Company Name: McGraw Hill Cos., Inc.
Public Availability Date: January 28, 2008
Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 18, 2007
BY EMAIL TO cfletters@sec.gov
WITH COPIES BY COURIER
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: The McGraw Hill Companies, Inc. Securities Exchange Act of 1934; Rule 14a-8
Ladies and Gentlemen:
This letter is submitted on behalf of The McGraw Hill Companies, Inc. (the
"Company"), a New York corporation, pursuant to Rule 14a-8(j) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). On November
20, 2007, the Company received a letter, dated November 19, 2007, from Mr.
Conrad MacKerron, Director of the Corporate Social Responsibility Program of the
As You Sow Foundation, on behalf of a Mr. Scott McDonald (the "Proponent")
requesting that the Company include a shareholder proposal (the "Proposal") in
the Company's 2008 proxy statement. A copy of the Proponent's letter and the
Proposal is attached hereto as Exhibit A.
The resolution contained in the Proposal provides:
BE IT RESOLVED that the board of directors prepare a report, at reasonable cost,
studying ways to take leadership on the environmental aspects of paper
procurement through actions such as promoting stronger national paper recovery
goals, setting goals for recycled content in its magazines and books, and goals
for a majority of its supply chain to adopt strong forest management
certification procedures.
This letter sets forth the reasons for the Company's belief that it may omit the
Proposal from the proxy statement and form of proxy (collectively, the "Proxy
Materials") relating to the Company's 2008 annual meeting of shareholders
pursuant to Exchange Act Rules 14a-8(b) and 14a-8(f). Pursuant to Exchange Act
Rule 14a-8(j)(2), enclosed are six (6) copies of this letter, including
exhibits. By copy of this letter, the Company is notifying the Proponent of its
intention to omit the Proposal from the Proxy Materials.
The Company intends to file its definitive 2008 Proxy Materials with the
Securities and Exchange Commission (the "Commission") on or about March 20, 2008
and the annual meeting of the Company's shareholders is expected to occur on or
about April 30, 2008. Printing of the definitive proxy statement is expected to
begin on March 12, 2007. Pursuant to Rule 14a-8(j), this letter is being
submitted not less than 80 calendar days before the Company files its definitive
Proxy Materials with the Commission.
Discussion
The Proposal may be properly omitted in accordance with Rules 14a-8(b) and
14a-8(f) because the Proponent has failed to provide the Company, within the
period set forth in Rule 14a-8(f), adequate verification that the Proponent
satisfies the eligibility requirements of Rule 14a-8(b).
Rule 14a-8(b)(1) requires, among other things, that, in order to be eligible to
submit the Proposal, the Proponent "must have continuously held at least $2,000
in market value, or 1%, of the company's securities entitled to be voted on the
proposal at the meeting for at least one year" prior to the date on which the
Proponent submitted the Proposal. The Proponent's letter stated that it
satisfied the eligibility requirements of Rule 14a-8 and enclosed as proof of
the requisite ownership a letter (the "Broker Letter"), dated November 16, 2007,
from a Mr. Thomas W. Van Dyck, a Senior Vice President-Financial Consultant of
the SRI Wealth Management Group of RBC Dain Rauscher ("RBC"). The Broker Letter
is attached hereto as Exhibit B.
Following its receipt of the Proposal, the Company searched its shareholder
records and could locate neither the Proponent as a record holder of the
Company's stock nor RBC as a record holder of stock being held on the
Proponent's behalf. Further, the date of the Broker Letter, November 16, 2007,
inappropriately predated the date of the Proposal's submission to the Company,
November 19, 2007, by three days. Accordingly, the letter could not constitute
adequate evidence of ownership as of the date of the proposal. Therefore, in
accordance with Rule 14a-8(f), on November 29, 2007, the Company sent a letter
(the "Company Letter") via registered mail to the Proponent requesting proof
that the Proponent's stockholdings satisfy the requirements of Rule 14a-8(b). In
particular, the Company Letter notified the Proponent that the Broker Letter did
not satisfy the requirements of Rule 14a-8 and that it could not locate the
Proponent as a record holder of the Company's stock nor RBC as a record holder
of Company stock on the Proponent's behalf. If the Proponent disagreed with the
Company's determination that he was not a record holder, the Company Letter
requested that the Proponent advise precisely how those shares appear in the
Company's records. Because the Proponent was not a record holder of the
Company's stock, the Company Letter informed the Proponent that he was required
to submit a written statement from the record holder of its securities
"verifying that, at the time Mr. McDonald's proposal was submitted, Mr. McDonald
continuously held the securities for at least one year." The Company Letter
further stressed that "a written statement from an ... investment advisor that
is not a record owner of the shares would be insufficient evidence as that would
not qualify as documentary support from the record holder of the shares" but
that "the Company would accept a letter from a broker or bank that has custody
of the securities." The Company Letter also included a copy of Rule 14a-8 and
stated that the required documentation was required to be submitted to the
Company within 14 calendar days of the date of receipt of the Company Letter.
See Section C of Staff Legal Bulletin 14B of September 15, 2004. A copy of the
Company Letter is attached hereto as Exhibit C.
In response to the Company Letter, on December 3, 2007, the Company received an
email from Mr. MacKerron stating that he phoned RBC and "they confirmed that
they are the record holder with actual custody of the shares" and asked whether
a letter to that effect from RBC would resolve the Company's concerns. A copy of
Mr. MacKerron's email is attached hereto as Exhibit D. Even though not required
to do so, the Company responded via email that, as indicated in the Company
Letter (a copy of which the Company attached thereto) the Company could not
locate RBC as being a shareholder of record with respect to the Proponent's
shares but that "if you believe RBC is a record holder with respect to such
shares, then, in addition to a letter from RBC that complies with the
requirements set forth in [the Company Letter], please provide proof that
demonstrates precisely how RBC holds those shares so that we can verify such
holdings with our records." A copy of the Company's response is attached hereto
as Exhibit E. On December 5, 2007, Mr. MacKerron responded that, "[a]fter more
research," RBC stated that the account name for the shares in question is the
Scott McDonald Charitable Trust (the "Trust"); the Proponent is the beneficiary
of the trust; a Mr. Brian Shepard is the trustee; Voyageur Asset Management is
the money manager and that the shares are actually held at RBC. A copy of Mr.
MacKerron's December 5, 2007, correspondence is attached hereto as Exhibit F.
The Company, after conducting an additional search of its shareholder records,
responded on December 6, 2007 to Mr. MacKerron that it could not locate the
shares in its records under any of the names or entities Mr. MacKerron
referenced; that it could take the position that the Proponent did not satisfy
the eligibility requirements under Rule 14a-8 unless satisfactory ownership were
submitted to the Company by the 14-day deadline the Company set forth in the
Company Letter; and that it would not assist any further with respect to the
demonstration of the Proponent's satisfaction of the Rule 14a-8 eligibility
requirements. A copy of the Company's December 6, 2007, correspondence is
attached hereto as Exhibit G. On December 12, 2007, the Company received a
facsimile letter from Mr. MacKerron enclosing a redacted account statement (the
"Account Statement"), dated December 11, 2007, from RBC. The Account Statement
appears to indicate that the Trust, with Mr. Shepard as trustee, has an account
with RBC holding 118 shares of the Company that were acquired December 1, 2004.
The letter also enclosed a letter from Mr. Shepard, as trustee for the Trust,
authorizing the submission of the Proposal. A copy of the Account Statement is
attached hereto as Exhibit H.
As more fully discussed below, neither the Broker Letter nor the Account
Statement satisfy the Proponent's obligation under Rule 14a-8(b)(2).
Insufficiency of the Broker Letter as Proof of Ownership
Rule 14a-8(b)(2) provides that a shareholder proponent who is not a registered
holder (and who has not filed a Schedule 13G, Form 3, Form 4 and/or Form 5) must
prove eligibility by submitting a written statement from the record holder of
the securities verifying that, at the time the shareholder submitted the
proposal, the shareholder continuously held the securities for at least one
year. Under Rule 14a-8(f), if a shareholder fails to follow an eligibility
requirement, a company may exclude the shareholder's proposal if (i) within 14
calendar days of receiving the proposal, the company provides the shareholder
with written notice of the defect, including the time for responding and (ii)
the shareholder fails to respond to this notice within 14 calendar days of
receiving notice of the defect or the shareholder timely responds but does not
cure the defect. See Staff Legal Bulletin No. 14 (July 13, 2001) ("SLB 14").
In the instant situation, the Proponent failed to include with the Proposal
proof of ownership that satisfied the requirements of Rule 14a-8. The Broker
Letter is dated November 16, 2007 and, therefore, does not verify that the
Proponent held the requisite number of securities for at least one year as of
the date the Proponent submitted the Proposal as it provides no information
about the Proponent's ownership of the Company's stock from November 17, 2007
through November 19, 2007. Indeed, the Staff, in SLB 14, provided an
illustration that squarely dealt with a deficiency that was substantially
identical to the instant situation:
(3) If a shareholder submits his or her proposal to the company on June 1, does
a statement from the record holder verifying that the shareholder owned the
securities continuously for one year as of May 30 of the same year demonstrate
sufficiently continuous ownership of the securities as of the time he or she
submitted the proposal?
No. A shareholder must submit proof from the record holder that the shareholder
continuously owned the securities for a period of one year as of the time the
shareholder submits the proposal.
Thus, the Broker Letter is insufficient evidence of the Proponent's ownership.
In addition, the Company sent the Proponent prompt, written notice of the
procedural defect and explicitly informed the Proponent what would constitute
appropriate proof of ownership: namely, a statement from the record holder
"verifying that, at the time Mr. McDonald submitted the proposal, Mr. McDonald
continuously held the securities for at least one year." Consequently, the
Proponent's failure to provide an appropriately dated letter from the record
holder is grounds for exclusion under Rule 14a-8(f). See, e.g., Exxon Mobil Corp
(March 1, 2007) (permitting exclusion where proponent submitted proposal
December 7, 2006 and a broker letter verifying ownership dated December 1,
2006); Milacron Inc (December 21, 2004) (permitting exclusion where proponent
submitted proposal September 15, 2004 and a broker letter verifying ownership
dated July 2, 2004).
Moreover, it appears that RBC is the Proponent's investment advisor and is not a
record holder of shares on Mr. McDonald's behalf. SLB 14 provides, however, that
a written statement from a shareholder's investment advisor is insufficient
evidence of ownership of a company's shares unless the investment advisor is
also the record owner of the shares.1 Thus, the Broker Letter, even if
appropriately dated, would be insufficient because RBC is not a record owner of
shares held for the Proponent. See, e.g., Clear Channel Communications Inc
(holding insufficient a letter from Piper Jaffray as investment advisor to the
proponent).
Insufficiency of the RBC Account Statement as Proof of Ownership
Further, the Account Statement submitted to the Company (following the Company's
repeated indications as to what would constitute appropriate proof ownership) is
inadequate under Rule 14a-8(b). As the Staff stated in SLB 14:
(2) Do a shareholder's monthly, quarterly or other periodic investment
statements demonstrate sufficiently continuous ownership of the securities?
No. A shareholder must submit an affirmative written statement from the record
holder of his or securities that specifically verifies that the shareholder
owned the securities continuously for a period of one year as of the time of
submitting the proposal. (Emphasis in original.)
The Account Statement speaks only to the acquisition of the Company's common
stock or to the Proponent's holdings as of a specified dateit in no way
constitutes an affirmative written state-ment by the record holder (even if we
assume, arguendo, that RBC is a record holder of the relevant shares) that
specifically verifies continuous ownership of the shares for the one-year period
preceding the date on which the Proponent submitted the Proposal. See Yahoo!
Inc. (March 29, 2007) (holding trade confirmations, account statements and other
account data insufficient evidence of ownership); XM Satellite Radio Holdings,
Inc. (March 28, 2006) (same); General Motors Corporation (March 24, 2006)
(same); Anthracite Capital Inc. (same).
For the foregoing reasons, the Proponent has not provided, within the period set
forth in Rule 14a-8(f), adequate verification that the Proponent satisfies the
eligibility requirements of Rule 14a-8(b).
Conclusion
We respectfully submit, for the foregoing reasons, that the Proposal may be
omitted in accordance with Rules 14a-8(b) and 14a-8(f). We respectfully request
that the Staff confirm that it will not recommend any enforcement action if the
Proposal is omitted in its entirety from the Company's 2008 Proxy Materials.
Should the Staff disagree with the Company's position or require any additional
information, we would appreciate the opportunity to confer with the Staff
concerning these matters prior to the issuance of its response.
If you have any questions regarding this request or require additional
information, please contact the undersigned at (212) 403-1228 or fax (212)
403-2228.
Very truly yours,
/s/
Elliott V. Stein
cc: As You Sow Foundation
-----FOOTNOTES-----
1 In particular, SLB 14 provides:
(1) Does a written statement from the shareholder's investment adviser verifying
that the shareholder held the securities continuously for at least one year
before submitting the proposal demonstrate sufficiently continuous ownership of
the securities?
The written statement must be from the record holder of the shareholder's
securities, which is usually a broker or bank. Therefore, unless the investment
adviser is also the record holder, the statement would be insufficient under the
rule.
[APPENDIX 1]
Nov. 19, 2007
Corporate Secretary
McGraw-Hill Cos.
1221 Avenue of the Americas
New York, NY 10020-1095
Dear Corporate Secretary:
As You Sow is a non-profit organization whose mission is to promote corporate
accountability. We represent Scott McDonald, a shareholder of McGraw-Hill stock.
As You Sow is involved in discussions with several publishers, asking them to
develop leadership strategies on the cnvironmental aspects of paper used in
their books and magazines. We believe McGraw-Hill needs to develop a more goal-
and results-oriented approach to dealing with the environmental impact of paper
production that includes recycled content goals for its magazine and book
publishing paper, goals for adoption of certification systems by suppliers
equivalent to those developed by the Forest Stewardship Council, and stronger
efforts to increase overall levels of recovered fiber. We are aware the company
has established a policy on paper procurement, but the policy does not set any
specific goals or discuss how it will achieve the environmental stewardship it
commits to.
Therefore, we are submitting the enclosed shareholder proposal for inclusion in
the 2008 proxy statement, in accordance with Rule 14a-8 of the General Rules and
Regulations of the Securities Exchange Act of 1934.
Proof of ownership and authority to act on behalf of Mr. McDonald is attached.
He will hold the shares through the 2008 stockholder meeting. A representative
of the filer will attend the stockholder meeting to move the resolution as
required.
I also want to add that several efforts to speak with responsible McGraw-Hill
staff have been ignored or rebuffed, complicating efforts to engage in a
constructive dialogue on this matter.
Sincerely,
/s/
Conrad B. MacKerron
Director, Corporate Social Responsibility Program
Enclosure
[APPENDIX 2]
DEVELOP ENVIRONMENTAL PAPER PROCUREMENT GOALS
WHEREAS:
McGraw-Hill is a major user of paper for Business Week and for its educational,
reference, medical and other publishing divisions. Paper production has enormous
environmental impact, accounting for 42 percent of the global wood harvested for
industrial uses except fuelwood (Paper Cuts, WorldWatch Institute). The pulp and
paper industry is the single largest consumer of water among industrial
activities in countries of the Organization for Economic Cooperation and
Development and third largest industrial greenhouse gas emitter (OECD
Environmental Outlook).
Only 6 percent of all printing and writing paper used in U.S. magazines and
books contains any recycled content (State of the Paper Industry, EPN, 2007).
McGraw-Hill needs to develop a comprehensive approach to dealing with the
environmental impact of paper production that includes recycled content goals
for its magazine and book publishing paper, goals for adoption of supplier
forest certification systems, and stronger efforts to increase levels of
recovered fiber. We appreciate that the company has established a policy on
paper procurement, but it lacks quantifiable implementation goals or ways to
verify progress.
Large paper buyers like McGraw-Hill should use their influence to competitively
negotiate purchases of recycled content stock. Some magazine and book publishers
already use high levels of recycled content American Media Inc. uses 30 percent
post-consumer content in Shape and Natural Health. Simon & Schuster plans to
increase recycled fiber in its book paper to 25 percent by 2012.
With rising awareness of the climate change implications of paper production, we
need leadership by the company on sourcing from suppliers who are reducing
greenhouse gas emissions. Time Inc. has assessed the greenhouse gas emissions
associated with production of two of its magazines and committed to reduce such
emissions 20% by 2012. The company also required that 80 percent of its fiber be
derived from supplier forests certified as well managed.
Our company and its publishing peers should also be leading efforts to boost
recovery of high quality office and coated paper for recycling. Time underwrites
the ReMix program to boost curbside recovery of used magazines. In 2005, the
national paper recycling rate reached 51.5%, according to the American Forest
and Paper Association (AFPA). The AFPA's goal of boosting recovery to 55% by
2012 is weak. Publishers should propose a more aggressive goal and develop a
plan to meet the goal.
Considering the magnitude of the impact and the public's growing concern about
environmental sustainability, we ask our company to take steps to develop
proactive environmental leadership on a range of paper sourcing issues, and to
provide periodic updates to shareholders on its progress.
BE IT RESOLVED that the board of directors prepare a report, at reasonable cost,
studying ways to take leadership on the environmental aspects of paper
procurement through actions such as promoting stronger national paper recovery
goals, setting goals for recycled content in its magazines and books, and goals
for a majority of its supply chain to adopt strong forest management
certification procedures.
[INQUIRY LETTER]
January 10, 2008
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Shareholder Proposal Submitted to The McGraw Hill Companies Inc. for 2008
Proxy Statement
Dear Sir/Madam:
I have been asked by Mr. Conrad MacKerron, Director of the Corporate Social
Responsibility Program of the As You Sow Foundation on behalf of Mr. Scott
McDonald (hereinafter referred to as the "Proponent"), who is the beneficial
owner of shares of common stock of The McGraw Hill Companies Inc. (hereinafter
referred to as the "Company"), and who has submitted a shareholder proposal
(hereinafter referred to as "the Proposal") to the Company, to respond to the
letter dated December 18, 2007 sent to the Office of Chief Counsel by the
Company, in which the Company contends that the Proposal may be excluded from
the Company's 2008 proxy statement by virtue of Rules 14a-8(b) and 14a-8(f).
I have reviewed the Proponents' shareholder proposal, as well as the Company's
letter and supporting materials, and based upon the foregoing, as well as upon a
review of Rule 14a-8, it is my opinion that the Proponents' shareholder proposal
must be included in the Company's 2008 proxy statement, because the Proponent is
eligible to submit the Proposal. Therefore, we respectfully request that the
Staff not issue the no-action letter sought by the Company.
Pursuant to Rule 14a-8(k), enclosed are six copies of this letter and exhibits.
A copy of these materials is being mailed concurrently to the Company's counsel
Attorney Elliot V. Stein.
The Proposal seeks a report on recycled content and supply chain management. The
Company, however, does not argue that the Proposal should be excluded on subject
matter grounds. Rather, the Company claims that the Proponent is not eligible to
submit the Proposal because the documentation provided by the Proponent is
insufficient proof of ownership. It is our contention that the Company's
deficiency letter is inadequate under the Rule 14a-8(b), 14a-8(f) and Staff
Legal Bulletin No. 14 (July 13, 2001) ("SLB 14").
Background
On November 19, 2007 the Proponent sent the Proposal to the Company including a
letter from the Proponent and his broker (RBC Dain Rauscher) stating that he is
the beneficial owner of at least $2,000 worth of Company stock, that it has been
held for more than one year and that he intends to hold the stock through the
date of the Company's annual meeting in 2008.
On November 29, 2007 the Company set a request for documentation (Company
Exhibit C) to the Proponent stating:
Following receipt of the proposal, we searched our shareholder records, but were
unable to find Mr. McDonald listed as a record holder of McGraw-Hill Stock. A
search of our shareholder records also revealed that RBC Dain Rauscher is not a
record holder of stock held on Mr. McDonald's behalf.
***
We are therefore now requesting proof of Mr. McDonald's stockholdings ...
The first way to submit to the company a written statement from the "record"
holder of the securities (usually a broker or bank) ...
On December 3, 2007 the Proponent sent an email to the Company (Company Exhibit
G) confirming that RBC was the record holder and asking if a letter to that
effect from RBC would resolve the Company's concerns. Later that day, the
Company replied to the Proponent (Company Exhibit G) saying RBC is not a record
holder and that if the Proponent believes RBC is the record owner to provide
proof of that ownership.
On December 5, 2007 the Proponent sent an email to the Company (Company Exhibit
G) with additional details of the Proponents ownership including the precise
name of the account ("the Scott McDonald Charitable Trust") and the name of the
trustee ("Brian Shepard").
On December 6, 2007 the Company responded to the Proponent (Company Exhibit G)
stating that none of these names appeared as a record holder of the shares. The
Company went on to claim that the Proponent had failed to comply with the Rule
and declared the Company would no longer "assist you any further ..."
On December 12, 2007 the Proponent sent the Company a letter from the trustee of
the account dated December 10, 2007 and an account statement from RBC dated
December 11, 2007 to prove ownership of the shares. (Company Exhibit G).
Analysis
The Company's argument and conduct in this case is completely spurious and a
very poor use of the Staff's valuable time. The reality of the securities
ownership structure in the United States makes it almost certain that the
Company would be unable to find the Proponent, RBC, the Trust or the trustee in
its records. Consequently, the Company's deficiency letter was at best
inadequate and possibly abusive of the procedures set forth in the Rule.
As is known among securities professionals but not by the typical investor, the
ownership structure between the multiple securities intermediaries and
beneficial owners is complex. To begin, street name shares are owned by the
broker or bank. The broker or bank then deposits the shares in an account at the
Depository Trust Corporation. The Depository Trust Corporation, however, is not
the record owner. Rather the shares are held of record by Cede & Co., a nominee
of the Depository Trust Company. Therefore, in order to determine the identity
of the street name owner one must go first through the depository to the brokers
and banks depositing shares, then through the broker or bank to the beneficial
owner. This also means that the record owner in the case of brokers and banks is
almost invariably Cede & Co, or some other nominee and not the broker or the
bank itself. Furthermore, Cede & Co has no knowledge as to the ultimate
beneficial ownership of the stock that it holds of record for brokerage firms
like RBC. Cede & Co. merely knows the gross securities position of each
participant in the Depository Trust Company.
This situation is confirmed in footnote 21 of Rel 34-50758A (December 7, 2004)
in which the SEC observes:
The relationship between various levels of securities intermediaries and
beneficial owners is complex. There may be many layers of beneficial owners
(some of which may also be securities intermediaries) with all ultimately
holding securities on behalf of a single beneficial owner, who is sometimes
referred to as the ultimate beneficial owner. For example, an introducing
broker-dealer may hold its customer's securities in its account at a clearing
broker-dealer, that in turn holds the introducing broker-dealer's securities in
an account at DTC. In this context, DTC or its nominee is the registered owner
and DTC's participants (i.e., broker-dealers and banks) are beneficial owners,
as are the participants' customers. However, DTC, the clearing broker-dealer
(the DTC participant), and the introducing broker-dealer are all securities
intermediaries.
As such, the reality is that the name of the beneficial owner will not appear in
the company's, DTC's or Cede's records, but only in the records of the broker or
the bank even though it is virtually certain that the broker or the bank is not
the record owner. Consequently, the broker is in the best (if not only) position
to document who the ultimate beneficial owner is.
The Company's response (its Exhibit C) clearly does not meet the standards set
forth in the Rule or SLB 14 (July 13, 2001), Section G.3. with respect to
adequate notice of alleged procedural defects. Under these standards, the
Company must "provide adequate detail about what the shareholder must do to
remedy all eligibility or procedural defects." This advice was reaffirmed in
Staff Legal Bulletin No. 14B (September 15, 2004), Section C.1.
Mr. MacKerron received a letter from the Company saying that the Company could
not find the Proponent in its records nor could it find that RBC was a record
holder of stock held on the Proponent's behalf. The Company goes on to say that
proof can be provided by "a written statement from the `record' holder of the
securities (usually a broker or bank)." (emphasis added). Mr. MacKerron followed
that advice and supplied the broker provided information to the Company.
However, the Company rejected this information claiming that "we have not been
able to locate the shares which you refer to under any of the names or entities
which you list or refer to in our records." This is not providing adequate
detail about what the shareholder must do to provide proof. This is taking
advantage of the fact that lay persons have no reason to understand the complex
relationships between the various levels of securities intermediaries and
beneficial owners.
The Company essentially sent Mr. MacKerron on a wild goose chase by impliedly
proposing that the Proponent seek a letter from Cede & Co. to document
ownership. Of course that would have been a useless exercise because Cede & Co
has no knowledge as to the ultimate beneficial ownership of the stock that it
holds of record for brokerage firms like RBC. In recognition of the futility of
such a request, the Staff has rejected a 14a-8(f) claim when the registrant
seemed to demand proof from Cede & Co. See Equity Office Properties Trust (March
23, 2003).1
We would contend that the Company knew full well that RBC would not appear in
its records and was trying to create the illusion of complying with Rule
14a-8(b) while creating confusion in the mind of the Proponent. Consequently,
the Company did not provide adequate notice of the defect and it cannot rely on
the Rule to exclude the Proponent's shareholder proposal.
Turning to the Company's second argumentthat the RBC account statement is
insufficientit is clear that it is an equally spurious argument. Even if the
Staff were to conclude the Company's deficiency letter is somehow adequate, it
is apparent from the email's sent back and forth between Mr. MacKerron and the
Company (Company Exhibit G) that the issue of contention was simply ownership of
the shares and not the continuity of that ownership. The Company, by
continuously pushing its disingenuous questions of record ownership, only
confused matters. It is therefore no surprise that the documentation provided by
the Proponent was focused on the simple question of ownership and not the
subsidiary question of continuous ownership.
There is no reasonable claim on the part of the Company that the Proponent's
ownership is not continuous. RBC's November 16, 2007 letter makes it clear that
ownership was continuous for at least the prior year and the December 12, 2007
letter from the Proponent makes it clear that ownership was continuous since
December 2004. To suggest otherwise is to intimate the utterly ridiculous notion
that RBC has perpetrated a fraud. We respectfully submit that such a charge
would be beyond the pale and would illustrate the unreasonableness of the
Company's arguments. See also AT&T Inc. (January 2, 2008).
As the SEC explained in Exchange Act Release No. 34-20091 (August 16, 1983) when
justifying its adoption of the plain-English format, the goal is to "make the
rule easier for shareholders and companies to understand and follow."
Furthermore the purpose of Rules 14a-8(b) and 14a-8(f) is to ensure that the
proponents "have some measured economic stake or investment interest in the
corporation." Exchange Act Release No. 34-20091 (August 16, 1983). The purpose
is to curtail abuse of the shareholder proposal rules, id., not to provide an
opportunity for corporations to misuse the Rule by raising spurious arguments in
an effort to derail the process. Clearly, the Proponent has, in the words of the
SEC, the requisite "economic stake or investment interest in the corporation.."
As such, we request the Staff to conclude the Proponent is eligible to file the
Proposal.2
Conclusion
In conclusion, we respectfully request the Staff to inform the Company that Rule
14a-8 requires a denial of the Company's no-action request. As demonstrated
above, the Company's letters fail to meet the requirements of Rule 14a-8(b),
14a-8(f) and SLB 14. In the event that the Staff should decide to concur with
the Company and issue a no-action letter, we respectfully request the
opportunity to speak with the Staff.
Please call me at (971) 222-3366 with any questions in connection with this
matter, or if the Staff wishes any further information. Also, pursuant to SLB 14
B, section F.3. we request the Staff fax a copy of its response to the
Proponents at (801) 642-9522.
Sincerely,
/s/
Jonas Kron
Attorney for the Proponent
Enclosures
cc: Attorney Elliot V. Stein, Wachtell, Lipton, Rosen & Katz
Conrad MacKerron, As You Sow
Scott McDonald
Rebecca Sampson, RBC Dain Rauscher
-----FOOTNOTES-----
1 See also Clear Channel Communications (February 9, 2006) in which the company
also argued that neither the proponent or its broker were record holders. In
that case, the proponent made the same argument we are making here leading the
Staff conclusion in that case was "that Clear Channel failed to inform the
proponent of what would constitute appropriate documentation under rule 14a-8(b)
in Clear Channel's request for additional information from the proponent."
2 We note that the Proponent is fully prepared and able to provide additional
proof of ownership as may be appropriately required by the Staff.
[INQUIRY LETTER]
January 23, 2008
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Via email cfletters@sec.gov and U.S.P.S.
Re: Shareholder Proposal Submitted to The McGraw Hill Companies Inc. for 2008
Proxy Statement
Dear Sir/Madam:
I have been asked by Mr. Conrad MacKerron, Director of the Corporate Social
Responsibility Program of As You Sow on behalf of Mr. Scott McDonald
(hereinafter referred to as the "Proponent"), who is the beneficial owner of
shares of common stock of The McGraw Hill Companies Inc. (hereinafter referred
to as the "Company"), and who has submitted a shareholder proposal (hereinafter
referred to as "the Proposal") to the Company, to respond to the Company's
letter dated December January 17, 2008, the Company's second letter in this
matter.
Pursuant to Rule 14a-8(k), enclosed are six copies of this letter and exhibits.
A copy of these materials is being mailed concurrently to the Company's counsel
Attorney Elliot V. Stein.
First, we observe that while the Company emailed its second letter to the Staff
and the Company has in its possession our email addresses and fax numbers, it
chose to notify us of its second letter by U.S. postal mail. That letter was
received Tuesday January 22, 2008. In an effort to resolve this matter as
quickly as possible we are responding immediately and briefly.
We stand by our arguments presented to the Staff in our letter of January 10\th/.
There is nothing in the Company's letter that fundamentally detracts from the
strength of our position. Accordingly, our arguments in our January 10\th/
letter are incorporated herein and we request the Staff conclude that the
Proponent's documentation satisfies the Rule.
In addition, we would like to highlight for the Staff again the following cases
which demonstrate that the Company has no basis for excluding the Proposal.
Clear Channel Communications (February 9, 2006) and Equity Office Properties
Trust (March 23, 2003) make it abundantly clear that the Staff does not look
favorably on these sorts of tactics. The relationship between various levels of
securities intermediaries and beneficial owners is complex and disingenuous
attempts to use this complexity to create the illusion of compliance should be
rejected outright. Furthermore, AT&T Inc. (January 2, 2008) demonstrates that
attempts to create confusion about continuity of ownership, as done by the
Company here, should be rejected.
We note that the Company has not refuted our arguments related to these cases,
nor have they disputed our factual arguments regarding the complex relationships
of securities intermediaries. The Company instead seeks to bolster its position
that it did provide adequate notice of deficiency. As we explained in our
previous letter the Company's various correspondence were not providing adequate
detail about what the shareholder must do to provide proof. It appears instead
that it was taking advantage of the fact that lay persons have no reason to
understand the complex relationships between the various levels of securities
intermediaries and beneficial owners.
It is clear from our January 10\th/ letter and this letter that the Proponent
has the requisite economic stake and investment interest in the Company. As
such, we request the Staff to conclude the Proponent is eligible to file the
Proposal and that Rule 14a-8 requires a denial of the Company's no-action
request. Please call me at (971) 222-3366 with any questions in connection with
this matter, or if the Staff wishes any further information. Also, pursuant to
SLB 14 B, section F.3. we request the Staff fax a copy of its response to the
Proponents at (801) 642-9522.
Sincerely,
/s/
Jonas Kron
Attorney for the Proponent
Enclosures
cc: Attorney Elliot V. Stein, Wachtell, Lipton, Rosen & Katz
Conrad MacKerron, As You Sow
Scott McDonald
Rebecca Sampson, RBC Dain Rauscher
[INQUIRY LETTER]
January 17, 2008
BY EMAIL TO cfletters@sec.gov
WITH COPIES BY COURIER
U.S. Securities and Exchange Commission
Division of Corporate Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: The McGraw-Hill Companies, Inc. Securities Exchange Act of 1934; Rule 14a-8
Ladies and Gentlemen:
This letter is submitted on behalf of our client, The McGraw-Hill Companies,
Inc. (the "Company"), in response to the January 10, 2008 letter from Mr. Jonas
D. Kron on behalf of Mr. Conrad MacKerron of the As You Sow Foundation (the
"Proponent Representative") and Mr. Scott McDonald (the "Proponent") to the
Securities and Exchange Commission (the "Commission") regarding a shareholder
proposal and supporting statement (the "Proposal") submitted by the Proponent
for inclusion in the Company's proxy materials for its 2008 Annual Meeting of
Stockholders.
On December 18, 2007, we submitted a letter (the "Request Letter") on behalf of
the Company to request confirmation from the Staff of the Division of
Corporation Finance of the Commission (the "Staff") that it would not recommend
to the Commission that any enforcement action be taken if the Company excludes
the Proposal from its 2008 Proxy Materials pursuant to Exchange Act Rules
14a-8(b) and 14a-8(f). Mr. Kron's letter (the "Proponent Letter") is apparently
the Proponent's response to the Request Letter. We are submitting this letter to
respond to the Proponent Letter's accusations that the Company did not provide
the Proponent and his representatives with adequate notice of the Proposal's
procedural defects. The other points raised in the Proponent Letter, which
relate to the sufficiency of the documentary support provided to the Company on
behalf of the Proponent, are fully refuted by the analysis we provided in the
Request Letter, and we do not repeat those arguments here.
As we noted in the Request Letter, there are at least two deficiencies with the
letter from the Proponent's investment advisor (RBC Dain Rauscher SRI Wealth
Management) that was enclosed with the Proposal submitted to the Company: (1)
the date on the letter inappropriately predated the date of the Proposal's
submission to the Company by three days and (2) the letter was from the
Proponent's investment advisor and the Company could not locate the investment
advisor (or the Proponent) as a record holder of stock being held on the
Proponent's behalf. Therefore, in accordance with Rule 14a-8(f) and Staff Legal
Bulletins 14 and 14B (July 13, 2001 and September 15, 2004, respectively)
(together, "SLB 14"), the Company sent the Proponent a letter that notified the
Proponent that the letter from its investment advisor was insufficient and
clearly articulated to the Proponent what would constitute adequate proof. In
particular, the Company requested that, if the Proponent disagreed with its
determination that the Proponent is not a record holder, the Proponent advise
the Company precisely how those shares appear in the Company's records. Further,
because the Proponent is not a record owner, the Company advised the Proponent
that it must "submit to the company a written statement from the `record' holder
of the securities (usually a broker or bank) verifying that, at the time Mr.
McDonald's proposal was submitted, Mr. McDonald continuously held the securities
for at least one year" (emphasis added). We further stressed, in accordance with
SLB 14, "that a written statement from an introducing broker or investment
advisor that is not a record owner of the shares would be insufficient evidence
as that would not qualify as documentary support from the record holder of the
shares; however, we would accept a letter from a broker or bank that has custody
of the securities" (emphasis added). Thus, we informed the Proponent that the
documentary evidence:
must verify continuous ownership as of the date of the submission of the
Proposal;
must be from the record owner of the shares but that we would accept a letter
from a broker or bank that has custody of the securities; and
may not come from an investment advisor (e.g., RBC Dain Rauscher SRI Wealth
Management Group) unless the investment advisor is the record owner of the
Proponent's shares.
In addition, despite having already provided a letter to the Proponent complying
with Rule 14a-8(f) and SLB 14 that explicitly stated what would be acceptable,
the Company replied to two additional emails from the Proponent Representative
regarding the adequacy of the Proponent's documentary support:1
on December 3, 2007, the Company emailed the Proponent Representative that, if
he believed RBC was indeed a record owner of the shares, he should provide (A)
"a letter from RBC that complies with the requirements set forth in [the
Company's] letter of November 29th" and (B) "proof that demonstrates precisely
how RBC holds those shares so that [the Company] can verify such holdings with
[its] records." The Company also attached a copy of its November 29\th/ letter
to this correspondence.
On December 6, 2007, in response to an email from the Proponent Representative
that proposed record owner candidates of the Proponent's shares and that invited
the Company to contact RBC directly, the Company emailed the Proponent
Representative that it could not identify in its records any of the persons or
entities listed in his email and reiterated that it had informed him in its
November 29, 2007 and December 5, 2007 correspondence as to what would be
required to prove eligibility.
The written communications exchanged with the Proponent and the Proponent
Representative are included as exhibits in the Request Letter. The only
communications received from anyone purportedly having custody or record
ownership of the Proponent's shares are (i) the November 16, 2007 letter from
the Proponent's investment advisor (RBC Dain Rauscher SRI Wealth Management
Group), which fails to provide adequate evidence because it predates the
Proposal by three days and (ii) the redacted account statement dated December
11, 2007, which, as more fully explained in the Request Letter, is also
insufficient. Thus, as more fully set forth in the Request Letter, the Company
believes the Proposal may be excluded from its proxy statement in reliance on
Rules 14a-8(b) and 14a-8(f).
If the Staff needs additional information, including with respect to the
Proponent Letter, please do not hesitate to contact the undersigned at (212)
403-1228 or via fax at (212) 403-2228.
Very truly yours,
/s/
Elliott V. Stein
cc: As You Sow Foundation
-----FOOTNOTES-----
1 The Company also fielded multiple phone calls from the Proponent
Representative as to what would be required.
[STAFF REPLY LETTER]
January 28, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The McGraw Hill Companies, Inc. Incoming letter dated December 18, 2007
The proposal relates to paper.
There appears to be some basis for your view that
McGraw Hill may exclude the proposal under rule 14a-8(f). We note that the
proponent appears to have failed to supply, within 14 days of receipt of McGraw
Hill's request, documentary support sufficiently evidencing that he satisfied
the minimum ownership requirement for the one-year period required by rule
14a-8(b). Accordingly, we will not recommend enforcement action to the
Commission if McGraw Hill omits the proposal from its proxy materials in
reliance on rules 14a-8(b) and 14a-8(f).
Sincerely,
/s/
Heather L. Maples
Special Counsel
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