December 15, 1999
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, DC 20549
Re: Shareholder Proposal of Jerome Gabig
Dear Sir or Madam:
Washington Mutual, Inc., a Washington corporation, (the "Company") has received a shareholder proposal and supporting statement (the "Proposal"), attached hereto as Exhibit A, from Jerome Gabig (the "Proponent" or "Mr. Gabig"). The Proposal asks the shareholders to request the Company to hire for one year a proxy advisory firm to be chosen by the shareholders. To accomplish that, the Proposal requires the Company to allow any proxy advisory firm to "put itself on the ballot" for the 2001 annual shareholders’ meeting "by paying an entry fee and declaring the price (no more than $5,000) for its advisory services." The Company’s shareholders would select a proxy advisory firm at the 2001 annual shareholders’ meeting. The Proposal further requires the Company to pay the declared price to the selected proxy advisory firm and specifies that the Company management cannot "police" the firm’sperformance. The firm selected by the shareholders is expected to make voting recommendations freely available to all shareholders of the Company. The Proposal specifies that shareholders will decide by future votes whether to hire proxy advisory firms in later years.
The Company believes that it may properly exclude the Proposal from its proxy materials being prepared for the 2000 annual meeting of shareholders. Pursuant to Rule 14a-8(j), promulgated under the Securities Exchange Act of 1934, as amended, the Company encloses six copies of this letter and the Proposal. This letter constitutes an explanation of why the Company believes that it may exclude the Proposal from its proxy materials. To the extent that the reasons for the exclusion are based on matters of the law of the State of Washington, these reasons are the opinions of the undersigned as an attorney licensed and admitted to practice law in the State of Washington.
By this letter, the Company requests that the Division of Corporation Finance (the "Division"), and its staff (the "Staff"), of the Securities and Exchange Commission (the "Commission") not recommend any enforcement action if the Company excludes the Proposal from its proxy materials.
The Company believes that it may exclude the Proposal under two independently sufficient grounds: Rule 14a-8(i)(7) and Rule 14a-8(i)(1).
The Company may exclude the Proposal under Rule 14a-8(i)(7) because it deals with a matter relating to the Company’s ordinary business operations.
Rule 14a-8(i)(7) allows a company to exclude a proposal if it "deals with a matter relating to the company’s ordinary business operations." The Company believes that the Proposal deals with the Company’s ordinary business operations because, if adopted, it would require the Company to hire external consultants and, furthermore, it would entirely eliminate the Company from the process of selecting such consultants. Therefore, the Company may properly exclude the Proposal under Rule 14a-8(i)(7).
The Division has long taken the position that the registrant’s hiring, retention, and compensation policies for employees and external consultants relate to the registrant’s ordinary business operations, even though the matters they work on may be
extraordinary. United Technologies (February 19, 1993) (employment and personnel decisions "have been deemed to be excludable" as ordinary business operations); Texaco, Inc. (January 21, 1983) (the decision to hire outside consultants to study certain marketing practices relates to the registrant’s ordinary business operations); Bob Evans Farms, Inc. (June 23, 1997) (a proposal mandating the board of directors consider and select a consulting firm to advise the board and management on the registrant’s poor financial performance relates to the registrant’s ordinary business operations); Potomac Electric Power Company (March 3, 1992) (a proposal requiring hiring of an independent investigatory body that would report to the shareholders the management’s conduct that resulted in impairment of shareholders equity relates to the registrant’s ordinary business operations); Long Island Lighting Co. (January 22, 1986) (a proposal instituting guidelines for selecting independent auditors relates to the registrant’s ordinary business operations).
Similarly to the authorities cited above, the instant Proposal seeks to establish a policy for employing independent consultants, a matter relating to the Company’s ordinary business operations. The Proposal requires the Company to hire a proxy advisory firm, an external consultant, which is clearly contrary to the Division’s long established position that the decision whether to hire an external consultant relates to the registrant’s ordinary business operations. Further, the Division consistently agrees that the proposals permitting shareholders to establish employment policies for external consultants, including the hiring and firing guidelines, are excludable. Long Island Lighting Co. (January 22, 1986); United Banks of Colorado, Inc. (March 13, 1973) (a proposal for shareholders’ ratification of the legal counsel selected by the registrant is excludable as a matter relating to the ordinary business operations); Atlantic Energy (February 17, 1989) (guidelines for selecting independent contractors and employees relate to the registrant’s ordinary business operations). The instant Proposal would grant the shareholder the power to select a proxy advisory firm, an external consultant. Further, it would take away the Company’s power to fire, or withhold the payment from, the proxy advisory firm if its performance is unsatisfactory. According to the Proposal, the Company would not have the power to control even such ordinary matters as the timing and the manner of delivery of information from the proxy advisory firm to the shareholders. The Company believes that all these functions relate to its ordinary business operations, and, therefore, the Proposal is excludable under Rule 14a-8(i)(7).
Even more so than the decision whether to hire an external consultant, the decision as to which particular consultant should be hired relates to the registrant’s ordinary business operations. Avondale Financial Corporation (August 30, 1995) (a decision "who the company may hire" relates to the company’s ordinary business operation). The instant Proposal attempts to do much more than any of the shareholder proposals discussed in the foregoing no-action letters. Rather than simply requiring the Company to hire an external consultant or imposing upon the Company impermissible guidelines and criteria for selecting such a consultant, the Proposal attempts to remove the selection process completely from the purview of the Company. This violates the underlying policy of Rule 14a-8(i)(7).
The policy behind Rule 14a-8(i)(7) is "to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting." Release No. 34-40018 (May 21, 1998) (the "1998 Release"). Also, Rule 14a-8(i)(7) was designed to "deal with ordinary business matters of a complex nature that shareholders, as a group, would not be qualified to make an informed judgment on, due to their lack of business expertise and their lack of intimate knowledge of the issuer’s business." Release No. 34-12999 (November 22, 1976). The selection of a proxy advisory firm is exactly such an "ordinary matter of a complex nature." The Proposal, if adopted, would allow a proxy advisory firm to nominate itself for shareholders’ vote by disclosing only its fee. For example, nothing prevents a person or entity, which had absolutely no experience in the proxy advisory business, to nominate itself for the shareholders’ vote. Shareholders who lack business expertise would inevitably be tempted to vote for the firm quoting the lowest fee for its services. The selection of consultants, however, is a much more complicated process than a simple comparison of fees. In addition to consultants’ fees, companies may consider the prospective consultants’ expertise, prior experience, quality of work, reliability, reputation, the amount of work that would be performed, and a number of other factors peculiar to each company. Shareholders generally are not skilled to adequately decide upon these factors, and the instant Proposal does not even attempt to bring these factors to the shareholders’ attention. Thus, as announced in the 1976 and 1998 Releases, Rule 14a-8(i)(7) was designed to exclude proposals of the type submitted by Mr. Gabig.
The Company may exclude the Proposal under Rule 14a-8(i)(1) because it is not a proper subject for action by shareholders under the laws of the State of Washington, the jurisdiction of the Company’s organization.
Rule 14a-8(i)(1) allows a company to exclude a proposal if it "is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization." The Company believes that the Proposal deals it is not a proper subject for action by shareholders under the laws of the State of Washington, the jurisdiction of the Company’s organization because, under Washington law, shareholders cannot require the Company to hire external consultants or entirely eliminate the Company’s management from the process of selecting such consultants. Therefore, the Company may properly exclude the Proposal under Rule 14a-8(i)(1).
The undersigned hereby opines that the Proposal, as drafted, is not a proper subject for a shareholder action under Washington law. Washington law vests all of the corporation’s management functions in its board of directors. Rev.Code.Wash. ("RCW") 23B.08.010(2). On the other hand, extraordinary operations (such as amendment of the articles of incorporation, RCW 23B.10.040; sale of all assets other than in the ordinary course of business, RCW 23B.12.020; merger, RCW 23B.11; and dissolution, RCW 23B.14.020) must be approved by the shareholders. The Proposal is drafted to require the Company to hire a proxy advisory firm and is not drafted as a request or recommendation. The Company’s articles of incorporation do not limit the authority of its Board of Directors relating to the employment of external consultants. Thus, it is the opinion of the undersigned that the Proposal contains an action relating to a matter that Washington law reserves for the board of directors. Therefore, the Proposal may be excluded as not a proper subject for shareholder action under Washington law.
In summary, for the reasons and on the basis of the authorities cited above, the Company believes that it may exclude the Proposal from the Company’s proxy materials for the 2000 annual meeting of shareholders because it relates to the Company’s ordinary business operations, or alternatively, because it is not a proper subject for shareholder action under Washington law. The Company respectfully requests that the Division not recommend any enforcement action to the Commission if the Proposal is excluded. The Company is sending the Proponent a copy of this submission, thus advising the Proponent of the Company’s intent to exclude the Proposal from the proxy materials. If the Division has any questions or comments regarding this submission, please contact the undersigned at (206)-389-4264 or Leo Batalov at (206)-389-6044.
Thank you for your consideration of these matters.
Very truly yours,
David Wilson
Attachment