Company Name: Ryland Group, Inc.
Public Availability Date: January 11, 2008
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA UPS and FACSIMILE (202-772-9201)
January 4, 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: Letter from Amalgamated Bank LongView MidCap 400 Index Fund dated December
28, 2007 Opposing Request for Omission of Shareholder Proposal
Ladies and Gentlemen:
We are counsel to The Ryland Group, Inc. ("Ryland" or the "Company") and, on
behalf of Ryland on December 17, 2007, we submitted a letter requesting that the
staff of the Division of Corporation Finance (the "Staff") concur that it will
not recommend enforcement action if Ryland omits a shareholder proposal and
supporting statement (the "Proposal") submitted on October 31, 2007 by the
Amalgamated Bank LongView MidCap 400 Index Fund (the "Proponent"). We received a
letter from the Proponent dated December 28, 2007 (the "Response Letter")
responding to our request seeking omission of the Proponent's Proposal.
We would like to respond to two points raised by the Proponent in its Response
Letter. First, the Response Letter emphasizes the effect of the turmoil in the
subprime lending market on the housing industry and the resulting demands for
regulatory actions and threats of litigation. The Proponent argues that the
challenges presented by the recent conditions in the housing sector transcend
ordinary business and are therefore appropriate for shareholder consideration.
Although the Company acknowledges that the recent developments in the housing
and mortgage sector are having an impact on the Company and the economy in
general, we do not believe the Proposal raises the type of social policy
concerns that warrant the Staff overriding a matter that is clearly related to
the ordinary business of the Company. Nevertheless, in Staff Legal Bulletin 14C
("SLB 14C"), the Staff clarified the application of Rule 14a-8(i)(7) to
proposals referencing environmental or public health issues. In SLB 14C, the
staff concluded:
To the extent that a proposal and supporting statement focus on the company
engaging in an internal assessment of the risks of liabilities that the company
faces as a result of its operations that may adversely affect the environment or
the public's health, we concur with the company's view that there is a basis for
it to exclude the proposal under rule 14a-8(i)(7) as relating to an evaluation
of risk. To the extent that a proposal and supporting statement focus on the
company minimizing or eliminating operations that may adversely affect the
environment or the public's health, we do not concur with the company's view
that there is a basis for it to exclude the proposal under rule 14a-8(i)(7).
We believe that the purpose of the foregoing distinction is that a shareholder
proposal that focuses solely on the ordinary business matters of a company, such
as the general conduct of a legal compliance committee, is excludable, but that
proposals that focus on "significant social policy issues" are not excludable
because the proposals may transcend normal day-to-day business matters. The
Proposal submitted by the Proponent clearly fits within the first category and
therefore is excludable. The Proposal asks the Company to form a committee to
review the Company's regulatory, litigation and compliance risks. In the
Response Letter, the Proponent raises concerns over homeowners facing
foreclosure and communities threatened with the risk of crime and economic
decline. However, the Proposal neither requests that the Company change its
operating principles or policies, nor claims that formation of a compliance
committee itself would address such issues. Instead, the proposal and supporting
statement express concern about the potential decline in long-term shareholder
value and not about the underlying social issues that may cause such a decline.
The Proposal clearly indicates a focus on the conduct of the Company's legal
compliance program and not on an overall social policy issue.
The second point we would like to address is that the Proponent maintains that
Ryland has "trivialized" the Proposal as a request for a proposal on risk
assessment. Although we disagree that the Company has downplayed the turmoil in
the credit markets, we do agree that the Proposal asks the Company to evaluate
the regulatory, litigation and compliance risks with respect to the Ryland's
mortgage lending business. Consistent with the discussion above with regard to
SLB 14C, the Proposal is related to the ordinary business of the Company because
it focuses on an internal assessment of the potential risks or liabilities that
the Company faces as a result of its mortgage operations. Further, while we
believe there is indeed an assessment of risk contemplated by the Proposal, we
would like to emphasize that the request for no-action relief focuses on the
premise that the Proposal involves the general conduct of a legal compliance
program and is supported by the prior SEC No-Action letters cited in our
December 17, 2007 letter to the Staff.
In its Response Letter, the Proponent cites to the Staff's decision in
Beazer Homes USA. Inc.
(November 30, 2007). We would like to stress that the underlying reasoning for
exclusion of the Proposal is different from the Beazer Homes no-action request
in two respects. First, as offered in our letter to the Staff dated December 17,
2007 and supported by the prior SEC No-Action letters cited in that letter, we
believe the Proposal relates to the conduct of a legal compliance program and
should be excludable as part of Ryland's ordinary business operations. Second,
as we described above, the Proposal is excludable because it falls squarely
within the guidance provided by SLB 14C. These arguments were not addressed in
the request for no-action relief for Beazer Homes and we believe these are
important factors to consider.
Based on the Company's request for omission of this Proposal and lack of merit
proposed in the Proponent's response, the Company respectfully requests the
Staff's concurrence that the Proposal may be omitted and that it will not
recommend enforcement action if the Proposal is excluded from the Company's 2008
proxy materials.
If you have any questions or need any additional information, please contact the
undersigned. We appreciate your attention to this request.
Sincerely,
/s/
R.W. Smith, Jr.
DLA PIPER US LLP
cc: Cornish F. Hitchcock
1200 G Street, NW, Suite 800
Washington, DC 20005
Fax: (202)315-3552
[INQUIRY LETTER]
VIA UPS
December 17, 2007
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Omission of Shareholder Proposal Submitted by Amalgamated Bank LongView
MidCap 400 Index Fund to The Ryland Group, Inc.
Ladies and Gentlemen:
We are counsel to The Ryland Group, Inc. ("Ryland" or the "Company") and, on
behalf of Ryland, we respectfully request that the staff of the Division of
Corporation Finance (the "Staff") concur that it will not recommend enforcement
action if Ryland omits a shareholder proposal and supporting statement (the
"Proposal") submitted by Amalgamated Bank LongView MidCap 400 Index Fund (the
"Proponent"). The Proponent seeks to include the Proposal in Ryland's proxy
materials for the 2008 annual meeting of shareholders. The Proposal requests
that Ryland's Board of Directors establish a compliance committee to review
regulatory, litigation and compliance risks with respect to the Company's
mortgage lending operations.
On November 13, 2007, Ryland received the Proponent's Proposal. Pursuant to Rule
14a-8(j), Ryland is submitting six paper copies of the Proposal and an
explanation as to why Ryland believes that it may exclude the Proposal. For your
review, we have attached a copy of the entire Proposal and related
correspondence as Appendix A. Ryland appreciates the Staff's consideration and
time spent reviewing this no action request.
The resolution of the Proposal reads as follows:
RESOLVED: The shareholders of The Ryland Group, Inc. (the "Company") request
that the board of directors establish a new Compliance Committee, to be composed
of independent directors, that would conduct a thorough review of the Company's
regulatory, litigation and compliance risks with respect to its mortgage lending
operations and report to shareholders within six months of the 2008 annual
meeting as to the committee's findings and recommendations, as well as the
progress made towards implementing those recommendations. This report should be
prepared at reasonable cost and may omit confidential information.
The Proposal May Be Excluded Under Rule 14a-8(i)(7)
Because It Relates to Ordinary Business Matters
Under Rule 14a-8(i)(7) of the Exchange Act, a shareholder proposal may be
omitted from a company's proxy statement if the proposal "deals with matters
relating to the company's ordinary business operations." In Exchange Act Release No. 34-40018 (May 21, 1998) (the "1998 Release"), the Commission explained that
the general underlying policy of the ordinary business exclusion is to confine
the resolution of ordinary business problems to management and the board of
directors. The Commission went on to say that the ordinary business exclusion
rests on "two central considerations." The first consideration is the subject
matter of the proposal. The 1998 Release provides that "[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." The second consideration is the degree to which the proposal
attempts 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." For the reasons set forth below, the Proposal
falls within the parameters of the ordinary business exception contained in Rule
14a-8(i)(7) and, therefore, the Company may exclude the Proposal on that basis.
With regard to the first consideration noted above, the fundamental task at
issue is that of monitoring the Company's business practices to ensure
compliance with applicable laws, rules and regulations. The housing industry and
mortgage lending operations are heavily regulated and concerns relating to
regulation and compliance are central to the Company's core competencies as well
as its day-to-day operations. In fact, the Company's ability develop land and
originate mortgage loans requires an extensive understanding of the applicable
national, state and municipal regulations. For these reasons, the Company
believes that compliance with laws, rules and regulations and monitoring
business practices to ensure such compliance is "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."
The Proposal also seeks to micro-manage complex company matters because it seeks
to prescribe the manner by which the Company monitors its compliance with
applicable laws, rules and regulations. As part of its ordinary day-to-day
business, the Company's management, at the direction and oversight of the Board,
determines the appropriate means for achieving the Board's and management's
compliance monitoring functions. The Board provides this direction and oversight
primarily through its Audit Committee, which is comprised of at least 3
directors, all of whom meet the independence requirements of the New York Stock
Exchange and the Securities and Exchange Commission. Under its charter, the
Audit Committee is charged with oversight responsibility of the Company's
compliance with legal and regulatory requirements. The Audit Committee charter
permits the Audit Committee to retain outside advisors in connection with the
performance of its duties. Accordingly, the Company and its Board clearly have
decided how to best manage compliance related matters; the Proposal is an
attempt to substitute this Proponent's view on how to best oversee and conduct
this ordinary course of business activity.
Furthermore, in Exchange Act Release No. 34-20091 (August 16, 1983) (the "1983
Release"), the Commission specifically addressed the issue of the excludability
under Rule 14a-8(i)(7) of proposals requesting the formation of special
committees to study matters that relate to a company's ordinary business
operations. Paragraph 5 of the 1983 Release states:
In the past, the staff has taken the position that proposals requesting issuers
to prepare reports on specific aspects of their business or to form special
committees to study a segment of their business would not be excludable under
[Rule 14a-8(i)(7)]. Because this interpretation raises form over substance and
renders [paragraph (i)(7)] largely a nullity, the Commission has determined to
adopt the interpretive change set forth in the Proposing Release. Henceforth,
the staff will consider whether the subject matter of the special report or the
committee involves a matter of ordinary business; where it does, the proposal
will be excludable under [Rule 14a-8(i)(7)].
Consistent with this determination, the Staff has declined to recommend
enforcement action against companies that omitted shareholder proposals
requesting that the board of directors undertake actions to ensure compliance
with legal requirements related to ordinary business operations. For instance,
in Monsanto Company (November 3, 2005), a shareholder proposal called for the
board of directors to create an ethics oversight committee of independent
directors for the purpose of monitoring the company's domestic and international
business practices to ensure compliance with the company's code of business
conduct and applicable laws, rules and regulations of federal, state, provincial
and local governments, including the Foreign Corrupt Practices Act. The Staff in
Monsanto granted the company no-action relief in omitting the proposal from its
proxy statement under the ordinary business exception because the proposal
related to the general conduct of a legal compliance program. See also, Ford Motor Co. (March 19, 2007) (excluding a proposal seeking the appointment of an
independent legal advisory commission to investigate alleged securities law
violations);
AES
Corp. (January 9, 2007) (excluding a proposal requesting the formation of an
ethics oversight committee to monitor the company's business practices to ensure
compliance with applicable laws, rules and regulations of the federal, state and
local governments and the company's code of ethics); Humana Inc. (February 25,
1998) (excluding a proposal urging the company to appoint a committee of outside
directors to oversee the company's corporate anti-fraud compliance program);
Crown Central Petroleum Corp. (February 19, 1997) (excluding a proposal
requesting that the board investigate whether the company and its franchisees
were in compliance with applicable laws regarding sales of cigarettes to
minors).
Based upon the precedent established in the Staff's no action letters set forth
above and the facts provided by the Company in this letter, Ryland believes that
the Proposal may be excluded from the Company's proxy materials pursuant to Rule
14a-8(i)(7) because it involves the general conduct of a legal compliance
program.
Conclusion
For the reasons contained in this letter and based on the authorities cited
herein, Ryland believes that the Proposal may properly be omitted from its proxy
materials under Rule 14a-8(i)(7) because the Proposal deals with a matter that
relates to the Company's ordinary business operations. Accordingly, the Company
respectfully requests the Staff's concurrence that the Proposal may be omitted
and that it will not recommend enforcement action if the Proposal is excluded
from the Company's 2008 proxy materials.
Staff's Use of Facsimile Numbers for Response
Pursuant to Staff Legal Bulletin 14C, in order to facilitate transmission of the
Staff's response to our request during the highest volume period of the
shareholder proposal season, our facsimile number is (410) 580-3001 and the
Proponent's facsimile number is (202) 315-3552. Further, in appreciation of the
Staff's work during the height of the proxy season, we have included photocopies
of all no-action letters cited in this no action request as Appendix B.
If you have any questions or need any additional information, please contact the
undersigned. We appreciate your attention to this request.
Sincerely,
/s/
R.W. Smith, Jr.
DLA PIPER US LLP
cc: Cornish F. Hitchcock
1200 G Street, NW, Suite 800
Washington, DC 20005
Fax: (202) 315-3552
[INQUIRY LETTER]
28 December 2007
Office of the Chief Counsel
Division of Corporation Finance
Securities & Exchange Commission
100 F Street, NE
Washington, DC 20549
By courier and e-mail (cfletters@sec.gov)
Dear Counsel:
I write on behalf of Amalgamated Bank LongView MidCap 400 Index Fund (the
"Fund") in response to the letter from counsel for The Ryland Group, Inc.
("Ryland" or the "Company") dated 17 December 2007. In that letter the Company
requests that the Division grant no-action relief with respect to a shareholder
proposal submitted by the Fund that deals with establishing a Compliance
Committee on Ryland's Board of Directors. For the reasons set forth below, the
Fund submits that the Company has not carried its burden with respect to
establishing that the Fund's proposal may be excluded from the Company's proxy
materials.
The Fund's Proposal.
The Fund requests that the Company "establish a Compliance Committee, to be
composed of independent directors, that would conduct a thorough review of the
Company's regulatory, litigation and compliance risks with respect to its
mortgage lending operations and report to shareholders within six months of the
2008 annual meeting as to the committee's findings and recommendations, as well
as the progress made towards implementing those recommendations." The resolution
adds that the report should be prepared at reasonable cost and may omit
confidential information.
The Supporting Statement cites the recent turmoil in the housing and mortgage
markets and how that has had a negative effect on Ryland stock, as well as
others in the industry, with the Company's stock price having lost approximately
half its value in the first ten months of 2007.
The Supporting Statement cites a report in BUSINESS WEEK suggesting that some
aggressive business practices among the nation's largest
homebuildersparticularly within their mortgage or financing affiliatesmay have
contributed to the recent collapse of the mortgage and housing markets. Concerns
center on the conflict of interest that may occur if a home builder's mortgage
affiliate issues mortgages to home buyers who may not be able to repay their
obligations.
The Supporting Statement cites as well the growing demand for legislative and
regulatory action at both the federal and state levels that could increase legal
obligations on loan originators, as well as crack down on deceptive lending,
foreclosure or fraud. This is in addition to the threats of litigation under
current laws affecting home buildings under the Real Estate Settlement
Procedures Act, the Truth in Lending Act, and the Home Ownership Equity
Protection Act, as well as state anti-predatory lending statues.
This concern is far from theoretical. In October 2007 Ryland (while denying any
wrongdoing) paid $84,000 to settle a federal investigation into whether the
Company had accepted rebates from insurers for referrals when selling homes.
The Supporting Statement expresses concern about the damage to long-term
shareholder value that can result from litigation, regulatory costs and
reputational injury at companies that lack adequate compliance procedures and
active oversight by the board. Thus, the proposal urges an investigation of the
Company's practices in this area and efforts to mitigate any potential conflicts
that might be disclosed.
The "Ordinary Business" Exclusion.
1. The Applicable Standard.
Ryland invokes the "ordinary business" exclusion in Rule 14a-8(i)(7), which
permits companies to omit proposals that "are mundane in nature and do not
involve any substantial policy or other considerations." This is the standard
set out in the 1976 rulemaking which produced Rule 14a-8(c)(7) (later recodified
as Rule 14a-8(i)(7)) and explained how it should be applied in particular cases.
Release No. 34-12999, 41 Fed. Reg. 52994, 52998 (3 December 1976) (the "1976
Release").
This interpretation stemmed from the Commission's concern about a noaction
letter advising a utility that it could exclude a resolution on the topic of
whether the company should build a nuclear power plant. The staff's theory was
that the utility's management, "as an ordinary business matter, determines the
fuel mix and the types of electrical generating methods that will be utilized to
furnish electricity to the company's customers."
Potomac Electric Power Co. (5
March 1976), 1976 SEC No-Act. LEXIS 622, *3. To avoid this result in the future,
the SEC proposed amending the "ordinary business" exclusion to require the
inclusion of "proposals involving important business matters, notwithstanding
the fact that such matters generally would relate to the conduct of the issuer's
ordinary business operations." SEC Release No. 34-12598, 41 Fed. Reg. 29982,
29984 (20 July 1976).1 After receiving public comments, the SEC adopted the 1976
Release and reissued Rule 14a-8 in amended form; the Commission did not,
however, alter the language of the "ordinary business" exclusion, citing
administrative and interpretational concerns. 41 Fed. Reg. at 52997. The SEC
concluded that the existing standard (which was placed in a new subpart (c)(7))
"appears to be a workable one if it is interpreted in a somewhat more flexible
manner than in the past." Id. at 52998.
The "substantial policy" benchmark well captures the point the Commission sought
to make: It is not enough that the topic of a resolution be "mundane" indeed,
the PEPCO example shows how any policy issue can be characterized to seem like a
part of the company's day-to-day business. What matters is whether the proposal
is also devoid of "any substantial policy or other considerations," 1976
Release, 41 Fed. Reg. at 52998 (emphasis added).
In Release No. 34-40018, 63 Fed. Reg. 29106 (28 May 1998) the Commission
reaffirmed this approach and provided additional guidance for determining what
sort of issues would transcend "ordinary business." The Commission recommended a
focus first on the subject matter of the proposal, noting that "[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 director
shareholder oversight," e.g., decisions on hiring or promotion of employees,
production quality, and retaining suppliers. Id. at 29108. Even so, the SEC
noted, some proposals would "transcend the day-to-day business matters and raise
policy issues so significant" as to warrant shareholder input. Id.
Secondly, the Commission cited a need to examine the extent to which a proposal
would "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.
In seeking no-action relief Ryland argues that the Fund's proposal amounts to
little more than a request that the Company undertake actions to ensure
compliance with legal requirements relating to Ryland's ordinary business
operations - (Ryland Letter at p. 3). As we now demonstrate, the issues
presented by the Fund's proposal transcend ordinary business considerations, and
Ryland has not sustained its burden of proving otherwise.
2. Significant Policy Issues.
Contrary to Ryland's assertions, the Fund's proposal does not focus on
day-to-day operation of the company, but rather on governance at the board of
directors level. Directors, after all, are elected by the shareholders to act as
stewards of the shareholders. Particularly at a time when the Company's stock
price has collapsed with no sign of immediate recovery, it is plainly not a
matter of "ordinary business" for shareholders to raise questions about how
directors carry out that responsibility in this industry.
Specifically, the Fund's proposal asks the board to create a new committee that
would focus on issues pertaining to the present housing and mortgage crisis, a
"significant policy" issue by anyone's definition.2 The proposal also seeks a
board-level review of the Company's mortgage operations business amidst concerns
that home builders' mortgage financing affiliates may have exacerbated the
current problems by originating mortgages in significant numbers to buyers who
could not afford those mortgages.
Apart from significant policy issues presented by the current housing and credit
crisis, we note that the utilization of compliance committees has itself emerged
as a significant issue of corporate governance in recent years. Nearly two years
THE WALL STREET JOURNAL reported how a "small but growing number" of S&P 500
committees are setting up compliance committees along the line recommended by
the Fund here, rather than simply relying on the audit committee. Joann S.
Lublin, Compliance Panels Slowly Take Hold, WALL ST. JOURNAL (9 January 2006)
(Ex. A hereto). The practice is noticeable in industries that are subject to
significant regulatory requirements, as are home builders.
The Fund's proposal is thus comparable to other proposals seeking the creation
of a board-level committee to look into significant policy issues. Three
no-action determinations in which the Division denied no-action relief are
illustrative.
Associates First Capital Corporation (13 March 2000) chillingly anticipated the subprime lending issues that dominate today's news. The resolution there sought
the creation of a board committee to "oversee the development and enforcement of
policies to ensure that (1) accounting methods and financial statements
adequately reflect the risks of subprime lending and (2) employees do not engage
in predatory lending practices; and to report before the next annual meeting to
the shareholders on policies and their enforcement." Despite pleas from the
company this related to its core business activities, the Division denied
no-action relief.
Similarly in General Electric Co. (28 January 2005), the proposal asked the
board to create a committee to "review General Electric's operations in Iran,
with a particular reference to potential financial and reputational risks
incurred by the company by such operations." A report was similarly requested.
The Division rejected GE's argument that the proposal merely sought a request
for an evaluation on doing business in a single country and did not involve any
overriding social policy issue.
More recently in
Yahoo!
(16 April 2007), a proposed bylaw would create a board-level Committee on Human
Rights to review "implications of the company's policies" with respect to human
rights, both at home and abroad. Of particular note, the Division rejected the
company's argument that the "issue of how the Company should respond or alter
its services to comply with government regulations ... is central to the
Company's day-to-day business operations," and the "issue is highly complex, and
requires a detailed understanding of, among other things, the Company's current
and future business models and strategies, available technology and the
regulatory landscape" matters on which shareholders were said to be
ill-equipped to judge. 2007 SEC No-Act. LEXIS 445 at *70-71.
Also relevant here is the recent determination in
Beazer Homes USA, Inc.
(30 November 2007), where the Division denied no-action relief with respect to a
proposal that requested a report "evaluating the Company's potential losses or
liabilities relating to its mortgage operations and/or those of any affiliates
or subsidiaries." In Beazer, as here, the proponent cited the current crises
involving mortgage lending, the credit crunch, and the significant loss of
shareholder value among homebuilders as factors that took the proposal out of
the realm of "ordinary business." The Division rejected Beazer's arguments that
this proposal could be excluded under the "ordinary business" exclusion in Rule
14a-8(i)(7), upon which Ryland relies here.
The authorities cited by Ryland involve requests for committees to monitor
various aspects of company operations, but those proposals did not involve the
same level of urgency or public policy considerations that are presented by the
current mortgage crisis. E.g.., Monsanto Co. (3 November 2005) (committee to
monitor "code of conduct" compliance); Ford Motor Co. (19 March 2007) (committee
to monitor securities law issues); AES Corp.
(9 January 2007) (committee to monitor ethics compliance); Humana Inc. (25
February 1998) (committee to monitor antifraud program); Crown Central Petroleum Corp. (19 February 1997) (committee to monitor franchisee compliance with laws
regarding cigarette sales to minors).
Here, a home builder's choices about how to operate a financing affiliate are at
one level a part of the company's day-to-day activities. Nonetheless, the wrong
choice can have significant consequences not only for the company and its
shareholders, but also for home owners who find themselves faced with
foreclosure, for renters who may find themselves evicted from homes threatened
with foreclosure, for communities that face the risk of crime and economic
decline from foreclosures and a need to issue debt to deal with those threats,3
and for investors in this country and abroad who put their money into
collateralized debt obligations only to see the value plummet. This situation is
a far cry from the situations in the letters that Ryland cites.
For these reasons Ryland's attempt to trivialize the Fund's proposal as merely a
request for a proposal on risk assessment badly underestimates the policy
significance of the proposal. Nor is there merit to Ryland's alternative
argument that the proposal seeks to intrude into the Company's litigation
strategy to the extent that Ryland may find itself in litigation.
Conclusion.
For the foregoing reasons, Ryland has failed to carry its burden of justifying
exclusion of the Fund's proposal, and we would ask the Division to advise the
Company that its request for no-action relief is denied.
Thank you for your consideration of these points. Please do not hesitate to
contact me if there is any further information that can be provided.
Very truly yours,
/s/
Cornish F. Hitchcock
cc: R.W. Smith, Jr., Esq.
Mr. Scott Zdrazil
-----FOOTNOTES-----
1 The proposed text amendment would have replaced the language then in subpart
(c)(5), which allowed companies to omit requests to act on "a matter relating to
the conduct of the ordinary business operations of the issuer," with a new
subpart (c)(7), which would permit the omission only of "routine, day-to-day matter[s] relating to the conduct of the ordinary business operations of the
issuer." See 41 Fed. Reg. at 29988, 29984.
2 See, e.g., Congress Takes Up Mortgages, WALL ST. JOURNAL at A7 (6 September
2007); Treasury Secretary Paulson Presses for Congress to Act on FHA Bill, WALL
ST. JOURNAL (14 September 2007); Bush Wants to Expand Mortgage Disclosures, WALL
ST., JOURNAL at D3 (20 September 2007); Housing Mess: Congress to the Rescue?,
WALL ST. JOURNAL at A9 (22 September 2007); Paulson Urges Congress to Act on
Loan Woes, WALL ST. JOURNAL at A2 (4 December 2007); Bush to Unveil Aid to
Homeowners, WALL ST. JOURNAL at A3 (5 December 2007); Henry M. Paulson, Jr., Our
Plan to Help Homeowners, WALL ST. JOURNAL at A17 (7 December 2007).
3 See Spreading the Misery, THE NEW YORK TIMES (29 November 2007) and Ohio to
Sell Bonds to Avert Home Foreclosures, BLOOMBERG NEWS (24 March 2007) (Exs. B
and C, attached hereto).
[APPENDIX 1]
9 November 2007
Mr. Timothy J. Geckle
Corporate Secretary
The Ryland Group, Inc.
24015 Park Sorrento, Suite 400
Calabasas, California 91302
By UPS
Re: Shareholder proposal for 2008 annual meeting
Dear Mr. Geckle:
On behalf of the Amalgamated Bank LongView MidCap 400 Index Fund (the "Fund") I
submit the enclosed shareholder proposal for inclusion in the proxy statement
that The Ryland Group, Inc. (the "Company") plans to circulate to shareholders
in anticipation of the 2008 annual meeting. The proposal is being submitted
under SEC Rule 14a-8 and relates to the Company's board committee practices.
The Fund is an S&P MidCap 400 index fund located at 275 Seventh Avenue, New
York, N.Y. 10001. The Fund has beneficially owned more than $2000 worth of the
Company's common stock for more than a year. A letter confirming ownership is
being submitted under separate cover. The Fund plans to continue ownership
through the date of the 2008 annual meeting, which a representative plans to
attend.
We would be pleased to discuss with you the issues presented by this proposal.
Please do not hesitate to contact me if there is anything further that I can
provide.
Very truly yours,
/s/
Cornish F. Hitchcock
[APPENDIX 2]
RESOLVED: The shareholders of The Ryland Group, Inc. (the "Company") request
that the board of directors establish a new Compliance Committee, to be composed
of independent directors, that would conduct a thorough review of the Company's
regulatory, litigation and compliance risks with respect to its mortgage lending
operations and report to shareholders within six months of the 2008 annual
meeting as to the committee's findings and recommendations, as well as the
progress made towards implementing those recommendations. This report should be
prepared at reasonable cost and may omit confidential information.
SUPPORTING STATEMENT
The recent turmoil in the housing and mortgage markets has wiped out billions of
dollars in shareholder value at housing-related companies. During the first ten
months of 2007, Ryland Group stock lost approximately half its value.
In its August 13, 2007 issue, BUSINESS WEEK suggested that improper business
practices among the nation's largest homebuildersparticularly within their
mortgage or financing affiliatesmay have contributed to the recent collapse of
the mortgage and housing markets. A specific concern is the conflict of interest
that may occur if a home builder's mortgage affiliate issues mortgages to home
buyers who may not be able to repay their obligations.
Concerns about housing financing practices have prompted calls for more
regulatory and legislative action, as well as litigation. Reports in the news
media indicate an increased interest by state and federal regulators in
enforcing existing laws affecting home builders and mortgage originators, with a
possibility of new regulations. In addition, some Members of Congress have
indicated an interest in imposing a fiduciary obligation on originators and
possibly placing non-bank lenders under federal oversight. At the state level,
legislatures in a number of states are considering measures that target
deceptive lending, foreclosure or fraud.
Litigation is also pending under the Real Estate Settlement Procedures Act, the
Truth in Lending Act, and the Home Ownership Equity Protection Act, as well as
state anti-predatory lending statues.
In October 2007 Ryland Group paid $84,000 to settle a federal investigation into
whether the Company had accepted rebates from insurers for referrals when
selling homes. The Company denied any wrongdoing.
As shareholders, we are concerned about the damage to long-term share-holder
value that can result from litigation, regulatory costs and reputational injury
at companies that lack adequate compliance procedures and active oversight by
the board. Although the board currently has an Audit Committee, that committee's
focus is on financial reporting. Given the current public scrutiny of
homebuilders and their business practices, we believe that it is important for a
new board committee to undertake a thorough investigation of the Company's
practices in this area and to avoid or mitigate any conflicts that might arise.
We urge you to vote FOR this proposal.
[STAFF REPLY LETTER]
January 11, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Ryland Group, Inc. Incoming letter dated December 17, 2007
The proposal requests that the board establish a compliance committee, to be
composed of independent directors, that would conduct a thorough review of the
company's regulatory, litigation and compliance risks with respect to its
mortgage lending operations and would report to shareholders its findings and
recommendations, as well as the progress made towards implementing those
recommendations.
There appears to be some basis for your view that
Ryland may exclude the proposal under rule 14a-8(i)(7), as relating to Ryland's
ordinary business operations (i.e., evaluation of risk). Accordingly, we will
not recommend enforcement action to the Commission if Ryland 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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