-8(i)(7).
D. The Proposal Involves Ordinary Business Matters Because It Relates to the
Location of GE's Operating Facilities.
GE has extensive operations around the world. As described in more detail in
GE's most recent Form 10-K (filed February 27, 2007), GE has operations in North
America, South America, Europe, Australia and Asia. As set forth in the press
release included as part of Exhibit B hereto, on October 4, 2007, GE announced a
global restructuring in its lighting business that would affect plants in
Mexico, Brazil and the U.S., including plans to close the plant where the
Proponent has worked due to a decrease in demand for the incandescent light
bulbs that the plant produces. The determination of where to operate its
business and develop its products is a part of the running of GE's operations
and within the scope of responsibilities of GE's management. In this regard, the
Staff consistently has concurred that a company's decisions about the location
and relocation of its manufacturing and other facilities are matters of ordinary
business. See, e.g., Minnesota Corn Processors, LLC (avail. Apr. 3, 2002)
(proposal requesting that the company build a new corn processing plant subject
to certain conditions was excludable under Rule 14a-8(i)(7) because it dealt
with "decisions relating to the location of [the company's] corn processing
plants); The Allstate Corp. (avail. Feb. 19, 2002) (concurring in the exclusion
of a proposal requesting that the company cease its operations in Mississippi);
MCI Worldcom, Inc. (avail. Apr. 20, 2000) (proposal requesting that an economic
analyses accompany future plans to relocate offices and facilities was
excludable because it related to the "determination of the location of office or
operating facilities"); McDonald's Corp. (avail. Mar. 3, 1997) (concurring in
the exclusion of a proposal requesting that the company take steps to prevent
the loss of public park lands when determining the location of new facilities
because the proposal dealt with the ordinary business decision of plant
location). These no-action letters demonstrate that GE's decisions with respect
to the location of its operating facilities is a matter of ordinary business.
The Proposal relates to decisions by GE regarding "sourcing of products and
services from the People's Republic of China." As with the shareowner proposal
discussed above, the Proposal seeks to micro-manage GE's decisions regarding
decisions relating to the location of GE's operations and, thus, is excludable
pursuant to Rule 14a-8(i)(7).
E. Regardless of Whether the Proposal Touches Upon Significant Social Policy
Issues, the Entire Proposal Is Excludable Due to the Fact That It Distinctly
Addresses Ordinary Business Matters.
The precedent set forth above supports our conclusion that the Proposal
addresses ordinary business matters and therefore is excludable under Rule
14a-(i)(7). We recognize that the Staff has concluded that certain
operations-related proposals may focus on sufficiently significant social policy
issues so as to preclude exclusion in certain circumstances. Nevertheless, the
Staff also has consistently concurred that a proposal may be excluded in its
entirety when it addresses both ordinary and non-ordinary business matters. Most
recently, the Staff affirmed this position in Peregrine Pharmaceuticals Inc.
(avail. July 31, 2007), stating that 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 could be excluded
under Rule 14a-8(i)(7) as relating to ordinary business matters. The Staff noted
"that the proposal appears to relate to both extraordinary transactions and
non-extraordinary transactions. Accordingly, we will not recommend enforcement
action to the Commission if Peregrine omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(7)." Similarly, in General Motors Corp.
(avail. Apr. 4, 2007), a proposal requesting that the board institute an
executive compensation program that tracks progress in improving the fuel
economy of GM vehicles was excludable under Rule 14a-8(i)(7). The Staff stated,
"[i]n this regard we note that while the proposal mentions executive
compensation, the thrust and focus of the proposal is on ordinary business
matters." See also Wal-Mart Stores, Inc. (avail. Mar. 15, 1999) (proposal
requesting a report to ensure that the company did not purchase goods from
suppliers using, among other things, forced labor, convict labor and child labor
was excludable in its entirety because the proposal also requested that the
report address ordinary business matters).
Therefore, we do not believe that it is necessary to consider whether the
Proposal may also touch upon significant policy issues, since the Proposal here
addresses ordinary business issues: an internal assessment of the risks or
liabilities that GE faces as a result of its operations, management's decisions
relating to vendors and suppliers, and job loss and employee relations issues
that arise as a result of management of the workforce. Thus, regardless of
whether aspects of the Proposal are considered to implicate a significant policy
issue, under well-established precedent, the entire Proposal may be excluded
because it also addresses ordinary business matters within the scope of Rule
14a-8(i)(7). In this respect, the IBM letter again is directly on point.
II. The Proposal Is Excludable Under Rule 14a-8(i)(4) Because It Relates to the
Redress of a Personal Claim or Grievance Against GE, Which Is Not Shared by the
Other Shareowners at Large.
Rule 14a-8(i)(4) permits the exclusion of shareowner proposals that are (a)
related to the redress of a personal claim or grievance against a company or any
other person, or (b) designed to result in a benefit to a proponent or to
further a personal interest of a proponent, which other shareowners at large do
not share. As discussed below, the Proposal qualifies both as a personal
grievance against GE and as an attempt by the Proponent to obtain a personal
benefit that will not be shared with other GE shareowners.
The Commission has stated that Rule: 14a-8(i)(4) is designed to "insure that the
security holder proposal process [is] not abused by proponents attempting to
achieve personal ends that are not necessarily in the common interest of the
issuer's shareholders generally." Exchange Act Release No. 20091 (Aug. 16,
1983). The Proponent is impermissibly attempting to further her own interest
through the shareowner proposal process. The Proposal requests that the Board of
Directors establish an independent committee to prepare a report on the
potential for damage to GE's brand name and reputation as a result of GE's
practice of sourcing goods and services from China. The supporting statement
discusses "job losses to China" and asserts that the "China price is forcing
down compensation for American workers [US-China Economic and Security Review
Commission, 1/11/2005]." The Proponent, however, fails to disclose that she is
an employee of GE and local union officer who is concerned about her job at GE's
plant in Austintown, Ohio. On October 4, 2007, GE announced a global
restructuring in its lighting business that would affect plants in Mexico,
Brazil and the U.S., including plans to close the plant where the Proponent has
worked due to a decrease in demand for the incandescent light bulbs that the
plant produces. See Exhibit B. The closure will result in termination of the
Proponent's employment at GE. The Proponent has stated publicly that she blames
GE's practice of sourcing goods and services from China for the closure of her
plant: "We have nothing against the CFLs [energy-efficient compact fluorescent
lights].... What we want is for GE to make them in the United States." Exhibit
C. The Proponent also has stated that if pending reform legislation aimed at
eliminating the use of incandescent bulbs passes, "it will be the end of making
light bulbs in Ohio and the United States ... CFLs are made outside of this
country, primarily in China." Id. Because the Proposal is an attempt by the
Proponent to air her own personal grievance against GE,2 arguably in response to
the expected termination of her employment, the Proposal "is an abuse of the
security holder proposal process." As the Commission has stated, "[t]he cost and
time involved in dealing with [the proposal is therefore] a disservice to the
interests of the issuer and its security holders at large." Exchange Act Release
No. 19135 (Oct. 14, 1982). Thus, the Proposal should be excluded under Rule
14a-8(i)(4) because it relates to the redress of a personal grievance against
GE.
The Proposal is excludable as relating to redress of a personal claim or
grievance even if the Staff finds that the Proposal on its face involves a
matter of general interest to all shareowners. Exchange Act Release No. 19135
(Oct. 14, 1982) (stating that proposals phrased in broad terms that "might
relate to matters which may be of general interest to all security holders"
maybe omitted from a registrant's proxy materials "if it is clear from the facts
... that the proponent is using the proposal as a tactic designed to redress a
personal grievance or further a personal interest"). For example, in The Dow
Chemical Co. (avail. Mar. 5, 2003), a proposal was properly excluded where it
requested the board to "establish a Review Committee to investigate the use and
possible abuse of its carbon tetrachloride and carbon disulfide products as
grain fumigants by grain workers" and issue a report on how to compensate those
injured by the product. While the proposal on its face might have involved a
matter of general interest, the Staff granted no-action relief because the
proponent was pursuing a lawsuit against the company on the basis of an alleged
injury purportedly tied to the grain fumigants. See also MGM Mirage Inc. (avail.
Mar. 19, 2001) (averring that proposal to require the company to adopt a written
policy regarding political contributions and furnish a list of any of its
political contributions was excludable under Rule 14a-8(i)(4) when submitted by
a proponent who had filed a number of lawsuits against the company based on its
decisions to deny the proponent credit at the company's casino and,
subsequently, to bar the proponent from the company's casinos). As in each of
those cases, it is clear from the facts that the Proponent is using this
Proposal as a tactic to seek redress for her personal grievance.
In Exchange Act Release No. 19135, the Commission stated that a proposal also is
excludable under Rule 14a-8(i)(4) if it is used to give the proponent some
particular benefit or to accomplish objectives particular to the proponent. The
Proposal may properly be excluded under Rule 14a-8(i)(4) because it seeks to
further a personal, financial interest of the Proponent, which is not shared by
other shareowners. The Proponent seeks to have GE evaluate its China operations
because she claims that such operations are resulting in the termination of her
employment. According to the statements cited above, the Proponent asserts that
the closure of the plant where she is employed is a direct result of increased
production in China. The Proposal is aimed at protecting the Proponent's
employment and its purpose, therefore, is not one which other security holders
share. Because the Proposal is designed to produce a financial benefit for the
Proponent that would not be shared by GE's shareowners at large, it is
excludable under Rule 14a-8(i)(4).
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff concur
that it will take no action if GE 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, GE
agrees to promptly forward to the Proponent's representative any response from
the Staff to this no-action request that the Staff transmits by facsimile to GE
only.
If we can be of any further assistance in this matter, please do not hesitate to
call me at (202) 955-8671, my colleague Elizabeth A. Ising at (202) 955-8287 or
David M. Stuart, GE's Senior Counsel, at (203) 373-2243.
Sincerely,
/s/
Ronald O. Mueller
ROM/ggw
Enclosures
cc: David M. Stuart, General Electric Company
Rita Bugzavich
-----FOOTNOTES-----
1 For example, both the Proposal and the 2005 Proposal state that "[k]ey GE
products," including "goods by which the Company has developed its global
reputation for decades, are increasingly manufactured or serviced in China."
Furthermore, both the Proposal and the 2005 Proposal suggest that concerns may
arise about the risk to GE resulting from its sourcing decisions, including the
risk of damage to GE's reputation: "GE's brand name may be its most important
asset;" "the value of a company's reputation may be as much as 40% of its total
market value;" "Company reputations affect consumer purchases;" and "reputation,
once lost, is extremely difficult to reclaim."
2 The Proponent has not indicated that the Proposal is submitted on behalf of
the International Union of Electrical WorkersCommunication Workers of America.
[INQUIRY LETTER]
January 7, 2008
By Express Mail and Electronic Mail (cfletters@sec.gov)
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Request of General Electric Company for a No-Action Letter With Respect to
the Shareholder Proposal of Rita Bugzavich
Ladies and Gentlemen:
I. Introduction
This letter is submitted in response to the claim of the General Electric
Company ("GE"), in a letter dated December 7, 2007, that it may exclude the
shareholder proposal of Rita Bugzavich from its 2008 proxy materials. The
Proposal states that:
"The Stockholders request that the the Board of Directors establish an
independent committee to prepare a report on the potential for damage to GE's
brand name and reputation as a result of the sourcing of products and services
from the People's Republic of China and make copies available to shareholders
upon request."
Under Commission Rule 14a-8(g), "the burden is on the company to demonstrate
that it is entitled to exclude a proposal." (emphasis added). For the reasons
set forth below, the proponent submits that GE has failed to meet its burden of
demonstrating that it is entitled to exclude the Proposal from its 2008 proxy
materials.
II. GE Has Failed to Demonstrate That the Proposal Involves Ordinary Business
Operations Within the Meaning of Rule 14a-8 (i)(7).
GE claims that it is entitled to omit the Proposal from its 2008 proxy materials
on the basis of Rule 14a-8(i)(7). This Rule permits a company to exclude a
shareholder proposal if it "deals with a matter relating to the company's
ordinary business operations."
A. The Proposal Transcends the Realm of Ordinary Business Operations, Because It
Deals With Matters of Business Strategy And Long-Term Goals
Since 1992, the Commission has determined that shareholder proposals transcend
the realm of ordinary business operations when they involve important policy
issues, such as "'fundamental business strategy, long-term goals and economic
orientation ... .'" Amy L. Goodman and John F. Olson eds., A Practical Guide to
SEC Proxy and Compensation Rules, Section 14.06[A] at pp. 41-42 (Fourth Edition,
2007). The Commission first stated this position in its amicus curiae brief in
Roosevelt v. E. I. DuPont de Nemours & Company, 958 F. 2d 416 (D.C. Cir. 1992).
Id.
This long-standing interpretation is confirmed in the new Fourth Edition of A
Practical Guide to SEC Proxy and Compensation Rules, which includes a revised
chapter on "The Shareholder Proposal Process" written by Keir D. Gumbs, a recent
alumnus of the Commission's Office of Chief Counsel, and Elizabeth A. Ising, an
attorney at Gibson Dunn & Crutcher. They conclude that, since 1992, "the SEC
staff has found strategic business proposals to be beyond a company's ordinary
business operations." Id. at 42.
The instant proposal is such a proposal. It implicates the Company's fundamental
business strategy of outsourcing and offshoring that it has been implementing
since it announced its strategic "globalization initiative" in 2000. While the
instant Proposal is limited to "the sourcing of products and services from the
People's Republic of China," it is plainly addressed to "the potential for
damage to GE's brand name and reputation" that may result from the
implementation of GE's "globalization" strategy in China. Accordingly, as the
Commission concluded in the DuPont case, the Proposal plainly has "'strategic,
long-term implications for the company's business.'" Id.
In this regard, the Proposal is similar to three earlier shareholder proposals
that expressed concerns about the potential damage that GE's strategic
"globalization initiative" might inflict on the Company's "brand name and
reputation." These proposals were submitted by various proponents for
consideration at GE's annual meetings in 2000, 2004 and 2006. Company requests
for no-action letters were denied in 2000 (General Electric Co., Jan. 19, 2000)
and 2004 (General Electric Co., Feb. 3, 2004), but granted in 2006 (General Electric Co., Jan. 13, 2006), because the 2006 proposal was not revised in
accord with the guidance that the Staff provided when it issued Staff Legal
Bulletin 14C ("SLB 14C') in June of 2005.
The Supporting Statement for the 2000 proposal referred to "GE's strategy of
shifting production from the United States" to other nations (emphasis added).
The Statement of Support for the 2004 proposal, addressed to the same
fundamental business strategy, noted that GE had a target for outsourcing "5
billion in contracts to Chinese vendors by 2005." The Statement of Support for
the 2006 proposal declared that "GE continues to aggressively pursue business
with China ... as a major strategic initiative" and made reference to the
"policy implications of the offshoring and outsourcing strategies the Company
has chosen to pursue" (emphasis added). Finally, the Statement of Support for
the pending Proposal begins with a statement that "GE is aggressively pursuing
business with China as a major strategic initiative" (emphasis added).
Under these circumstances, the instant Proposal is plainly focused on matters of
"'fundamental business strategy, long-term goals and economic orientation ...
.'" that are beyond the realm of ordinary business operations. It is squarely
and explicitly addressed, as the Proposal and Statement of Support make clear,
to "the potential for damage to GE's brand name and reputation" that may result
from GE's "major strategic initiative" of "sourcing ... products and services
from the People's Republic of China."
B. The Proposal Transcends the Realm of Ordinary Business Operations, Because It
Calls for a Special Report That Raises Important Policy Issues
Gumbs and Ising also report that "the SEC staff has not permitted the exclusion
of [shareholder] proposals calling for special reports on the grounds of
ordinary business where the proposals raise important policy issues." A
Practical Guide to SEC Proxy and Compensation Rules, supra, Section 14.06[D] at
p. 56. Moreover, in citing examples of proposals that "raise [such] important
policy issues," they cite the 2000 proposal, already noted above, which called
for a report on the potential for damage to GE's "brand name and reputation"
that might result from the implementation of GE's "globalization initiative"
General Electric Company (Jan. 19, 2000).
Additional Staff precedents confirm the view that shareholder proposals, such as
the instant Proposal, "raise important policy issues" when they call for a
report on potential harm to the "brand name" or "reputation" of a company. These
include the Staff's denial of no-action letters with respect to two similar
proposals that were submitted to GE and Sprint in 2004. General Electric Co.
(Feb. 3, 2004); Sprint (Feb. 4, 2004). In addition, the Staff's denial of
no-action letters with respect to two proposals that called for reports on the
impact of certain business strategies "on the environment, human rights and risk
to the company's reputation," also appear relevant (emphasis added). See Morgan
Stanley Dean Witter & Co. (Jan. 11, 1999); Merrill Lynch & Co. (Feb. 25, 2000).
The staff found, in each of the latter cases, that "the proposal raises
significant policy issues that are beyond the ordinary business operations" of
the company involved.
In this context, it is evident that the instant Proposal raises "important
policy issues," because the "brand name and reputation" of GE may be "its most
important asset." It is an asset that has been acquired over a long period of
time. It is an asset that will be of fundamental importance in achieving any
"long-term goals" that the Company may have for the future. And serious damage
to that strategic asset would inevitably raise important policy issues, because,
in the words of the Statement of Support, "'reputation, once lost, is extremely
difficult to reclaim.'"
Significantly, Company counsel does not disagree that GE's brand name and
reputation may be "its most important asset," and account for "as much as 40% of
its total market value." As this is written, GE has a market capitalization of
$394.5 billion, which would make its brand name and reputation worth as much as
$157 billion.
Significant damage to a $157 billion dollar asset would not be "mundane" or
"ordinary" by any definition. Instead, such damage would constitute an
"extraordinary" development that would require "extraordinary" decision-making
on the part of the Company. And, since the Commission has determined that
shareholder proposals "will ... be considered beyond the realm of an issuer's
ordinary business operations" when they "have major implications," the instant
Proposal is plainly beyond the realm of "ordinary business operations." See
Securities and Exchange Act Release No. 12,999 (Nov. 22, 1976).
Under these circumstances, the instant proposal implicates "important policy
issues" that transcend the realm of ordinary business operations." Accordingly,
the request for a no-action letter should be denied.
C. Contrary to the Argument of Company Counsel, the Proposal Is Based on the
Guidance Provided by SLB 14C, and Does Not Call for Any Evaluation of Risks or
Liabilities
Counsel for GE contends (pp. 3-6) that the Proposal may be excluded from its
proxy materials on the false premise that it calls for "an internal assessment
of the risks or liabilities that GE faces as a result of its operations." This
argument ignores the fact that the instant Proposal has been revised to conform
to the guidance that the Staff provided in Staff Legal Bulletin 14C ("SLB 14C"),
and does not seek any evaluation of risks or liabilities.
1. The Proposal Is Based on the Guidance That the Staff Provided in SLB 14C
The instant Proposal asks for a report on "the potential for damage to GE's
brand name and reputation." The quoted text was used in reliance on the guidance
provided in SLB 14C, and reflects precisely what the Staff declared to be
permissible in issuing that guidance.
In this context, SLB 14C illustrates the Staff's distinction between a
shareholder proposal that is impermissible because it calls for "an evaluation
of risk," and one that is permissible because it does not. As an example of what
is permissible, SLB 14C quotes the text of a proposal that asked for "a report
... on the potential environmental damage that would result from the company
drilling for oil and gas in protected areas ... ." Exxon Mobil Corp. (Mar. 18,
2005). Accordingly, in asking for a "report on the potential for damage to GE's
brand name and reputation as a result of the sourcing of products and services
from" China, the instant proposal is plainly modeled on the Exxon Mobil example
that the Staff approved in issuing SLB 14C.
Under these circumstances, the instant Proposal stands in stark contrast to the
2006 no-action letter in General Electric Co. (Jan. 13, 2006) that counsel for
GE cites at p. 4 of his letter. The Staff granted that no-action letter, because
the 2006 proposal at GE failed to heed the guidance that the Staff had provided
in SLB 14C, which was issued in June of 2005, by calling for a report
"evaluating the risk of damage to GE's brand name and reputation."
The instant Proposal is different, because the text of the Proposal has been
revised in accord with the guidance that the Staff provided in SLB 14C. It does
not mention the word "risk." It does it call for any "assessment" of "risks or
liabilities" as counsel for GE asserts (pp. 3-6). Nor does it mention any
litigation or potential litigation that could result in "liabilities." Instead,
as in the case of the Exxon Mobil precedent that the Staff approved in SLB 14C,
the instant Proposal merely calls for a report that would disclose "the
potential for damage to GE's brand name and reputation" as the result of certain
activities that relate, as noted above, to matters of business strategy and
important issues of corporate policy.
2. The Proposal Does Not Call for Any Evaluation of Risks or Liabilities
Contrary to the arguments of company counsel that the Proposal "seeks an
assessment of ... risks or liabilities" (p. 3), and that "the substance of the
assessment ... is the same risk analysis of GE's vendor and workforce employment
decisions" raised in the 2006 Proposal (p. 4), the instant Proposal assumes that
the management of GE already knows, or ought to know, "the potential for damage
to GE's brand name and reputation." As a result, as in the case of Newmont
Mining Corp. (Feb. 5, 2007), where the Staff recently denied that company's
request for a no-action letter, the instant Proposal contemplates nothing more
than the disclosure of information that ought to be readily available to company
managers.
The 2007 proposal that the Staff permitted in Newmont Mining is similar to both
the instant Proposal, and to the Exxon Mobil example that the Staff set forth in
SLB 14C, insofar as it called for a report "on the potential ... damage
resulting from the company's mining and waste disposal operations in Indonesia."
The attorney for Newmont Mining argued, like counsel for GE here, that the
proponent was "requesting an evaluation of risks and liabilities the Company
faces as a result of its operations in Indonesia." However, the Staff "was
unable to concur," under circumstances where: (1) the Newmont Mining attorney
represented that the Company "has assessed and continues to assess the potential
risks" of its operations in Indonesia; (2) the attorney for the proponents
contended that the 2007 proposal had "cured the defects" of earlier proposals
that had been excluded on the ground that the called for an "evaluation of
risk"; and (3) the attorney for the proponents represented, as the proponent
does here, that the proposal was "not seeking an internal risk evaluation."
In contending that the instant Proposal calls for substantially "the same risk
analysis" as the 2006 proposal, counsel for GE appears to contend (see pp. 4-5)
that the distinction that the Staff drew in SLB 14C is a distinction without a
difference. However, counsel for Exxon Mobil made an argument with respect to
the example that the Staff cited in SLB 14C that is similar to the argument that
GE makes here (i.e. that a shareholder proposal for a special report on
"potential ... damage" should be construed as calling for an "evaluation of
risks and benefits"). The Staff was not only "unable to concur" with that
argument (Exxon Mobil Corp., Mar. 18, 2005), it decided to use the Exxon Mobil
proposal as an illustration of what is permissible when it prepared SLB 14C.
Under these circumstances, the distinction set forth in SLB 14C appears to bar
proposals that ask a company to conduct the kind of assessment or evaluation of
risks that would typically be performed as part of a company's ordinary business
operations, but to permit proposals that ask for disclosure of "potential for
damage" on the basis of information that is already known, at least when that
information implicates important policy issues or matters of business strategy.
That is why the revised instant Proposal, in accord with SLB 14C and the Staff
precedents noted above, assumes that management is already aware of any
"potential for damage to GE's brand name and reputation" that may "result of the
sourcing of products and services from" China, and merely asks for disclosure of
that potential to the shareholders.
3. The Remaining Company Arguments About "Evaluation of Risk" Are Without Merit
Counsel for GE attempts to buttress his erroneous argument that the Proposal
"seeks an assessment of ... risks or liabilities" (p. 3), by noting that the
Statement of Support refers "to GE's brand name as `its most important asset,'
claiming that `the value of a company's reputation may be as much as 40 % of its
total market value.'" He then proceeds to assert that the Proposal "seeks an
assessment of ... financial risks," as if potential harm to "brand name and
reputation" would involve nothing more than money.
This argument ignores the fact that "brand name and reputation" is a qualitative
asset that may represent quality, integrity, competence and other qualitative
factors. Accordingly, harm to GE's "brand name and reputation" would plainly
implicate qualitative considerations that would be difficult, if not impossible,
to measure in financial terms. For example, the reasons for concern about the
potential for damage to GE's brand name and reputation, which are set forth in
the Statement of Support, plainly implicate the confidence of consumers and
contractors in the Company's products, the pride of suppliers and vendors in the
fact that they are associated with GE, and the self-esteem and morale of the
Company's workers and managers. Under these circumstances, it is pure conjecture
for counsel to equate the reference to "'the value of a company's reputation'"
with support for his claim that the proposal is concerned about "the financial
risks arising from GE's workforce and employment decisions" (see p. 3).
Moreover, counsel for GE ignores the context in which the Statement of Support
makes reference to "'the value of a company's reputation.'" As noted above, the
market value of the company's brand name and reputation has been used to
demonstrate the fact that the Proposal deals with policy issues and matters of
business strategy that are important to both GE and its shareholders. Contrary
to the claim that the reference to market value is indicative of concern about
"financial implications" (p. 3), it is apparent, when viewed in the context of
the Proposal and Statement of Support as a whole, that the reference was
actually used to communicate the magnitude and importance of the policy issues
and matters of business strategy that are implicated by the Proposal.
Toward the end of his argument, counsel for GE objects that the Proposal does
not ask the company "to alter or eliminate activities that have an adverse
effect" on its brand name and reputation, "by eliminating operations in China"
(see pp. 5-6). However, while environmental damage and violations of labor and
human rights attributed to various companies have been widely documented in the
press and electronic media, there does not appear to be any comparable
documentation in the public domain of actual damage to GE's "brand name and
reputation as a result of the sourcing of products and services ..." from China.
As long as that is the case, it would appear to constitute a violation of the
antifraud provisions of the proxy rules to propose the alteration or elimination
of particular activities on the basis of an undocumented premise that such
activities are have actually caused damage to the "brand name and reputation" of
the Company. While we submit that the proponent has documented ample reason for
concern about the "potential for damage" in the Statement of Support, it does
not appear that there is a sufficient factual predicate for proposing the
alteration or elimination of specific activities without disclosure by GE that
those activities actually have had, or may have, an adverse effect on the "brand
name and reputation" of the Company.
Finally, counsel for GE concludes (p. 6) with an unfounded claim that the
instant Proposal "is comparable to the proposal at issue in Newmont Mining Corp.
(avail. Jan. 12, 2006), in which the Staff concurred with the exclusion under
Rule 14a-8(i)(7) of a shareowner proposal ... because the proposal related to an
`evaluation of risk.'" However, as noted above, the Staff subsequently denied
the same company's request for a no-action letter with respect to a revised
shareholder proposal in 2007. And, in a manner similar to the revised Proposal
here, the 2007 proposal that the Staff permitted at Newmont Mining asked for "a
report on the potential environmental and health damage resulting from the
company's mining and waste disposal operations in Indonesia." Newmont Mining
Corp. (Feb. 5, 2007).
In defending the 2007 proposal against Newmont Mining's request for a no-action
letter, the proponents' attorney acknowledged that the proposal was similar to
the proposal that was excluded in 2006. However, she contended, as the instant
proponent also contends, that the 2007 proposal contained revisions in the light
of SLB 14C, and that the revisions had "cured the defects" in the earlier
proposal. In addition, she contended, as the proponent here also contends, that
the proposal did not seek "an internal risk evaluation." It is evident that the
Staff agreed with counsel for the proponent on both points. See Newmont Mining
Corp. (Feb. 5, 2007).
Under these circumstances, there is no merit to the Company's claim that the
instant Proposal calls for "an internal assessment of the risks and liabilities
that GE faces as a result of its operations." Nor is there any merit to the
claim that the Proposal does not conform to "the Staff's guidance in SLB 14C."
D. Contrary to the Arguments of Company Counsel, the Proposal Does Not Seek to
Micromanage Management Decisions with Respect to Vendors, Suppliers, Employees
and the Location of Facilities
Company counsel proceeds to make additional arguments on the basis of the
demonstrably false premise that the Proposal seeks to "micromanage management's
decisions" with respect to vendors, suppliers, employees and the location of
facilities (See pp. 6-10). These arguments are devoid of any merit, because the
Proposal merely asks for a report that would disclose "the potential for damage
to GE's brand name and reputation as a result of the sourcing of products and
services from the People's Republic of China." As noted above, the Proposal does
not seek to prescribe or request any management decision of any kind whatsoever.
In this context, the Proposal does not attempt, as counsel for GE implies (p.
6), "to regulate aspects of ... [the Company's] decision making process with
respect to its product sourcing activities ... ." It does not seek "to involve
shareowners in day-to-day decisions regarding whether and when to use vendors"
(see pp. 6-7). Nor does it attempt, as counsel alleges (p. 7), to micro-manage
GE's decisions relating to vendor relationships." While the Statement of Support
does make reference to Chinese vendors as a reason for the proponent's concern
about the potential for damage to GE's brand name and reputation, the Proposal
does not seek to prescribe or request any management decision with respect to
vendors or suppliers. It merely asks for disclosure of information concerning
"the potential for damage to GE's brand name and reputation" that relates to the
Company's business strategy and important issues of corporate policy.
Concerns about the sourcing of products and services from China are certainly
reasonable in a year in which Mattel has suffered repeated blows to its brand
name and reputation as a result of its sourcing of products from China. In this
context, the Statement of Support notes a number of reasons for concern about
GE's brand name and reputation, including the fact that, "in 2007, product
recalls in the toy, jewelry, food, tire and pharmaceutical industries have
highlighted the dangers faced through sourcing from Chinese companies."
Counsel proceeds (p. 7) to paint the Proposal as an attempt to prescribe
"'management of the workforce, such as hiring, promotion and termination of
employees.'" But, as already noted, the Proposal merely asks for disclosure. It
does not request or prescribe any decision whatsoever with respect to the day to
day "'hiring, promotion and termination of employees.'" Nor does it prescribe or
request any other decision with respect to "workforce management" (see p. 8).
Finally, there is no merit to the claim of GE counsel (p. 9) that "the Proposal
seeks to micromanage GE's decisions regarding ... the location of GE's
operations". While the sourcing of products and services from the People's
Republic of China is cited by the Statement of Support as the basis of the
proponent's concern that damage may be inflicted on GE's brand name and
reputation, the Proposal does not seek to prescribe or request any management
action or decision whatsoever with respect to any of "GE's operating
facilities," anywhere in the world.
Under these circumstances, the alleged "precedents" that counsel for GE has
cited at pp. 6-10 of his letter - 22 in all - are all irrelevant and of no
probative value. They are all cited on the basis of demonstrably false claims
that the Proposal seeks to micromanage management decisions, when in fact, it
merely asks for disclosure, and nothing more.
III. GE Has Failed to Demonstrate That the Proposal Relates to Redress of a
Personal Grievance Against GE Within the Meaning of Rule 14a-8(i)(4).
GE also claims that the Proposal may be omitted under Rule 14a-8(i)(4), which
permits the exclusion of a proposal if it "relates to the redress of a personal
claim or grievance against the company ... or if it is designed to result in a
benefit to you, or to further a personal interest, which is not shared by other
shareholders at large" (emphasis added). This claim is also without merit.
A. The Proponent Has a Substantial Investment in GE Stock and a Right to Submit
the Proposal That She Did
As a member of the GE Savings & Security Program since 1970, a period of 37
years, the proponent has an investment of 1,044 units of stock in GE. (see GE
Exhibit A re proof of security ownership and the Attachment to this letter re
the proponent's holdings). With a current stock quote of about $36 per share, it
appears that her investment in GE stock is worth more than $37,000.
It is undisputed, as noted above, that the "brand name and reputation of GE" may
account for as much as 40% of the value of her investment in GE stock. Under
these circumstances, the proponent plainly has a significant interestone that
is shared in common with all other shareholders of GEin seeking to preserve and
enhance the value of her investment in the Company's stock.
Moreover, the right to submit a shareholder proposal is an important incident of
stock ownership. It should not be denied on the basis of conjecture and
speculation, or her status as an employee of GE, who happens to be the President
of her Local Union.
B. There Is No Personal Grievance As GE Contends
Counsel for GE asserts (pp. 10-11) that the Proposal relates to "a personal
grievance against GE" on the theory that the proponent, Rita Bugzavich, "is an
employee" who is about to lose her job as the result of a plant closure that was
announced in October of 2007. However, it is pure conjecture on the part of
counsel for the Company to assume that the instant Proposal relates in any way
to the redress of a personal claim or grievance, merely because the proponent is
one of those who is about to lose her job as a result of the plant closure. As
the proponent makes clear in the Attachment to this letter:
"Actually ... GE is doing me a favor by closing my plant, as I will be able to
take an early retirement, make about 85% of my current income, and go out in the
community and get a job which will give me a second income. It is a win win
proposal for me."
Thus, contrary to the claim of Company counsel (p. 12) that "the Proposal ... is
designed to produce a financial benefit for the Proponent" by "protecting" her
employment with GE in some unspecified manner, it is the loss of her job that is
likely to provide "a financial benefit for the Proponent." After 37 years of
employment with GE, the proponent have an opportunity to secure another job
that, together with her substantial pension from GE, is likely to substantially
increase her total income above what she is presently making as an employee of
the Company.
Counsel for GE quotes a number of statements that Ms. Bugzavich has made about
the pending closure of the plant as part of his failed attempt to establish the
existence of a "personal grievance." However, he fails to note that each of
those statements was made by the proponent in her representative capacity, as
the President of Local 734 of the International Union of Electrical
Workers-Communications Workers of America. Because those statements were made in
a representative capacity, and reflected the position of the union as
distinguished from any personal views that she may have, none of the quoted
statements is probative of any "personal grievance against GE" on the part of
the proponent (emphasis added).
In this context, the existence of an actual or alleged adversarial relationship
with an issuer does not necessarily support the conclusion that a shareholder
proposal relates to "the redress of a personal claim or grievance." Staff
precedents for this proposition include the denials of noaction letters in Arrow
International, Inc. (Feb. 14, 2007) (proponent allegedly waging campaign for
representation on the board of directors); Mc Donald's Corporation (Jan. 16,
2007) (proponent pension fund allegedly furthering union organizing efforts);
Charles Schwab Corp. (Jan. 6. 2006) (proponent union allegedly furthering its
political agenda); Cintas Corp. (June 10, 2005) (proponents, a local union and a
pension fund, allegedly furthering an organizing campaign); International Business Machines (Feb. 2, 2004) (proponent was employee of IBM and Secretary of
an adversarial organization called Alliance@IBM); and Consolidated Freightways
(Feb. 1, 1996) (proponents were union members allegedly furthering an organizing
campaign). Under these circumstances, the fact that the proponent made certain
statements in her capacity as a union leader does not suffice to establish that
GE "is entitled to exclude" the instant proposal. (emphasis added). See Rule
14a-8(g).
C. The Proposal Is Not An Attempt to Obtain A Personal Benefit Not Shared With
Other Shareholders At Large
On the false premise that the Proposal "is aimed at protecting the Proponent's
employment," counsel for GE proceeds to argue (p. 12) that the Proposal "is
excludable" on the theory that the proponent might receive "a personal benefit"
from implementation of the proposal that other shareholders would not share.
However, apart from the failed premise that the proponent has a grievance
against GE as a result of the impending loss of her job, GE fails to demonstrate
how a special report on the potential for damage to GE's brand name and
reputation would do anything to prevent the loss of her job, or do anything to
reverse GE's decision to close the plant where she works.
In addition, although company counsel asserts that the Proposal is merely an
attempt of the proponent "to air her own personal grievance against GE" (p. 11),
there is concrete evidence that the subject matter is of interest to a large
number of other GE stockholders. As noted above, similar proposals calling for a
special report on potential damage to GE's brand name and reputation were
submitted for shareholder votes at the GE Annual Meetings in 2000 and 2004. The
2000 proposal was submitted by a different individual shareholder and won 5.1%
of the votes that were cast for and against. See GE 10-Q for Second Quarter of
2000. In 2004, the similar proposal was submitted by a multi-employer pension
fund and won 8.1% of the votes that were cast for and against. See GE 10-Q for
Second Quarter of 2004. In fact, shareholders cast nearly half a billion shares
(491.6 million) in favor of the 2004 proposal. Id.
Finally, if the instant Proposal leads to disclosure of "potential damage to
GE's brand name and reputation, and that leads to corrective or remedial action
on the part of management, it is the shareholders at large who will benefit. The
proponent would benefit only on a pro rata basis.
III. Conclusion
For the reasons set forth above, GE has failed to meet its burden of
demonstrating "that it is entitled" to exclude the Proposal from its proxy
materials (See Rule 14a-8(g). The request for a no-action letter should be
denied.
Please do not hesitate to contact me if you should have any questions. I have
enclosed six copies of this letter, am sending copies to counsel for the company
and the proponent, and will transmit a copy of this letter to the staff by
electronic mail at cfletters@sec.gov. The Staff's response may be sent to me by
facsimile at 608-255-3358.
Sincerely,
/s/
Frederick B. Wade
c. Ronald O. Mueller
Counsel for GE
Attachment
[INQUIRY LETTER]
October 30, 2007
Brackett Denniston
Senior Vice President, Corporate Secretary, and General Counsel
General Electric Company
3135 Easton Tumpike
Fairfield, CT 06431
Dear Mr. Denniston:
Re: Submission of Shareholder Proposal
I hereby submit the enclosed Shareholder Proposal ("Proposal") for inclusion in
the General Electric Company proxy statement to be circulated to Company
shareholders in conjunction with the next annual meeting of shareholders in
2008. The Proposal is submitted under Rule 14(a)-8 of the U.S. Securities and
Exchange Commission's proxy regulations.
I am a beneficial holder of General Electric common stock with market value in
excess of $2.000 held continuously for more than a year prior to this date of
submission.
I intend to continue to own General Electric common stock through the date of
the Company's 2008 annual meeting. Either I or a designated representative will
present the Proposal for consideration at the annual meeting of stockholders.
Sincerely,
/s/
Rita Bugzavich
Enclosure
[APPENDIX]
Shareholder Proposal
Resolved: The Stockholders request that the Board of Directors establish an
independent committee to prepare a report on the potential for damage to GE's
brand name and reputation as a result of the sourcing of products and services
from the People's Republic of China and make copies available to shareholders
upon request.
Statement of Support
GE is aggressively pursuing business with China as a major strategic initiative.
However, China is a country that has received unfavorable press worldwide due to
issues of product quality and violations of basic human rights.
Key GE productsappliances, light bulbs, electrical goods, medical instruments,
aircraft engine partsgoods by which the Company has developed its global
reputation for decades, are increasingly manufactured or serviced in China in GE
facilities or by Chinese vendors. GE China has 12,000 employees and $5.4 billion
of sales revenue. [http://www.ge.com.cn.GEinchina.html, accessed 10/26/2007] In
addition, the Company's procurement from Chinese vendors appears to exceed $5
billion. [Taipei Times, 9/18/03]
Yet. Chinese regulatory oversight, in our opinion, has shown itself to be
dangerously lax. As one U.S. consultant observed, "the spate of Chinese recalls
makes it clear that China does not have the legal structure to enforce consumer
standards." [Cleveland Plain Dealer, 8/8/2007] In 2007, product recalls in the
toy, jewelry, food, tire. and pharmaceutical industries have highlighted the
dangers faced through sourcing from Chinese companies.
There are reports that employees in China have been persecuted for seeking to
exercise internationally recognized human rights, such as freedom of association
and the right to collective bargaining.
Weak quality control and the repression of human rights have contributed to low
prices of Chinese goods in global markets, and American producers of goods and
services increasingly have to match this "China price" to keep customers.
[Detroit Free Press, 10/12/2005] The China price is forcing down compensation
for American workers, helping to widen the income divide in the U.S., and
undermining communities. [U.S.-China Economic and Security Review Commission,
1/11/2005]
This proposal asks the Board to inform shareholders about the potential for
damage to GE's brand and reputation that results from such heavy dependence on
the Peoples Republic of China. For example, potential product recalls could turn
consumers away from goods, such as light bulbs, that are "Made in China."
[Business Insurance, 10/15/2007] We are concerned that GE may be increasingly
vulnerable to consumer disaffection in the U.S. [Financial Times, 11/29/2004]
In addition, two in three Americans think that job losses to China are a
"serious issue." [Greenberg Quinlan Rosner Research, 2003] A backlash against
Chinese products could jeopardize support for globallzation. one of GE's key
strategic initiatives.
GE's brand name may be its most important asset. For Harris Interactive, "the
value of a company's reputation may be as much as 40% of its total market
value." [http://www.harrisinteractive.com/pop_up/rq/benefits.asp] Company
reputations affect consumer purchases. And "reputation, once lost, is extremely
difficult to reclaim." [Wall Street Journal, 2/7/01]
[STAFF REPLY LETTER]
January 9, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: General Electric Company Incoming letter dated December 7, 2007
The proposal requests that the board establish an independent committee to
prepare a report on the potential for damage to GE's brand name and reputation
as a result of the sourcing of products and services from the People's Republic
of China, and make the report available to shareholders.
There appears to be some basis for your view that GE may exclude the proposal
under rule 14a-8(i)(7), as relating to GE's ordinary business operations (i.e.,
evaluation of risk). Accordingly, we will not recommend enforcement action to
the Commission if GE 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 GE relies.
Sincerely,
/s/
Peggy Kim
Attorney-Adviser
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