Company Name: Motorola, Inc.
Public Availability Date: January 7, 2008
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 14, 2007
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
100 F. Street, N.E.
Washington D.C. 20549
Re: Omission of Shareholder Proposal Submitted by Michael R. Levin
Ladies and Gentlemen:
Motorola, Inc. ("Motorola" or the "Company") has received from Michael R. Levin
(the "Proponent"), a proposal and supporting statement (the "Proposal") for
inclusion in the Company's proxy materials for the 2008 Annual Meeting of
Stockholders (the "Proxy Materials"). The Company intends to omit the Proposal
from its Proxy Materials pursuant to Rules 14a-8(i)(7), 14a-8(i)(3), and 14a-9
for the reasons set forth below.
The Proposal is identical to the proposal submitted to McDonald's Corporation
("McDonalds") by the same Proponent for McDonald's 2006 annual meeting and for
which the staff (the "Staff") of the Securities and Exchange Commission (the
"SEC" or the "Commission") confirmed it would not recommend enforcement action
to the Commission if McDonald's omitted the proposal from its proxy materials in
reliance on Rule 14a-8(i)(7) (the "McDonald's No-Action Letter"). McDonald's
Corporation (March 14, 2006).
In accordance with Rule 14a-8(j)(2), enclosed are six copies of this letter and
its attachments. Also in accordance with Rule 14a-8(j), a copy of this letter
and its attachments is being mailed on this date to the Proponent informing him
of the Company's intention to omit the Proposal from its Proxy Materials. The
Company currently intends to file its definitive Proxy Materials with the SEC on
or about March 14, 2008. Accordingly, this letter is being filed with the SEC,
pursuant to Rule 14a-8(j), no later than eighty calendar days before the Company
files its definitive Proxy Materials with the SEC. An additional copy is
included, which we ask that you use to acknowledge receipt of this submission by
date stamping and returning to the undersigned in the enclosed self-addressed
envelope.
For substantially the same rationale set forth in the request of "no-action" by
McDonald's cited above, Motorola requests that the Staff again confirm that it
will not recommend enforcement action to the SEC if Motorola omits the same
proposal by the same proponent as in the McDonald's No-Action Letter.
The Proposal
The Proposal seeks shareholder approval of the following:
Resolved: Shareholders request the Board of Directors adopt and implement a
comprehensive risk strategy that is both consistent with and based on
independent research into and analysis of the overall level of variability in
financial results that investors expect from their investment in Motorola, with
necessary steps to implement this strategy to include but not be limited to:
reduce substantially Motorola levels of cash and other sources of working
capital
issue only floating rate debt, and converting existing debt to floating-rate
eliminate stand-by debt facilities
eliminate the purchase of all hedging instruments, including all forms of
insurance, currency derivatives, and interest rate derivatives.
The Proposal is included as Attachment A.
The Proposal is Excludable under Rule 14a-8(i)(7) as it Concerns Motorola's
Ordinary Business Operations
Motorola believes, based on the identical nature of the Proposal to the proposal
in the McDonald's No-Action Letter among other things, that the Proposal may be
omitted from the Proxy Materials, because it relates to Motorola's ordinary
business operations under Rule 14a-8(i)(7).
Rule 14a-8(i)(7) permits a company to exclude a proposal that deals with a
matter relating to the company's ordinary business operations. As the Commission
noted, there are two central considerations underlying the ordinary business
exclusion. First, "[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." SEC Release No. 40,018 (May 21,
1998). Second, a proposal should not seek to "'micro-manage' the company by
probing too deeply into matters of a complex nature upon which shareholders, as
a group, would not be in a position to make an informed judgment." Id.
The Proposal clearly does both. Management's decisions regarding risk
management, levels of cash, debt, hedging and insurance are all inherent duties
of management under the supervision of the Board of Directors. The Proposal also
"micro-manages" by specifying, among other things, the level of cash and working
capital, which type of debt should be issued, and limiting other strategies
management may find appropriate. The topics covered in the Proposal are all
inherently complex requiring significant research and analysis into financial,
tax, accounting and other business considerations on a real-time and deeply
factual basis. Management's expertise makes them the best, most-informed
decision-makers for such day-to-day business, which cannot easily be subject to
direct shareholder oversight.
The Staff has previously taken the position that proposals, including this exact
Proposal, relating to risk management, corporate strategy and financing
decisions relate to ordinary business operation and therefore may be excluded
under Rule 14a-8(i)(7). See e.g. McDonald's Corporation (March 14, 2006) (same
proposal and same proponent as currently at issue); Newmont Mining Corporation
(February 4, 2004) (proposal requested a comprehensive report on the risk to the
company's operations, profitability and reputation of its social and
environmental liabilities); The Chubb Corporation (January 25, 2004) (proposal
requested a report providing a comprehensive assessment of company's strategies
to address the impact of climate change); Merck & Co., Inc. (February 9, 2001)
(proposal sought to influence pricing policies and research and development
efforts); Harken Energy Corp. (March 30, 2001) (proposal called for shareholder
approval of financings involving issuance of stock); Willamette Industries, Inc.
(March 20, 2001) (proposal requested a report on environmental issues and
efforts to resolve them, including an estimate of the worst case financial
exposure due to environmental and other matters; Staff stated that the
evaluation of risk relates to a company's ordinary business operations); The
Mead Corporation (January 31, 2001), (proposal excludable on grounds that it
focused on environmental liability methodology and evaluation of risk); Sempra
Energy (February 7, 2000) (proposal related to investment of funds derived from
utility operations and the means of financing utility services); General
Electric Company (February 15, 2000) (proposal excludable on the grounds that
sources of financing constitute ordinary business operations).
The Proposal is also Excludable under Rule 14a-8(i)(3) as it Contains False and
Misleading Statements
Rule 14a-8(i)(3) permits a company to exclude a proposal if the proposal or its
supporting statement is contrary to any of the Commission's proxy rules,
including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials.
In his supporting statement, proponent states that Motorola's "risk management
approaches, practices and programs appear to cost Motorola approximately $1,5
billion (sic) in annual cash flow, or approximately $0.60 per common equity
share". Proponent provides no basis for such calculation cited twice in the
Proposal. There is no explanation or verifiable data referred to by Proponent.
Such unsubstantiated figures would be misleading to shareholders.
In addition, Proponent states "investors typically have a higher tolerance for
variability than executives, with executives thinking that many more events are
material than investors think are material." Such statement is not based on any
data and is misleading.
It is an opinion presented as fact in an attempt to mislead shareholders into
thinking that management does not represent their preferences.
Further, Proponent states "Motorola lacks a comprehensive, consistent approach
to risk taking and risk management. In many areas, risk management approaches,
practices and programs reflect a harmful risk aversion that negates its
otherwise aggressive risk taking." Proponent again has no basis for such
statements.
Note (b) to Rule 14a-9 states that "material which directly or indirectly
impugns character, integrity or personal reputation" may be misleading within
the meaning of Rule 14a-9. Proponent asserts "Motorola risk management programs
reflect considerable risk aversion, based in part on Motorola executives'
inaccurate, incomplete and isolated views of many of the risks in the
electronics business." He continues, that "Motorola executives over-react to
individual sources of variability". These statements directly impugn the
character and personal reputation of management and are excludable under
14a-8(i)(3) and Note (b) to Rule 14a-9.
Conclusion
On the basis of the foregoing, the Company believes that the Proposal deals with
ordinary business operations and contains false and misleading statements and,
therefore, is excludable from the Proxy Materials. The Company respectfully
requests the concurrence of the Staff that the Proposal may be excluded from the
Proxy Materials. Based on the Company's timetable for the 2008 Annual Meeting, a
response by the Staff before February 1, 2007 would be of great assistance.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact the undersigned at 847.576.5006.
Thank you for your time and consideration.
Sincerely,
/s/
Jennifer M. Lagunas
Corporate Counsel
cc: Michael R. Levin, 1863 Kiest Avenue, Northbrook, Illinois 60062
Attachments
[INQUIRY LETTER]
November 19, 2007
Via email to marilyn.ayala@motorola.com and US Mail
Mr. A. Peter Lawson
Secretary
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, IL 60196
Re: Shareholder Proposal
Dear Mr. Lawson,
We have beneficially owned shares of Motorola valued at more than $2,000 for
more than one year, and we expect to continue ownership through the date of
Motorola next annual meeting. Pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 we hereby submit the following shareholder proposal and supporting
statement for inclusion in Motorola proxy statement for the next annual meeting
of stockholders or any earlier meeting.
***
Whereas: Motorola lacks a comprehensive, consistent approach to risk taking and
risk management. In many areas, risk management approaches, practices and
programs reflect a harmful risk aversion that negates its otherwise aggressive
risk taking. Taken together, these risk management approaches, practices and
programs appear to cost Motorola approximately $1,5 billion in annual cash flow,
or approximately $0.60 per common equity share, without having a material impact
on the variability of aggregate financial results. These risk management
programs represent overly conservative risk avoidance that is inconsistent with
investor expectations for Motorola's riskiness within investor portfolios.
Resolved: Shareholders request the Board of Directors adopt and implement a
comprehensive risk strategy that is both consistent with and based on
independent research into and analysis of the overall level of variability in
financial results that investors expect from their investment in Motorola, with
necessary steps to implement this strategy to include but not be limited to:
reduce substantially Motorola levels of cash and other sources of working
capital
issue only floating rate debt, and converting existing fixed-rate debt to
floating-rate
eliminate stand-by debt facilities
eliminate the purchase of all hedging instruments, including all forms of
insurance, currency derivatives, and interest rate derivatives.
Supporting statement
By adopting a comprehensive risk strategy, and by implementing it in at least in
the identified areas, Motorola will increase annual cash flow by approximately
$1.5 billion, or approximately $0.60 per common equity share, without a material
increase in the variability of Motorola's aggregate financial results and
corresponding increase in economic capital. This figure is based on analyses of
publicly available information from Motorola and comparable firms, and could in
fact increase as Motorola implements a comprehensive risk strategy in other
areas, such as agricultural commodity price hedging or product quality.
Motorola risk management programs reflect considerable risk aversion, based in
part on Motorola executives' inaccurate, incomplete, and isolated views of many
of the risks in the electronics business. Both established theory and available
evidence suggests that Motorola executives over-react to individual sources of
variability, and design and implement risk management programs that respond as
absolutely and completely as possible to what they perceive as material risks.
Motorola investors view a firm differently, as a logical collection of risks
that generate an aggregate performance, and care much less than executives do
about individual sources of risk. Furthermore, investors typically have a higher
tolerance for variability than executives, with executives thinking that many
more events are material than investors think are material.
A vote FOR this proposal is a vote to align executive risk taking with
shareholder risk appetite.
***
Please feel free to contact me at 847.830.1479 with any questions.
Very truly yours,
/s/
Michael R. Levin
m.levin@comcast.net
[INQUIRY LETTER]
From: Michael Levin [mailto:m.levin@comcast.net]
Sent: Tuesday, December 18, 2007 10:33 AM
To: CFLETTERS
Cc: Lagunas Jennifer Muzzo-RGB864
Subject: Motorola - shareholder proposal
Securities and Exchange Commission
Division of Corporate Finance
Office of the Chief Counsel
via email: cfletters@sec.gov
copy to Motorola, Inc.: Jennifer.Lagunas@motorola.com
Ladies and Gentlemen:
I am in receipt of my copy of the letter dated December 14, 2007 from Jennifer
Lagunas of Motorola, Inc. ("Motorola") to the Office of the Chief Counsel
("Letter") concerning Motorola's intention to omit from its proxy materials the
shareholder proposal and supporting statement I submitted to Motorola on
November 19, 2007 (" "Proposal" "). Based on the Proposal and the Letter,
Motorola has not provided sufficient reason to omit the Proposal. Below I set
forth my response to the Letter.
***
Motorola seeks to omit the Proposal on two grounds: ordinary business operations
(Rule 14a-(i)(7)), and false and misleading statements (Rule 14(a)-8(i)(3)).
The Proposal does not deal with Motorola's ordinary business operations
Here I rebut Motorola"s two specific arguments that the Proposal deals with
ordinary business operations. I also respond to Motorola's contention that the
Staff has previously taken the position that proposals related to risk
management, corporate strategy, and financing decisions relate to ordinary
business operations. Finally, I add additional arguments how the Proposal
addresses broad strategic issues that are indeed the proper subject of
shareholder proposals.
Motorola asserts two arguments concerning ordinary business operations. First,
Motorola seeks to omit the Proposal because it seeks to "subject ordinary
business decisions and related transactions to direct shareholder oversight."
Second, Motorola also seeks to omit the Proposal because the company claims it
will "micro-manage" Motorola. However, properly construed, the Proposal does not
address "ordinary business decisions" nor does it "micro-manage" Motorola.
Instead, it raises issues that in fact constitute a proper and appropriate
matter for discussion among shareholders, the Board of Directors, and
management.
Motorola first asserts that the Proposal seeks to "subject ordinary business
decisions and related transactions to direct shareholder oversight." Motorola
states that "decisions concerning risk management, levels of cash, debt,
hedging, and insurance, are all inherent duties of management under the
supervision of the Board of Directors." " To the extent that the Proposal
addresses "decisions concerning risk management, levels of cash, debt, hedging,
and insurance" " it does not prescribe specific management tactics. Nowhere does
the Proposal require or even recommend specific tactics about how to manage
levels of cash, debt, hedging, or insurance, such as types of cash management or
debt transactions, specific financial products, or specific counterparties with
whom Motorola should contract. Instead, the Proposal indicates that specific
outcomes related to these items will likely result from implementation of a
comprehensive risk strategy. The Staff has previously taken the position that
companies may not omit proposals that address the Board of Directors' role in
setting company strategy (Ameren Corporation, January 4, 2002; Duke Energy
Corporation, January 24, 2002).
Motorola also asserts that the Proposal will "micro-manage" the company by
""specifying, among other things, the level of cash and working capital, which
type of debt should be issued, and limiting other strategies that management may
find appropriate." Again, nowhere does the Proposal recommend or require
specific levels of cash and working capital, type of debt to issue, or specific
counterparties with whom Motorola should contract. Rather, the Proposal
indicates that implementing the risk strategy will likely serve to reduce cash
and working capital and change the structure of the company's debt. To the
extent that the Proposal does address an aspect of risk strategy that will
likely lead to Board of Directors' discussion of Motorola insurance programs,
the Staff has previously taken the position that Companies may not omit
proposals that concern how much insurance a company needs for its operations
(Baltimore Gas & Electric Company, February 6, 1990).
Furthermore, Motorola asserts that in seeking to "micro-manage" the company, the
Proposal seeks shareholder participation in decisions that "are "inherently
complex requiring significant research and analysis into financial, tax,
accounting, and other business considerations on a real-time and deeply factual
basis. Management's expertise takes them the best, most-informed
decisions-makers for such day-to-day business, which cannot easily be subject
indirect shareholder oversight." However, the Proposal does not ask shareholders
to vote on specific risk management tactics, such as precise terms or
counterparties for a risk transfer transaction, for which shareholders might not
have the "expertise" to decide how to vote. Rather, it recommends that Motorola
"adopt and implement a comprehensive risk strategy", with implementation likely
to include various general steps set forth in the Proposal. Also, to the extent
that the Proposal does in fact ask shareholders to vote on such complex
considerations, Motorola itself thinks these considerations falls within
shareholder knowledge and expertise. Motorola acknowledges this in its extensive
disclosures on risk management tactics in its financial statements and other
filings with the securities and Exchange Commission ("SEC"), presumably to
provide shareholders with the very information that it asserts shareholders do
not have the expertise to understand and interpret.
Motorola also asserts that prior Staff positions have allowed other companies to
exclude ostensibly similar proposals. However, eight of the excluded proposals
that Motorola cites bear no material similarity to the Proposal. Of the eight
prior proposals cited:
four proposals required the subject company to prepare a report to
shareholders about environmental hazards (Newmont Mining Corporation, February
4, 2004; The Chubb Corporation, January 25, 2004; Willamette Industries, Inc.,
March 20, 2001; The Mead Corporation, January 31, 2001); the Proposal does not
require any such report to shareholders, nor does it address environmental
hazards.
one proposal (Merck & Co., February 9, 2001) required the subject company to
review the quality and ethics of individual business units, dismantle
substandard businesses, and dismiss certain employees; nowhere does the Proposal
require Motorola to review specific businesses with respect to quality and
ethics, dismantle any businesses, or dismiss any employees.
one proposal (Harken Energy Corp., March 30, 2001) required the subject
company to obtain shareholder approval to authorize and issue common stock;
nowhere does the Proposal address how Motorola will obtain shareholder approval
to authorize and common stock.
one proposal (Sempra Energy, February 7, 2000) required the subject company to
invest in certain subsidiaries; the Proposal does not address any specific
investments in any given business or sector.
one proposal (General Electric Company, February 15, 2000) required the
subject company to report to shareholders on sources of government-related
financing; the Proposal does not require any such report to shareholders, nor
does it address sources of government-related financing.
Beyond Motorola"s arguments against including the Proposal, there are two other
reasons why the Proposal addresses broad strategic issues that are the proper
subject of shareholder proposals.
First, how a company takes and manages risk is a fundamental component of a
company's direction and strategy. In the same way that shareholders and
management discuss and agree on goals and plans for a corporation's returns or
profits, they should also discuss and agree on goals and plans for the risk
taking and management that underlies the activities that lead to returns or
profits. The Proposal merely recommends that the Board of Directors engage in
such discussions in a particular manner: they will "adopt and implement a
comprehensive risk strategy" along with several steps to implement the strategy.
On at least one other occasion, Staff has refused to concur with a request for
no-action in a similar case, in which a shareholder proposed that a company
provide appropriate disclosure of the risk of [Text illegible]given business, so
that shareholders could evaluate for themselves and discuss with management the
risk of the business (Merrill, Lynch & Co., December 29, 1994).
Second, the Proposal addresses a fundamental and material difference between the
interests of shareholders and management, specifically in their different views
of how much risk the firm should take. In the Supporting Statement, the Proposal
sets forth the reasoning underlying the estimated $0.60 per share impact of
adopting and implementing the comprehensive risk strategy, namely excessive
managerial risk aversion relative to shareholders' appetite for risk. In many
other similar instances involving differences between the interests of
shareholders and management, such as related to shareholder rights plans and
executive compensation, companies have not been allowed to omit proposals from
shareholders.
The proposal does not violate Rule 14a-9
Motorola asserts that the Proposal violates this rule in three ways: it contains
false and misleading statements, it contains unfounded statements that impugn
management's character, and is vague. Below I rebut all three assertions.
The proposal does not contain false and misleading statements
First, Motorola criticizes the assertion in the Proposal of a cost of $1.5
billion in cash flow due to managerial risk aversion. Motorola does not indicate
whether it believes this assertion is false or misleading, or shows how it is
false or misleading. Motorola does claim "[t]here is no explanation or
verifiable data" for the calculation. However, the absence of an "explanation or
verifiable data" is neither false nor misleading, and Motorola fails to show how
any of the specific statements in the Proposal are in fact false or how they
guide shareholders to an unwarranted or incorrect conclusion. Also, because of
the space limitations imposed in a shareholder proposal, there is no room to
include detailed calculations. However, if Motorola will allow a longer proposal
than regulations currently require them to allow, [Text illegible] would be
pleased to provide sources and calculations.
Motorola also criticizes the assertion in the Proposal that shareholders have a
higher tolerance for variability than mananagement as "not based on any data
and...misleading", and as "opinion presented as fact in an attempt to mislead
shareholders into thinking that management does not represent their
preferences." However, there is an abundant literature that sets forth both
theory and evidence about executive risk aversion in many companies. The
prevailing new among academics, investors, and other observers is that
executives in general are more risk averse than investors (see Shapira, Zur;
1994; Risk Taking - A Managerial Perspective; New York: Russell Sage Foundation
and Tufano, Peter; 1998; Agency Costs of Risk Management, Financial Management,
Vol. 27, No. 1 (Spring), p. 67-77, among many other sources). In addition,
consistent with that literature, executives at Motorola are in fact more risk
adverse than shareholders, as shown by the analyses referenced in the Proposal,
particularly that which addresses the amount of cash flow that shareholders
forego because executives choose to transfer risks that shareholders would not
chose to transfer. Again, space limitations imposed in a shareholder proposal do
not permit me to include data supporting this assertion, and if Motorola would
allow a longer proposal than regulations currently require them to allow, I
would be pleased to provide sources.
Motorola also criticizes the assertion in the Proposal that the company lacks a
comprehensive risk strategy as having "no basis." If Motorola indeed has such a
strategy, a shareholder cannot find any evidence of it in any SEC filings,
annual reports, press releases, or other information issued by the company. In
the absence of such evidence, the Proposal"s assertion cannot be false or
misleading.
The proposal does not contain statements that impugn management's character
Motorola asserts that the Proposal"s claims of managerial risk aversion ""impugn
the character and personal reputation of management." Risk aversion relates to
an executive's attitude toward business decisions and how much variability he or
she will accept in business results. Motorola does not show how degree or extent
of risk aversion relates to character, integrity, or personal reputation, all
qualities that involve executives' honesty, truthfulness, and trustworthiness.
Indeed, the Proposal takes an even, dispassionate tone, and nowhere attributes a
personal source for executive risk aversion, such as management's character,
integrity, or reputation. Nowhere does the Proposal attribute or postulate a
personal source for managerial risk aversion. For this reason Motorola does not
show how the Proposal impugns the character and personal reputation of
management.
***
For these reasons we believe that Motorola may not exclude the proposal from the
2008 Proxy Statement and respectfully request that the Staff recommend
enforcement action should Motorola so exclude the proposal. In the event that
the Staff does not concur with my position or desires additional information in
support of this position, I would appreciate an opportunity to confer with the
Staff concerning these matters prior to the issuance of its response. Please
feel free to contact me via reply to this email or at 847.830.1479.
Thanks for your consideration.
MRL
Michael R. Levin
1863 Kiest Avenue
Northbrook, IL 60062
847.291.3431 (home)
847.291.3840 (fax)
847.830.1479 (mobile)
[STAFF REPLY LETTER]
January 7, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Motorola, Inc.
Incoming letter dated December 14, 2007
The proposal requests that the board adopt and implement a comprehensive risk
strategy, including specific steps outlined in the proposal.
There appears to be some basis for your view that Motorola may exclude the
proposal under rule 14a-8(i)(7), as relating to Motorola's ordinary business
operations (i.e., risk management). Accordingly, we will not recommend
enforcement action to the Commission if Motorola omits the proposal from its
proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we
have not found it necessary to address the alternative basis for omission upon
which Motorola relies.
Sincerely,
/s/
John R. Fieldsend
Attorney-Adviser |
