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March 07, 2006
SEC Forces Chevron, Dow, and CVS to Include Shareowner Resolutions on Their Proxies
    by Bill Baue

Part two of this two-part article examines no-action activity thus far in the 2006 proxy season, focusing on attempts to apply the personal grievance rule and expand a new risk assessment rule.

The withdrawal of a shareowner resolution because the company has complied with its terms represents one kind of success in shareowner advocacy (discussed in part one of this article). Another kind of success comes when the Securities and Exchange Commission (SEC) sides with shareowner advocates and denies a company’s "no action" letter, or request to omit a resolution from its proxy statement.

This proxy season thus far has seen a number of such successes, according to information provided by the EthVest database of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors that conduct shareowner advocacy. The fact that several involve highly visible and controversial issues--such as the accountability for environmental pollution of Chevron (ticker: CVX) in Ecuador and Dow (DOW) in Bhopal, India--only heightens the significance of these victories.

Chevron's no-action letter makes several arguments, one claiming that the resolution advances a "personal grievance" or "special interest" based on Rule 14a-8(i)(4). To make its case, Chevron included a copy of an email sent among resolution proponents, the nongovernmental organization (NGO) Amazon Watch, and lawyers representing 30,000 Ecuadorians in a lawsuit against Chevron.

"The Proponents are shocked that Chevron has a copy of private email communication which appears as Attachment C to the Company's no-action letter request," writes Paul Neuheuser, attorney for the proponents, in a letter to the SEC rebutting Chevron's arguments. He goes on to request an affidavit from the company confirming that it did not obtain the email illegally, which he told that he has not received.

"The email was provided freely and voluntarily to us," said Charlie Stewart, Chevron's manager for issues and litigation. "I can't comment who it was."

Chevron alleges that the email proves the resolution proponents, socially responsible investing (SRI) firms Trillium Asset Management and Boston Common Asset Management, are collaborating with Amazon Watch.

"[E]ven if this allegation were to be true the proper answer is so what," writes Mr. Neuheuser. "Trillium Asset Management's client . . . had no 'personal claim or grievance against the company' and was not planning to obtain any benefit other than promotion of the public and corporate good."

The SEC concurred, denying Chevron's request for permission to leave the resolution off its proxy.

"In their no-action request, Chevron tried to use that fact that we associate with Amazon Watch, and have requested information from the plaintiffs' lawyers, as somehow proving that the shareholders are filing the proposal at the behest of these advocates," said Shelley Alpern of Trillium Asset Management. "They basically argued that shareholders have no independent perspective on this case and no interest in how the company is handling it."

"The SEC didn't buy that argument," Ms. Alpern told "Had the SEC accepted this line of thinking, it would provoked an outcry like you've never heard from the SRI community, because it would have been a direct attack on our freedom of association."

The Chevron no-action letter also advanced an argument referencing a June 2005 SEC Staff Legal Bulletin providing guidance that resolutions seeking "risk assessment" fall under the "ordinary business" clause allowing companies to exclude a resolution. Mr. Neuheuser pointed out that not every resolution that mentions the term "risk" falls under the new guidance, which specifically refers to financial risk assessments. Dow similarly plied Chevron's line of reasoning in its no-action letter opposing the Bhopal resolution, as did CVS (CVS) on a resolution on toxics in its cosmetics.

"In the Bhopal and CVS no action letters, the companies attempted to stretch the risk assessment prohibition even further than what the SEC guidance says--CVS tried to argue that a technical feasibility assessment was a risk assessment, and Dow tried to argue that requests that would reduce or avoid risks were risk assessments," said Lauren Compere, chief compliance officer of Boston Common Asset Management, which co-filed both resolutions. "In both instances, the SEC rejected those arguments."

"Unfortunately, the existing SEC guideline prohibiting resolutions that ask for an assessment of financial risks undermines shareholder rights to the very kinds of information that shareholders need, but at least the SEC staff didn't extend this notion further in these instances," Ms. Compere told "We're beginning to draw a boundary around the new SEC guidance on risk assessment, and eventually we'll need to find a way to roll it back."

Other resolutions the SEC protected against no-action requests include three filed by SRI firm Domini Social Investments. These include one asking SBC Communications (SBC--now AT&T) to disclose its political contributions, one asking Kimberly-Clark (KMB) to practice sustainable forestry, and one asking Wendy's International (WEN) to produce a sustainability report.

However, the SEC has also upheld nine no-action requests thus far this proxy season. These include four global warming resolutions at Sempra Energy (SRE), Ryland Group (RYL), Wells Fargo (WFC), and Wachovia (WB), and three HIV reporting resolutions at Conoco Phillips (COP), Marathon (MRO), and Pfizer (PFE). It also includes two resolutions filed by Harrington Investments, one addressing confidentiality of personal data at Bank of America (BAC) and one addressing bribery at Monsanto (MON).

There remain 17 resolutions with no-action letters filed against them awaiting SEC decisions, with almost a quarter of these (four) at a single company: Wal-Mart (WMT).

Part one of this two-part article examines withdrawal of resolutions on climate change, sexual orientation nondiscrimination, political contributions, and HIV/AIDS policies.


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