Company Name: KB Home
Public Availability Date: January 23, 2008
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 13, 2007
Via Overnight Delivery
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F. Street, N.E.
Washington, D.C. 20549
Re: KB Home - File No. 1-9195 No-Action Request Regarding Shareholder Proposals
Securities Exchange Act of 1934; Section 14(a), Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that KB Home intends to omit from its proxy
statement and form of proxy for its 2008 annual stockholders meeting
(collectively, its "2008 Proxy Materials") identical shareholder proposals and
supporting statements (collectively, the "Proposal") submitted by The Nathan
Cummings Foundation and Catholic Healthcare West (the "Proponents"). Copies of
the Proposal are attached to this letter.
KB Home expects to file its 2008 Proxy Materials on March 3, 2008. In accordance
with Rule 14a-8(j) of the Securities Exchange Act of 1934 (the "Exchange Act"),
we are filing six copies of this letter with the Securities and Exchange
Commission more than 80 calendar days before the expected filing date. We will
send a copy of this letter to each Proponent to notify them that KB Home intends
to omit the Proposal from its 2008 Proxy Materials.
PROPOSAL
The Proposal asks that, "by December 31, 2008, the Board of Directors [of KB
Home] provide a climate change report, prepared at reasonable cost and omitting
proprietary information, on the feasibility of [KB Home] developing policies
that will minimize its impacts upon climate change, with a focus on reducing
greenhouse gas emissions from [KB Home's] products and operations."
DISCUSSION
As described more fully below, KB Home believes it may omit the Proposal from
its 2008 Proxy Materials per Exchange Act Rule 14a-8(i)(7) because the Proposal
requires us to evaluate risks relating to KB Home's ordinary business
operations. We note that the Division of Corporation Finance staff (the "Staff")
has recently granted no action relief on this basis to four other homebuilders
with respect to substantially similar proposals: Centex Corporation (May 14,
2007), Pulte Homes, Inc. (March 1, 2007), Standard Pacific Corporation (January
29, 2007), and Ryland Group, Inc. (February 13, 2006).
A. Exchange Act Rule 14a-8(i)(7)
Exchange Act Rule 14a-8(i)(7) permits a company to omit from its proxy materials
a shareholder proposal that deals with a matter relating to the company's
ordinary business operations. The underlying policy for this exclusion is "to
confine the resolution of ordinary business problems to management and the board
of directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." See SEC Release No. 34-40018
(May 21, 1998).
There are two primary considerations that support omitting a proposal under the
rule. The first is whether a proposal relates to tasks "so fundamental to
management's ability to run a company on a day-to-day basis that they could not,
as a practical matter, be subject to direct shareholder oversight." Id. This
consideration, however, does not apply to a proposal that relates to
"sufficiently significant social policy issues" that transcend day-to-day
business matters. Id. The second consideration is the degree to which a proposal
seeks to micro-manage a company by probing too deeply into matters upon which
shareholders, as a group, would not be in a position to make an informed
judgment. Id.
In Staff Legal Bulletin No. 14C (published on June 28, 2005), the Staff provided
the following additional guidance regarding shareholder proposals on
environmental or public health issues:
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 that may adversely affect the environment or
the public's health, 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. To the extent that a proposal and supporting statement focus on the
company minimizing or eliminating operations that may adversely affect the
environment or the public's health, we do not concur with the company's view
that there is a basis for it to exclude the proposal under rule 14a-8(i)(7).
The Commission has stated that companies may omit shareholder proposals
requesting a report if the report's subject matter concerns the conduct of
ordinary business operations. See SEC Release No. 34-20091 (August 16, 1983)
("Henceforth, the staff will consider whether the subject matter of the special
report or committee involves a matters of ordinary business; where it does, the
proposal will be excludable under Rule [14a-8(i)(7)].").
B. The Proposal Concerns Ordinary Business Operations
The Proposal requires KB Home to assess whether it is feasible for the company
to adopt certain environmental policies with respect to its operations and
products. As with any other operational feasibility assessment KB Home routinely
conducts, the Proposal will require KB Home to weigh the potential risks against
the potential benefits that such policies may present to KB Home to determine
their feasibility. After all, a policy is "feasible" only if its potential
benefits outweigh its corresponding potential risks, and a policy is not
"feasible" if its potential risks outweigh its corresponding potential benefits.
Conducting the Proposal's required feasibility assessment is an ordinary course
managerial task well within the scope of Rule 14a-8(i)(7). That is, to prepare
the feasibility report the Proposal demands, KB Home management would need to
conduct an internal risks and benefits assessment on whether to adopt certain
operational policies or activities, a task it performs in the ordinary course of
running KB Home's business. As a practical matter, as discussed further below,
shareholders are not in a position to directly oversee or to make an informed
judgment on such a task. Accordingly, based on the above-cited Staff guidance
and no-action relief precedent, KB Home believes it may omit the Proposal from
its 2008 Proxy Materials pursuant to Rule 14a-8(i)(7).
1. The Proposal's Feasibility Report Concerns a Core Management Activity
A feasibility assessment is an essential and routine first step that any
company's management must conduct before adopting any policies or taking any
other actions that affect the company's operations, regardless of magnitude.
Whether a policy or other operational action is "feasible" depends on whether
its potential benefits to the company outweigh its corresponding potential risks
after considering all relevant information available. A policy or other
operational action can only be "feasible" if its potential benefits outweigh its
corresponding potential risks. A policy or other operational action is not
"feasible" if its potential risks outweigh its corresponding potential benefits.
KB Home management continually performs such feasibility assessments in the
ordinary course in evaluating what operational activities KB Home conducts or
may conduct in its homebuilding business, the manner and methods in which those
activities are or might be conducted and what products and amenities are or may
be offered to potential homebuyers, relative to all known potential risks and
benefits. Thus, the internal feasibility assessment the Proposal requires is one
of the most fundamental and basic tasks that KB Home management performs in
managing KB Home's business on a day-to-day basis. Moreover, the risk/benefit
considerations applied to and decisions resulting from this ordinary course task
depend critically on the exercise of management's informed business judgment. As
such, preparing a feasibility report as the Proposal demands constitutes the
essence of management's role in running KB Home's day-to-day business and
affairs. As the above-cited Staff guidance and no-action relief precedent
recognizes, it is not something that should be subject to direct shareholder
oversight.
Indeed, based on ordinary course feasibility assessments, KB Home management has
already determined that it was feasible and made business sense, after
evaluating all relevant risks and benefits, for KB Home to implement a number of
operational initiatives that are designed to protect the natural environment and
reduce carbon emissions (including greenhouse gases). These include (a) sourcing
wood products from forests that are not over-harvested or endangered; (b)
building smaller homes and mixed residential and commercial projects in
metropolitan areas near existing transportation nodes; (c) installing low-water
use devices and water-efficient landscaping at appropriate projects in dry
climate areas; (d) offering homebuyers Energy Star-rated appliances; and (e)
using recycled and recyclable construction materials. In each case, these
initiatives have been evaluated based on internal risk/benefit (i.e.,
feasibility) assessments that are tightly and fundamentally integrated into
management's day-to-day decision-making in running KB Home's business.
Accordingly, as the Proposal's primary focus is to direct KB Home management to
perform an ordinary course task fundamental to managing KB Home's day-to-day
business operations and to provide, essentially, an oversight report to
shareholders thereon, the Proposal should be excludable under Rule 14a-8(i)(7).
2. The Proposal is Focused on Feasibility for KB Home, not on a Significant
Social Policy Matter
The fact that the Proposal frames the subject matter for its required
feasibility report around climate change and greenhouse gas emissions does not
elevate the report above what is in reality an ordinary course and
inward-focused management exercise. The above-cited Staff guidance and no-action
relief precedent clearly establish that a company may omit a shareholder
proposal focused on conducting an internal risk assessment as part of the
company's ordinary course management activities even if the proposal references
environmental matters that may in other contexts have broader social policy
consequences.
In fact, since Staff Legal Bulletin 14C was issued, the Staff has consistently
concurred when companies omitted proposals that touched on environmental issues,
but focused on the company's own internal risk assessment of those issues. In
addition to the four homebuilder no-action letters cited above, each of which
asked the builder to report on how an environmental policy would affect it, the
Staff has also recently permitted a company to omit a shareholder proposal
asking the company to assess its costs and benefits associated with a greenhouse
gas policy (Hewlett-Packard Company, January 22, 2007), as well as a shareholder
proposal asking a company to assess how energy efficiency issues would impact it
(TXU Corporation, April 2, 2007). Like those proposals, this Proposal mentions
an environmental issue, but focuses on how the issue affects KB Home.
That is, while the Proposal mentions adopting policies that minimize climate
change impact, it does so only in the context of whether those policies are
feasible for KB Home based on an internal risk assessment. The Proposal does not
demand that KB Home change its business practices to support a broader social
policy purpose. The Proposal also does not indicate in any way that creating and
disseminating the feasibility report would serve or advance a significant social
policy interest. Rather, the Proposal demands that KB Home management perform an
ordinary course task of internally assessing risks and benefits related to KB
Home's business operations. Therefore, just like the above-cited guidance and
precedent, the Proposal should be excludable under Rule 14a-8(i)(7).
3. The Proposal's Feasibility Report Probes Deeply into a Broad and Complex Area
To effectively address the subject matter and expansive scope for the
feasibility report the Proposal demands - developing climate change-related
policies with respect to KB Home's "products and operations" - KB Home
management would need to perform an extensive and time-consuming risk/benefit
assessment involving several complex factors and considerations in a
scientifically ambiguous area.
Included among the myriad factors KB Home management would need to consider
across KB Home's operations and products are: (a) environmental conditions in or
affecting the 13 states in which KB Home operates, which vary widely; (b) the
effect on housing affordability from choices made in construction techniques and
components (including any specialized installation requirements); (c) consumer
interest and demand relative to product price points; (d) local building codes
and restrictions and local community standards; (e) the quality, reliability,
durability and suitability of available construction materials and other
resources; (f) competition; and (g) profitability and shareholder value
creation.
Given the breadth and nature of the factors involved, and their complex
interactions, it is difficult to believe that shareholders, as a group, could
make an informed decision on the analyses and business judgments such a
comprehensive feasibility report must contain, especially considering the
required subject matter. This may be why the Proponents do not request or
suggest that the feasibility report provide anything specific for shareholders
to decide upon. Rather, the feasibility report's sole function is to direct KB
Home management to probe deeply and broadly into the company's operations and
detail its day-to-day risk/benefit assessment processes and corresponding
business judgments which few, if any, shareholders can fully understand or
effectively evaluate. As a result, the demanded feasibility report would
effectively insert shareholders into, and facilitate their micro-managing, KB
Home's affairs in a manner that makes the Proposal excludable under Rule
14a-8(i)(7).
CONCLUSION
By directing KB Home management to conduct an internal risk assessment involving
ordinary course operations and products to determine whether it is feasible for
the company to adopt various environmental policies, KB Home believes that the
Proposal's core focus is not on broader social policy concerns, but on
day-to-day tasks, judgments and decisions that are the proper province and
prerogative of management, not shareholders. The feasibility report the Proposal
demands is therefore substantially similar to the shareholder proposals that
four other homebuilders recently omitted from their proxy materials, with the
Staff's concurrence, in the no-action letters cited at the beginning of this
letter. All focus on evaluating the risks of various policies to the builder,
which is an ordinary course concern. Accordingly, based on the above-cited Staff
guidance and no-action relief precedent, KB Home believes the Proposal deals
with a matter relating to its ordinary business operations and that it may omit
the Proposal under Rule 14a-8(i)(7).
Therefore, we hereby respectfully request that the Staff not recommend any
enforcement action if the Proposal is omitted from KB Home's 2008 Proxy
Materials. Should the Staff disagree with KB Home's position on excluding the
Proposal, we would appreciate the opportunity to confer with the Staff prior to
the issuance of a Rule 14a-8 response.
If you have any questions or need any further information, please call the
undersigned collect at (310) 231-4098. Please acknowledge receipt by
date-stamping the enclosed additional copy of this letter and returning it in
the enclosed self-addressed stamped envelope.
Sincerely,
/s/
Tony Richelieu
Corporate Counsel and Assistant Corporate Secretary
cc: Ms. Laura J. Shaffer
Director of Shareholder Activities
The Nathan Cummings Foundation
Ms. Susan Vickers, RSM
Vice President, Community Health
Catholic Healthcare West
Enclosures
[INQUIRY LETTER]
October 30, 2007
Jeffrey T. Mezger
President & CEO
KB Home
10990 Wilshire Boulevard
Los Angeles, California 90024
Dear Mr. Mezger:
The Nathan Cummings Foundation is an endowed institution with approximately $575
million of investments. As a private foundation, the Nathan Cummings Foundation
is committed to the creation of a socially and economically just society and
seeks to facilitate sustainable business practices by supporting the
accountability of corporations for their actions. As an institutional investor,
the Foundation believes that the way in which a company approaches major public
policy issues has important implications for long-term shareholder value.
It is with these considerations in mind that we submit this resolution for
inclusion in KB Home's proxy statement under Rule 14a-8 of the general rules and
regulations of the Securities Exchange Act of 1934. We would appreciate an
indication in the proxy statement that the Nathan Cummings Foundation is the
primary proponent of this resolution. At least one representative of the filers
will attend the stockholders' meeting to move the resolution as required by the
rules of the Securities and Exchange Commission.
The Nathan Cummings Foundation is the beneficial owner of over $2,000 worth of
shares of KB Home stock. Verification of this ownership, provided by Northern
Trust, our custodian bank, is included with this letter. We have continuously
held over $2,000 worth of the stock for more than one year and will continue to
hold these shares through the shareholder meeting.
It is our hope that this resolution will instigate the commencement of a
constructive dialogue that could possibly lead to the resolution's withdrawal.
If you have any questions or concerns about this resolution or would like to
speak with us about your efforts to address climate change, please contact Laura
Shaffer at (212) 787-7300. Thank you for your time.
Sincerely,
/s/
Lance E. Lindblom
President and CEO
/s/
Laura J. Shaffer
Director of Shareholder Activities
cc: Interfaith Center on Corporate Responsibility Members and Associates
The Intergovernmental Panel on Climate Change (IPCC) recently concluded that
warming of the climate system is unequivocal and that human activity is the main
cause. Debate surrounding climate change now focuses not on whether a problem
exists but rather on the best means for abatement and adaptation.
The rise in average global temperatures resulting from climate change is
expected to have significant adverse impacts. According to Business Week, many
scientists agree that the warmer temperatures resulting from climate change are
causing more powerful storms and perhaps intensifying extreme weather events
including droughts and wild fires. Thermal expansion and melting ice sheets are
expected to lead to rising sea levels, with significant implications for coastal
communities. Rising temperatures will also impact fresh water supplies.
California's Department of Water Resources, for instance, has stated that,
"Adapting California's water management systems to climate change presents one
of the most significant challenges for the 21\st/ century."
Climate change also has important economic implications. The Stern Review, often
cited as the most comprehensive overview of the economics of climate change,
estimated that the cumulative economic impacts of climate change could be
equivalent to a loss of up to 20% of average world-wide consumption if action is
not taken quickly. A more general pronouncement in the IPCC's report, Climate
Change 2007: Impacts, Adaptation and Vulnerability, observed that "Taken as a
whole, the range of published evidence indicates that the net damage costs of
climate change are likely to be significant and to increase over time."
According to the Washington Post, "Buildings are the largest source of the
greenhouse-gas emissions that are causing global warming, and in the United
States, half of building-related emissions are from houses." The EPA estimates
that the residential end-use sector accounted for 21% of CO2 emissions from
fossil fuel combustion in 2005.
With residential end-use accounting for such a high proportion of GHG emissions
stemming from fossil fuel combustion, a number of recent studies have focused on
energy efficiency improvements in residential dwellings as a potential source of
emission reductions. One recent study in The McKinsey Quarterly found that
nearly a quarter of cost-effective GHG abatement potential involves
efficiency-enhancing measures geared at reducing demand in the buildings and
transportation sectors. A second McKinsey study concluded that the residential
sector represents the single-largest opportunity to raise energy productivity,
noting that, "The adoption of available technologies (including high-efficiency
building shells, compact fluorescent lighting, and high-efficiency water
heating) would cut ... end-use demand for energy by 32 QBTUs in 2020, equivalent
to 5 percent of global end-user demand in that year."
RESOLVED:
Shareholders request that by December 31, 2008 the Board of Directors provide a
climate change report, prepared at reasonable cost and omitting proprietary
information, on the feasibility of our company developing policies that will
minimize its impacts upon climate change, with a focus on reducing greenhouse
gas emissions from the company's products and operations.
[INQUIRY LETTER]
January 7, 2008
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attention: Chief Counsel, Division of Corporation Finance
Re: Request by KB Home to omit shareholder proposal submitted by The Nathan
Cummings Foundation
Dear Sir/Madam,
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, The Nathan
Cummings Foundation (the "Foundation") and Catholic Healthcare West submitted a
shareholder proposal (the "Proposal") to KB Home ("KB Home" or the "Company").
The Proposal asks KB Home's board to report to shareholders on the feasibility
of developing policies that will minimize the Company's impacts on climate
change, with a focus on reducing greenhouse gas emissions from KB Home's
products and operations.
By letter dated December 17, 2007, KB Home stated that it intends to omit the
Proposal from the proxy materials to be sent to shareholders in connection with
the 2007 annual meeting of shareholders and asked for assurance that the Staff
would not recommend enforcement action if it did so. KB Home argues that it is
entitled to exclude the Proposal in reliance on Rule 14a-8(i)(7), as relating to
KB Home's ordinary business operations.
Rule 14a-8(i)(7) allows a company to exclude a proposal that "deals with a
matter related to the company's ordinary business operations." KB Home urges
that the Proposal implicates the Company's ordinary business operations because
it "requires [KB Home] to evaluate risks relating to KB Home's ordinary business
operations" and deals with a complex subject shareholders are not capable of
understanding. KB Home further urges that the Proposal does not deal with a
significant social policy issue. As discussed more fully below, these
contentions lack merit and KB Home's request for a determination allowing
exclusion should be denied.
The Proposal Does Not Request a Risk Assessment
In Staff Legal Bulletin 14C ("SLB 14C"), the Staff clarified the circumstances
under which a company can rely on the ordinary business exclusion to omit a
proposal relating to the environment or public health on the grounds that it
asks for an evaluation of risks and benefits. SLB 14C states:
In 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. 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 that may adversely affect the
environment or the public's health, 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. To the extent that a proposal and supporting statement
focus on the company minimizing or eliminating operations that may adversely
affect the environment or the public's health, we do not concur with the
company's view that there is a basis for it to exclude the proposal under rule
14a-8(i)(7).
KB Home argues that the Proposal asks for a risk assessment because evaluating
feasibility necessarily involves a cost/benefit analysis. That definition,
however, is not required by the language of the Proposal and is excessively
narrow. Merriam-Webster defines "feasible" as "capable of being done or carried
out," "capable of being used or dealt with successfully" or "reasonably likely."
1 That KB Home carried out what it dubs feasibility assessments that evaluated
risks and benefits before implementing certain initiatives does not transform
feasibility into a concept that must involve cost/benefit or risk analysis.
The Proposal focuses on KB Home reducing or eliminating harm to the environment
and reporting to shareholders on how this might be possible. The bulk of the
supporting statement is devoted to a discussion of greenhouse gas emissions and
the contributions of residential buildings to climate change. There is no
mention of risk or liabilities in the Proposal, nor does the Proposal even hint
at the kind of balancing inherent in a cost-benefit analysis. This is exactly
the sort of proposal which SLB 14C describes as not being excludable.
Implementation of the Proposal could assume many forms, none of which would
require cost/benefit or risk assessment. For example, KB Home might respond by
describing available technologies or measures and setting forth its opinion of
how likely each one would be to garner acceptance from KB Home's homebuyers. KB
Home might outline the geographical distribution of its homebuilding operations
and discuss how it could adapt its practices in various regions to reduce
greenhouse gas emissions. None of these discussions would necessarily involve
cost/benefit analysis.
Shareholders Are Not Incapable of Evaluating the Substance of the Requested
Report
KB Home also argues that the report requested in the Proposal would be too
complex and difficult for shareholders to understand. However, the "myriad
factors" KB Home cites, including consumer interest and demand relative to
product price points, competition, environmental conditions in the areas where
KB Home operates and the effect of building techniques on affordability and
profitability, are very similar if not exactly the same as matters regularly
discussed in corporate annual reports.
Moreover, some companies have already begun reporting on their efforts to
mitigate climate change. For example, Kimberly-Clark's sustainability report,
published on its web site, quantifies its greenhouse gas emissions, describes
measures the company is taking to reduce them and discusses energy efficiency
issues.2 3M provides similar information in its sustainability report.3
Institutional investors and the Investor Network on Climate Risk, an
organization of investors with $4 trillion in assets under management,4 have
been engaging in sophisticated and high-level dialogues with companies about
their strategies for dealing with climate change.
All of these facts, coupled with the high level of support received by climate
change shareholder proposals in 2007just under 20% on average and 39.5% at
Allegheny Energy5demonstrate that shareholders are capable of understanding the
climate change issue and measures companies are taking or considering taking to
mitigate their contributions to climate change. Indeed, the Foundation would not
have submitted the Proposal if it did not believe that it and many other
shareholders would benefit from having the information in the requested report.
The Proposal Deals With a Significant Social Policy Issue
A proposal that addresses an ordinary business matter is nonetheless not
excludable if it implicates a significant social policy issue. In the 1998
adopting changes to the Commission's interpretation of the ordinary business
exclusion6 (the "1998 Release") the Commission stated that "[p]roposals relating
to [ordinary business] matters but focusing on sufficiently significant social
policy issues (e.g., significant discrimination matters) generally would not be
considered to be excludable, because the proposals would transcend the
day-to-day business matters and raise policy issues so significant that it would
be appropriate for a shareholder vote."
By stating that a proposal relating to "[ordinary business] matters but focusing
on sufficiently significant social policy issues" is not excludable (emphasis
added), the 1998 Release made clear that a subject's status as a significant
social policy issue trumps its characterization as an ordinary business matter.
A 1976 release introducing the "significant social policy issue" analytic
framework (the "1976 Release") described the analytic process similarly:
Specifically, the term "ordinary business operations" has been deemed on
occasion to include certain matters, which have significant policy, economic or
other implications inherent in them. For instance, a proposal that a utility
company not construct a proposed nuclear power plant has in the past been
considered excludable under former subparagraph (c)(5). In retrospect, however,
it seems apparent that the economic and safety considerations attendant to
nuclear power plants are of such magnitude that a determination whether to
construct one is not an "ordinary" business matter. Accordingly, proposals of
that nature, as well as others that have major implications, will in the future
be considered beyond the realm of an issuer's ordinary business operations, and
future interpretative letters of the Commission's staff will reflect that view.7
The Staff has previously found that climate change is a significant social
policy issue. See, e.g., Unocal Corporation (publicly available Feb. 23, 2004)
(declining to allow exclusion of a proposal asking the company to report on "how
the company is responding to rising regulatory, competitive, and public pressure
to significantly reduce carbon dioxide and other greenhouse gas emissions");
Reliant Resources Inc. (publicly available Mar. 5, 2004) (same). For this
reason, and because the Proposal does not ask for a risk assessment, KB Home
should not be permitted to exclude the Proposal in reliance on the ordinary
business exclusion.
If you have any questions or need anything further, please do not hesitate to
call me at (212) 787-7300. The Foundation appreciates the opportunity to be of
assistance in this matter.
Very truly yours,
/s/
Laura J. Shaffer
cc: Tony Richelieu
Corporate Counsel and Assistant Secretary, KB Home
Fax # 310-231-4222
-----FOOTNOTES-----
1 See http://www.m-w.com/dictionary/feasibility.
2 See
http://www.kimberly-clark.com/aboutus/Sustainability/sustainability_pg35.aspx
and
http://www.kimberly-clark.com/aboutus/Sustainability/sustainability_pg34.aspx.
3 See
http://solutions.3m.com/wps/portal/3M/en_US/global/sustainability /management/climate-change-energy/.
4 See http://www.incr.com/NETCOMMUNITY/Page.aspx?pid=198&srcid=-2.
5 See Riskmetrics Group, "2007 Postseason Report," at 35-36 (Oct. 2007)
(available at http://www.riskmetrics.com/pdf/2007PostSeasonReportFINAL.pdf).
6 Exchange Act Release No. 40018 (May 21, 1998).
7 Exchange Act Release No. 12999 (Nov. 22, 1976).
[INQUIRY LETTER]
January 14, 2008
Via Overnight Delivery
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F. Street, N.E.
Washington, D.C. 20549
Re: KB Home - File No. 1-9195 No-Action Request Regarding Shareholder Proposals
Securities Exchange Act of 1934; Section 14(a), Rule 14a-8
Dear Ladies and Gentlemen:
This letter is KB Home's reply to the letter dated January 8, 2008 (the
"Proponents' Letter") that Ms. Laura J. Shaffer submitted on behalf of The
Nathan Cummings Foundation and Catholic Healthcare West (collectively, the
"Proponents"), a copy of which is attached hereto as Exhibit A. The Proponents'
Letter is in response to a letter dated December 17, 2007 (the "Initial Letter")
that KB Home submitted to the Staff. The Initial Letter requests that the Staff
not recommend any enforcement action if KB Home omits from its proxy statement
and form of proxy for its 2008 annual stockholders meeting (collectively, its
"2008 Proxy Materials") identical shareholder proposals and supporting
statements (collectively, the "Proposal") the Proponents submitted for
consideration at the meeting.
The Proposal asks that, "by December 31, 2008, the Board of Directors [of KB
Home] provide a climate change report, prepared at reasonable cost and omitting
proprietary information, on the feasibility of [KB Home] developing policies
that will minimize its impacts upon climate change, with a focus on reducing
greenhouse gas emissions from [KB Home's] products and operations."
The three points made in the Proponents' Letter are addressed below.
A. The Proposal's "Feasibility Report" Requires an Ordinary Course Risk/Benefit
Assessment
We cannot conceive how a feasibility report would "not necessarily involve" a
risk/benefit analysis, as asserted in the Proponent's Letter. One cannot say
something is feasible while ignoring its potential risks.
B. Shareholders Are Not in a Position to Make an Informed Judgment about the
Feasibility Report
The Proponents' Letter suggests that the Feasibility Report might "[describe]
available technologies" and how likely "each one" would be to gamer acceptance
from homebuyers (taking into account, one assumes, homebuyers' extremely varied
interests, preferences and budgets), or that the Feasibility Report might
"discuss how [KB Home] could adapt its practices ... to reduce greenhouse gas
emissions" across its entire operations on a region-by-region basis. The
Proponents' Letter then asserts that shareholders are in a position to evaluate
a Feasibility Report containing this kind of detail because (1) some companies
have voluntarily published sustainability reports; (2) some institutional
investors and the Investor Network on Climate Risk have engaged in
"sophisticated and high-level dialogues" with some companies about climate
change strategies; and (3) in 2007 climate change shareholder proposals earned
an average support level under 20%.
However, none of these points support the relevant standard the Commission
promulgated in SEC Release No. 34-40018 (May 21, 1998) (the "1998 Release"):
"The second consideration [for determining whether a proposal may be excluded
under Rule 14a-8(i)(7)] is the degree to which a proposal seeks to micro-manage
a company by probing too deeply into matters upon which shareholders, as a
group, would not be in a position to make an informed judgment." (emphasis
added)
That some companies voluntarily publish sustainability reports (which may or may
not cover the same subject matter and be as detailed and technical as the
Proponents' Letter suggests the Feasibility Report might be) does not provide
any evidence that shareholders, as a group, are in a position to make an
informed judgment about the Feasibility Report's content. In fact, that
shareholders, as a group, will likely not be in a position to make an informed
judgment is underscored by the Proponents' Letter's reference to the
"sophisticated and high-level" discussions that a few very sophisticated
institutional investors may hold with some companies on the issues the
Feasibility Report presumably is supposed to address, and the very low average
shareholder support for climate change proposals last year.
C. The Precedent Cited in the Proponents' Letter Does Not Support their Argument
and is Contrary to More Recent Precedent Supporting the Proposal's Exclusion
The two no-action requests cited in the Proponents' Letter do not support their
argument that shareholder proposals that reference climate change issues are not
excludable. The requests, each from 2004, involved proposals that asked the
companies to report on how they are "responding to rising regulatory,
competitive and public pressure to significantly reduce carbon dioxide and other
greenhouse gas emissions." The Proponents presumably cited these 2004 cases
because in more recent precedent, including four recent no-action letters
involving homebuilders and substantially similar proposals, the Staff has
concurred that this sort of proposal may be excluded because it involves an
ordinary course evaluation of risk. See, for instance, Centex Corporation (May
14, 2007) (proposal asked company to assess how it is "responding to rising
regulatory, competitive and public pressure to address climate change").
For the reasons stated above and in the Initial Letter, KB Home disagrees with
the assertion in the Proponents' Letter that the contentions made in the Initial
Letter lack merit, and respectfully reiterates its request that the Staff will
not recommend any enforcement action if KB Home omits the Proposal from its 2008
Proxy Materials pursuant to Rule 14a-8(i)(7).
* * *
Pursuant to Rule 14a-8(j), six copies of this letter are included herein and a
copy will be sent to each of the Proponents. If you have any questions or need
any further information, please call the undersigned collect at (310) 231-4098.
Please acknowledge receipt by date-stamping the enclosed additional copy of this
letter and returning it in the enclosed self-addressed stamped envelope.
Sincerely,
/s/
Tony Richelieu
Corporate Counsel
and Assistant Corporate Secretary
cc: Ms. Laura J. Shaffer
Director of Shareholder Activities
The Nathan Cummings Foundation
Ms. Susan Vickers, RSM
Vice President, Community Health
Catholic Healthcare West
Enclosures
[STAFF REPLY LETTER]
January 23, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: KB Home Incoming letter dated December 13, 2007
The proposal requests that the board provide a climate change report on the
feasibility of KB Home developing policies that will minimize its impacts upon
climate change, with a focus on reducing greenhouse gas emissions from its
products and operations.
We are unable to concur in your view that KB Home may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that KB Home may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
John R. Fieldsend
Attorney-Adviser
|
