Company Name: Lehman Brothers Holdings Inc.
Public Availability Date: February 5, 2008
Document Sections: INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 17, 2007
VIA ELECTRONIC MAIL
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Ladies and Gentlemen:
Lehman Brothers Holdings Inc. ("Lehman") received a letter dated October 16,
2007 from Central Laborers' Pension, Welfare & Annuity Funds (the "Proponent"),
presenting a stockholder proposal to be included in Lehman's next proxy
statement (the "Proposal"). The Proposal is attached hereto as Exhibit A,
together with other correspondence with the Proponent regarding proof of
beneficial ownership. We respectfully request that the staff of the Division of
Corporation Finance (the "Staff") confirm that it will not recommend any
enforcement action against Lehman if it omits the Proposal. We submit that the
Proposal may be properly omitted from the proxy materials pursuant to Rule
14a-8(i)(7) because it relates to the conduct of ordinary business operations.
The Proposal
The Proposal requests that Lehman prepare a report discussing Lehman's potential
financial exposure to the mortgage securities crisis. The Proposal notes that
the report should include: (i) a discussion of what percentage of Lehman's
mortgage originations and/or mortgage securitizations could be categorized as
subprime, Alt-A or other non-agency loan types; (ii) a discussion of the
long-term strategic and financial implications of Lehman's recent decision to
reduce its resources and capacity in the subprime area; and (iii) a discussion
of what Lehman anticipates will be its ultimate realized losses related to the
mortgage securities crisis.
The supporting statement for the Proposal states, among other things, that
"Shareholders of our Company require transparency so that we may adequately
evaluate risk. Currently there is no single source on the Company's balance
sheet that provides the requested information to shareholders."
Rule 14a-8(i)(7) - Ordinary Business
Under Rule 14a-8(i)(7), a company may exclude a proposal if it deals with a
matter relating to the company's ordinary business operations. The general
policy underlying the "ordinary business" exclusion is "to confine the
resolution of ordinary business problems to management and the board of
directors, since it is impractical for shareholders to decide how to solve such
problems at an annual shareholders meeting." Exchange Act Release No. 34-40018
(May 21, 1998). This general policy rests on two central considerations: (i) "[c]ertain
tasks are so fundamental to management's ability to run a company on a
day-to-day basis that they could not, as a practical matter, be subject to
direct shareholder oversight"; and (ii) the "degree to which the proposal seeks
to `micro-manage' the company by probing too deeply into matters of a complex
nature upon which the shareholders, as a group, would not be in a position to
make an informed judgment." Id. Lehman believes that the foregoing policy
considerations clearly justify exclusion of the Proposal. Originating, investing
in and securitizing mortgage products are activities that constitute part of
Lehman's day-to-day business operations.
In determining whether a stockholder proposal that requests preparation and
dissemination of a special report to stockholders or formation of a committee on
specific aspects of a company's business is excludable, the Staff has indicated
that it "will consider whether the subject matter of the special report or the
committee involves a matter of ordinary business." See Exchange Act Release No.
34-20091 (Aug. 16, 1983). Likewise, for proposals that request disclosures in
addition to those found in documents filed with or submitted to the Securities
and Exchange Commission (the "Commission"), the Staff has indicated that
"[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. (Oct. 26, 1999).
Lehman is a global investment bank, serving institutional, corporate, government
and high net-worth individual clients and customers. Assessing the risks and
benefits associated with Lehman's mortgage origination and securitization
businesses constitutes part of its daily operations. The Proponent asks for
management to prepare a report discussing: (i) credit classifications of
Lehman's mortgage originations and/or securitizations; (ii) the long-term
strategic and financial implications involved in Lehman's recent decision to
reduce its resources and capacity in the subprime area; and (iii) Lehman's
evaluation of potential future losses to it in relation to the mortgage
securitization crisis. All of these items (credit classifications, strategic and
financial assessments and other risk evaluations) address activities that Lehman
conducts daily, as part of its complex and highly regulated business operations.
Furthermore, the proposed report essentially requests management to prepare
additional financial disclosures which, in direct line with Johnson Controls,
supra, involve matters of ordinary business. Therefore, in accordance with Rule
14a-8(i)(7) Lehman intends to exclude the proposal from its next proxy
statement.
The Proposal Relates to the Evaluation of Risk
In applying Rule 14a-8(i)(7), it is well established that proposals such as this
one, which seek an internal evaluation of the risks or losses that a company
faces in relation to its ordinary business operations, are excludable. The
Staff's position on risk was summarized in Staff Legal Bulletin No. 14C (Jun.
28, 2005): "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." Although the Staff referred in Staff Legal Bulletin No.
14C specifically to proposals that relate to the "environment or the public's
health," Lehman respectfully submits that the Staff has subsequently applied the
same viewpoint in various no-action letters involving proposals similar to that
submitted by the Proponent.
In a long line of no-action letters the Staff has permitted the exclusion of
proposals seeking management to evaluate the risks and potential consequences of
particular events or activities that may have a bearing on company performance
because the proposals related to "ordinary business operations (i.e., evaluation
of risk)." See Pfizer Inc. (Jan. 29, 2007) (a proposal requesting a report on
"the effects on the long-term economic stability of the company and on the risks
of liability to legal claims" resulting from the company's policy of limiting
its products to Canadian wholesalers); Reynolds American Inc. (Feb. 27, 2007) (a
proposal requesting a financial analysis report on the impact of a carbon tax on
projected company financial results); Pulte Homes, Inc. (Mar. 1, 2007) (a
proposal requesting that the company assess its response to rising regulatory,
competitive, and public pressure to increase energy efficiency); Hewlett-Packard
Co. (Dec. 12, 2006) (a proposal requesting a report on the development of the
company's policy concerning greenhouse gas ("GHG") emissions, including, among
other things, the "[c]osts and benefits to [the Company] of its GHG policy");
and Wells Fargo & Co. (Feb. 16, 2006) (a proposal requesting a report on the
effect on the company's business strategy of the challenges created by global
climate change). See also TXU Corp. (Apr. 2, 2007) (a proposal requesting
management to undertake a report on energy efficiency with respect to the
company's existing and proposed power plants, and to discuss related impacts on
the company and its revenues).
Similarly, in J.P. Morgan Chase & Co. (Feb. 28, 2001), the Staff permitted
exclusion of a proposal requesting management to discuss the risks of inflation
and deflation on J.P. Morgan Chase in the risk management section of J.P. Morgan
Chase's annual financial report because the proposal related to "ordinary
business operations" (i.e., evaluation of risk in reports to shareholders).
We believe that the Proposal falls directly in line with the no-action letters
cited above. The Proposal requests that Lehman discuss its "potential financial
exposure" to the mortgage securities crisis, the "long-term strategic and
financial implications" of Lehman's decision to reduce its resources and
capacity in the subprime area, and what Lehman "anticipates will be its ultimate
realized losses related to the mortgage securities crisis." The requested report
is merely an evaluation of risk on Lehman's business with respect to its
non-agency loan activities. As such, the Proposal is related to Lehman's
ordinary business operations and therefore should be excluded under Rule
14a-8(i)(7).
The Proposal Requests Additional Financial Disclosures
Lehman believes that its position is consistent with the Staff's interpretation
of Rule 14a-8(i)(7) set forth in Johnson Controls, supra. In Johnson Controls,
the Staff permitted exclusion of a proposal that requested changes in the
company's financial statements to reflect an accurate valuation of
"goodwill-net" and the "true value" of stockholders' equity, as the Staff
determined that the additional disclosures related to the company's ordinary
business operations. The Staff in Johnson Controls announced, however, that it
would no longer permit exclusion of proposals "solely because they relate to the
preparation and content of documents filed with or submitted to the Commission."
Rather, the Staff will consider "whether the subject matter of the additional
disclosure sought in a particular proposal involves a matter of ordinary
business." Id. The Staff concluded that Johnson Controls had met this standard
because the additional disclosures requested related to its "ordinary business
operations (i.e., the presentation of financial statements in reports to
shareholders)."
In more recent no-action letters, the SEC followed its position in Johnson
Controls and permitted exclusion of proposals involving financial reporting and
disclosure decisions. See, e.g., Union Pacific Corp. (Dec. 21, 2004) (permitting
exclusion of a proposal that the board include revenue and on-time performance
data from passenger operations in its annual report); Refac (Mar. 27, 2002)
(permitting exclusion of a proposal requesting, in part, that management amend
and improve corporate disclosure practices); Int'l. Business Machines Corp.
(Jan. 9, 2001) (permitting exclusion of a proposal requesting, in part, that the
company "provide transparent financial reporting of profit from real company
operations"); Household Int'l., Inc. (Mar. 13, 2000) (permitting exclusion of a
proposal requesting, in part, that a committee of outside directors develop and
enforce policies to ensure that accounting methods and financial statements
adequately reflect the risks of subprime lending); Conseco, Inc. (Apr. 18, 2000)
(permitting exclusion of a proposal requesting, in part, that "accounting
methods and financial statements adequately report the risks of subprime
lending"); and Boeing Co. (Mar. 6, 2000) (permitting exclusion of a proposal
requesting that management take the necessary steps to ensure complete and clear
disclosure of the inclusion, listing, and use of employee pension fund trust
assets and/or surplus in all current and future earnings statements, and in past
earnings statements).
In J.P. Morgan, supra, the proponent in its request for additional financial
disclosures stated in the proposal's supporting statement that
inflation/deflation and its effects were inadequately reported in the company's
annual financial report. Similarly, in the supporting statement the Proponent
argues, "Currently there is no single source on the Company's balance sheet that
provides the requested information to shareholders." In accordance with the
no-action letters cited above, whether or not a company should disclose
financial information beyond that included in its publicly filed reports is a
determination within the discretion of the company's management and board of
directors, not the stockholders. Not only is this determination a fundamental
business function that should not be delegated to stockholders, but the
additional disclosures requested in this instance relate to Lehman's ordinary
business operations. As such, the Proposal is related to Lehman's ordinary
business operations and therefore should be excluded under Rule 14a-8(i)(7).
The Proposal Raises No Significant Policy Issues
Lehman acknowledges that current public concern over subprime lending may, in
some instances, raise significant policy issues. Lehman also is aware that Rule
14a-8(i)(7) does not permit the omission of stockholder proposals that involve
significant policy issues. Furthermore, the Staff has required inclusion of
certain stockholder proposals that targeted and raised public policy concerns
related to predatory lending practices. See, e.g., Bank of America Corp. (Feb.
23, 2006) (the Staff required inclusion of a proposal for management to develop
higher standards for the securitization of subprime loans to preclude the
securitization of loans involving predatory practices); Assocs. First Capital
Corp. (Mar. 13, 2000) (the Staff required inclusion of a proposal requesting
that management establish a committee to oversee the development and enforcement
of policies to ensure that accounting methods and financial statements
adequately reflect the risks of subprime lending and employees do not engage in
predatory lending practices); and Conseco, Inc. (Apr. 5, 2001) (the Staff
required inclusion of a proposal requesting the establishment of a committee to
oversee the development and enforcement of policies to ensure that no employee
of or broker for the company engages in predatory lending practices and that no
loan originated or purchased is entailed by predatory lending practices). In
these no-action letters, the proponents' concerns were focused on the lending
practices of the companies that might affect others outside of the company and
its stockholders. The proponents sought greater oversight from management of the
companies' lending policies and financial reporting practices to prevent the
companies from engaging in predatory lending practices. This is not the case in
the Proposal.
Rather, the Proposal solely looks inward to Lehman's financial results and
ordinary business operations. It is a request for stockholders to participate in
the management and risk evaluation process of Lehman's day-to-day business. The
supporting statement clearly indicates this. It begins with, "As long-term
shareholders, we are concerned about our Company's recent performance," and ends
with, "Currently there is no single source on the Company's balance sheet that
provides the requested information to shareholders." Neither the supporting
statement nor the Proposal addresses any significant policy issue, but instead
implicates only the financial considerations, internal evaluation of risk
processes, and impacts, costs and benefits to Lehman arising from its non-agency
mortgage loan activities.
No-action precedents demonstrate that the applicability of Rule 14a-8(i)(7)
hinges largely on whether implementing the proposal would have broad public
policy impacts outside the company, or instead, would deal only with matters of
the company's internal business operations, planning and strategies. Thus, the
Staff has required the inclusion of proposals asking companies to prepare
reports on the impacts of human activity on global warming, see General Electric
Co. (Jan. 17, 2006) and Occidental Petroleum Corp. (Feb. 7, 2006), but allowed
companies to exclude proposals requesting inward-looking reports on the economic
effects of HIV/AIDs, tuberculosis and malaria pandernics on their business
strategy and risk profile. See Pfizer Inc. (Jan. 24, 2006) and Marathon Oil
Corp. (Jan. 23, 2006). The Proposal falls squarely in the latter group.
Conclusion
For the reasons set forth above, it is respectfully submitted that the omission
of the Proposal from Lehman's next proxy statement is proper. We respectfully
request your confirmation that the Staff will not recommend enforcement action
if the Proposal is omitted. Lehman presently anticipates mailing its proxy
materials for the 2008 Annual Meeting of Stockholders on or about March 5, 2008.
We would appreciate a response from the Staff in time for Lehman to meet this
schedule. In order to facilitate delivery of the Staff's response to this
letter, the Staff's decision may be sent by facsimile to Lehman at (646)
758-2651 and to the Proponent at (217) 245-1293.
In accordance with Rule 14a-8(j), Lehman is simultaneously sending a copy of
this letter and all attachments to the Proponent. A copy of this letter has been
e-mailed to cfletters@sec.gov in compliance with the instructions found at the
Commission's web site and in lieu of our providing six additional copies of this
letter pursuant to Rule 14a-8(j).
If the Staff has any questions, requires further information, or wishes to
discuss this matter, please call me at (212) 526-0546.
Very truly yours,
LEHMAN BROTHERS HOLDINGS INC.
By:/s/
Name: Jeffrey A. Welikson
Title: Vice President and Corporate Secretary
cc. Barry McAnarney (Central Laborers' Pension, Welfare & Annuity Funds)
Jennifer O'Dell (Laborers' International Union of North America Department of
Corporate Affairs)
Andrew R. Keller (Simpson Thacher & Bartlett LLP)
[INQUIRY LETTER]
October 16, 2007
Mr. Jeffery A. Welikson
Corporate Secretary
Lehman Brothers Holdings, Inc.
745 7\th/ Avenue
New York, NY 10019
Dear Mr. Welikson,
On behalf of the Central Laborers' Pension Fund ("Fund"), I hereby submit the
enclosed shareholder proposal ("Proposal") for inclusion in the Lehman Brothers
Holdings, Inc. ("Company") proxy statement to be circulated to Company
shareholders in conjunction with the next annual meeting of shareholders. The
Proposal is submitted under Rule 14(a)-8 (Proposals of Security Holders) of the
U.S. Securities and Exchange Commission's proxy regulations.
The Fund is the beneficial owner of approximately 3,072 shares of the Company's
common stock, which have been held continuously for more than a year prior to
this date of submission. The Proposal is submitted in order to promote a
governance system at the Company that enables the Board and senior management to
manage the Company for the long-term. Maximizing the Company's wealth generating
capacity over the long-term will best serve the interests of the Company
shareholders and other important constituents of the Company.
The Fund intends to hold the shares through the date of the Company's next
annual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter,
Either the undersigned or a designated representative will present the Proposal
for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact
Jennifer O'Dell, Assistant Director of the LIUNA Department of Corporate
Affairs, at (202) 942-2359. Copies of correspondence or a request for a
"no-action" letter should be forwarded to Ms. O'Dell at Laborers' International
Union of North America Corporate Governance Project, 905 16\th/ Street, NW,
Washington, DC 20006.
Sincerely,
/s/
Barry McAnarney
Executive Director
c: Jennifer O'Dell
Enclosure
[APPENDIX]
Resolved: That the shareholders of Lehman Brothers Holdings Inc. ("Lehman" or
"the Company") request that the Board of Directors prepare and provide to
shareholders a report discussing its potential financial exposure as a result of
the mortgage securities crisis, including the following:
1. A discussion of what percentage of Lehman's mortgage originations and/or
mortgage securitizations could be categorized as subprime, Alt-A or other
non-agency loan types;
2. A discussion of the long-term strategic and financial implications of the
Company's recent decision to reduce its resources and capacity in the subprime
area and,
3. A discussion of what the Company anticipates will be its ultimate realized
losses related to the mortgage securities crisis.
The report should be prepared at reasonable cost, omit proprietary information,
and be distributed to shareholders within six months of the Company's annual
meeting in the manner deemed most efficient by the Company.
Supporting Statement
As long-term shareholders, we are concerned about our Company's recent
performance. Our Company is a major player in the non-agency mortgage loan area.
As major news outlets have reported, these types of loans have suffered major
losses. Our Company has been forced to lay off workers, shut down operations in
its subprime unit and has seen its market cap drop significantly over a short
period of time. Analysts say that the challenges that our Company is facing may
be compounded by Lehman's silence. According to recent press reports, "[I]n the
current environment, Lehman may be paying a price for its relative silence about
its exposure to troubled mortgages and high-risk debt... if there's another shoe
to drop, people are waiting for it to fall at Lehman. No news in this case is
not good news." 1 For these reasons, shareholders have reason to be concerned
and to seek greater information from our Board of Directors.
According to Dow Jones, our Company is, "... the worst-performing of all big
brokerage stocks since the mortgage securities crisis exploded in mid-June.
Lehman's shares are off more than 32 percent since June 15 ..." 2 Lehman's
Aurora unit, which focused almost exclusively on the Alt-A loan space, has faced
particular investor scrutiny when analysts speculated that, "... losses might be
mounting at Aurora Loan Services, the Lehman mortgage subsidiary that
specializes in so-Alt-A loans to borrowers who can't fully document their income
or assets." 3 Shareholders of our Company require transparency so that we may
adequately evaluate risk. Currently there is no single source on the Company's
balance sheet that provides the requested information to shareholders.
We therefore urge shareholders to vote FOR our proposal.
-----FOOTNOTES-----
1 Bloomberg, Aug. 22, 2007.
2 Dow Jones News Wire, August 14, 2007.
3 Bloomberg, August 22, 2007.
[INQUIRY LETTER]
January 29, 2008
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Response to Lehman Brothers Holdings Inc.'s Request for No-Action Advice
Concerning the Central Laborers' Pension, Welfare & Annuity Funds' Shareholder
Proposal
Dear Sir or Madam:
The Central Laborers' Pension, Welfare & Annuity Funds ("Fund") hereby submits
this letter in reply to Lehman Brothers Holdings Inc.'s ("Lehman" or "Company")
Request for No-Action Advice to the Security and Exchange Commission's Division
of Corporation Finance staff ("Staff") concerning the Fund's shareholder
proposal ("Proposal") and supporting statement submitted to the Company for
inclusion in its 2008 proxy materials. The Fund respectfully submits that the
Company has failed to satisfy its burden of persuasion and should not be granted
permission to exclude the Proposal. Pursuant to Rule 14a-8(k), six paper copies
of the Fund's response are hereby included and a copy has been provided to the
Company.
The Company fails to satisfy its burden under Rule 14a-8(i)(7) and its no-action
request should be denied.
The Company argues that the Proposal may be excluded under Rule 14a-8(i)(7)
because it relates to the conduct of ordinary business operations. The Company
notes that "[o]riginating, investing in and securitizing mortgage products are
activities that constitute part of Lehman's day-to-day business operations."
Specifically, the Company argues that "it is well established that proposals
such as this one, which seek an internal evaluation of the risks or losses that
a company faces in relation to its ordinary business operations, are
excludable." The Company cites Staff Legal Bulletin No. 14C (June 28, 2005),
although it acknowledges that the Staff was referring to proposals that relate
to the "environment or the public's health." The Company then observed that the
Staff has applied this same viewpoint in various no-action letters involving
proposals similar to the instant proposal. However, each of the decisions cited
actually involved proposals pertaining to the environment or public health,
except for a decision in J.P. Morgan Chase & Co. (Feb. 28, 2001) requesting
management to discuss the risks of inflation and deflation in the company's
annual financial report. We respectfully submit that a report on the risks of
inflation and deflation are significantly different from the information sought
by the Proposal.
The Proposal requests that Lehman prepare a report discussing Lehman's potential
financial exposure as a result of the mortgage securities crisis, including a
discussion of what percentage of its mortgage originations and/or mortgage
securitizations could be categorized as subprime, Alt-A or other non-agency loan
types; a discussion of the implications of the Company's decision to reduce its
resources and capacity in the subprime area; and a discussion of anticipated
losses related to the mortgage securities crisis.
As the Company acknowledges, certain issues may not be excludable under the
ordinary business exclusion because they raise significant policy issues. It
stated:
Lehman acknowledges that current public concern over subprime lending may, in
some instances, raise significant policy issues. Lehman also is aware that Rule
14a-8(i)(7) does not permit the omission of stockholder proposals that involve
significant policy issues.
The Company proceeds to cite a number of cases that addressed concerns related
to predatory lending practices before concluding:
In these no-action letters, the proponents' concerns were focused on the lending
practices of the companies that might affect others outside of the company and
its stockholders. The proponents sought greater oversight from management of the
companies' lending policies and financial reporting practices to prevent the
companies from engaging in predatory lending practices. This is not the case in
the Proposal.
Rather, the Proposal solely looks inward to Lehman's financial results and
ordinary business operations. It is a request for stockholders to participate in
the management and risk evaluation process of Lehman's day-to-day business.
The Company concludes that proposals that "look inward" do not raise significant
policy issues and are thus excludable under Rule 14a-8(i)(7). However, we
believe the Company's analysis overlooks significant relevant precedent while
misinterpreting the nature of the Proposal.
In Staff Legal Bulletin No. 14A (July 12, 2002) it was noted:
The Division has noted many times that the presence of widespread public debate
regarding an issue is among the factors to be considered in determining whether
proposals concerning that issue "transcend the day-to-day business matters.[]
We believe that the public debate regarding shareholder approval of equity
compensation plans has become significant in recent months. Consequently, in
view of the widespread public debate regarding shareholder approval of equity
compensation plans and consistent with our historical analysis of the `ordinary
business' exclusion, we are modifying our treatment of proposals relating to
this topic.[]....
The analogy to the widespread debate surrounding equity-based compensation is
apt. The subprime mortgage crisis that has engulfed the country and dominated
news the last several months, as well as the severe economic and financial
crisis that has ensued, certainly serves to elevate what admittedly once might
have been a matter of ordinary business to anything but that today. Further, the
issue of equity-based compensation is likewise susceptible to the Company's
charge that the Proposal "looks inward" to the Company's financial results.
In Verizon Communications Inc., 2003 SEC No-Act. LEXIS 123 (Jan. 23, 2003) the
Staff rejected the company's Rule 14a-8(i)(7) argument and affirmed inclusion of
a proposal that was related to the company's auditors. The Staff stated:
The proposal requests that the board of directors adopt a policy `stating that
the public accounting firm retained by our Company to provide audit services, or
any affiliated company, should not also be retained to provide any management
consulting services to our Company.'
....
We are unable to concur in your view that Verizon may exclude the proposal under
rule 14a-8(i)(7). That provision permits the omission of a proposal that deals
with a matter relating to the ordinary business operations of a registrant. In
view of the widespread public debate concerning the impact of non-audit services
on auditor independence and the increasing recognition that this issue raises
significant policy issues, we do not believe that Verizon may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(7).
Another important precedent is provided by National Semiconductor Corporation,
2002 SEC No-Act. Lexis 821 (December 6, 2002) which represents a decision by the
full Commission directing the Staff to reconsider its original decision in favor
of the company seeking to exclude a proposal requesting the board establish a
policy and practice of expensing in its annual income statement the cost of
stock options issued to company executives. The proponent in National
Semiconductor noted, "Regardless of whether the issue of expensing stock options
may once have been portrayed as a mundane matter that reflects no more than a
choice of accounting methods, such is most definitely not the case today."
The Staff Legal Bulletin and the precedent demonstrate that issues related to
auditor independence, stock option expensing, and equity-based compensation had
been transformed by widespread public debate from ordinary business matters to
significant policy issues worthy of shareholder consideration. We respectfully
submit that such is clearly the case as daily reports make clear that the
mortgage securities crisis is part of a global economic and financial crisis.
On Jan. 21, 2008, the New York Times features an article entitled "Stock Plunge
Worldwide on Fears of a U.S. Recession." That article noted:
Fears that the United States is in a recession reverberated around the world on
Monday, sending stock markets from Frankfurt to Bombay into a tailspin and
puncturing the hopes of many investors that Europe and Asia will be able to
sidestep an American downturn.
On a day when United States markets were closed in observance of Martin Luther
King's Birthday, the world's eyes were trained nervously on the United States.
Investors reacted with what many analysts described as panic to the multiplying
signs of weakness in the American economy. Shares of banks led the decline in
many countries, underscoring that the subprime crisis continues to hobble the
global financial system.... (emphasis added).
In an article entitled "Paulson says Bush administration working to combat
subprime crisis," International Herald Tribune (Jan. 7, 2008) it was reported:
The Bush administration is working to combat the severe housing crisis in the
United States, but there is no simple solution, Treasury Secretary Henry Paulson
said Monday, adding that a correction in the housing market is "inevitable and
necessary."
....
Paulson said the country was facing an unprecedented wave of 1.8 million
subprime mortgages that are scheduled to reset to sharply higher rates over the
next two years. He said this raised the possibility of a market failure and was
the reason the administration brokered a deal with the mortgage industry to
freeze certain subprime mortgage rates for five years to allow the housing
market to recover.
....
Paulson and President George W. Bush were both delivering speeches Monday on the
state of the economy. Bush received an update Friday from Paulson, Federal
Reserve Chairman Ben Bernanke and other market regulators about how markets have
been performing following a severe credit squeeze that began in August that
roiled financial markets around the world.
The credit crisis was sparked by raising defaults on subprime mortgages. Those
defaults have already resulted in multibillion-dollar losses at many financial
institutions who bought securities backed by the subprime mortgages that have
gone bad....
The widespread public debate concerning the subprime mortgage crisis elevates
the Proposal such that it transcends ordinary business matters. The Proposal is
not an attempt to micromanage the Company or its business. Rather, it seeks to
obtain critically important information as shareholders seek to monitor their
investment in the Company.
For these reasons, we submit that the Company has failed to satisfy its burden
of persuasion under Rule 14a-8(i)(7) and the Proposal should be included in the
Company's proxy statement.
If you have any questions or wish to discuss the Proposal, please contact
Jennifer O'Dell, Assistant Director, LIUNA Corporate Affairs Department, at
(202) 942-2359.
Sincerely,
/s/
Barry McAnarney
Executive Director
[STAFF REPLY LETTER]
February 5, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Lehman Brothers Holdings Inc. Incoming letter dated December 17, 2007
The proposal requests that the board prepare and
provide to shareholders a report discussing the company's potential financial
exposure as a result of the mortgage securities crisis, including information
specified in the proposal.
There appears to be some basis for your view that Lehman may exclude the
proposal under rule 14a-8(i)(7), as relating to Lehman's ordinary business
operations (i.e., evaluation of risk). Accordingly, we will not recommend
enforcement action to the Commission if Lehman omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Eduardo Aleman
Attorney-Adviser
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