September 11, 2007
Ms. Nancy M. Morris
U.S. Securities and Exchange Commission
100 F St., NE
Washington, DC 20549
Dear Ms. Morris:
First Peoples Worldwide, an Indigenous-controlled economic development intermediary serving Indigenous Peoples throughout the world, opposes the rules changes proposed under S7-16-07 because they would weaken an important tool by which Indigenous Peoples of the world can make visible the harmful effects or irresponsible action in their ancestral lands.
Proposed Rules Impede Shareholder Rights and Democratic Governance
The proposed rule changes create obstacles that would impede shareholder’s exercising their governance responsibilities just as shareholder’s interest in, and support of, proposals is reaching record levels. Even worse, the proposed rule that would allow corporations to opt-out of the provisions of Rule 14a-8 would eliminate a vital means of public and democratic discourse, and one of the few ways that corporations can be effectively held accountable to shareholders and other stakeholders in a timely manner.
Indigenous Peoples have land claims to at least 18% of the Earth’s surface area and much of this land is rich in energy and mineral resources. As such, the territories of Indigenous Peoples represent attractive opportunities for corporate growth. A few enlightened corporations understand that effective engagement with Indigenous communities can result in more sustainable and, ultimately, more profitable projects. Sadly, most corporations instead continue to ignore Indigenous communities; a choice that often leads to community protests and costly, prolonged court challenges that delay development and undermine profits.
In their ground-breaking May 2007 report, Development Without Conflict: The Business Case for Community Consent, the widely regarded World Resources Institute documents the cost savings associated with successful community engagement and the staggering losses that can ensue when these corporate responsibilities are ignored. For instance, the report cites Shell’s Malampaya gas development in The Philippines as an example where open dialogue with the communities resulted in changes to the project, making it not only more sustainable, but more effective. World Resources Institute estimates Shell’s cost of responding to community concerns at 0.43 percent of total project revenues, a small price to pay to bring a $600 million revenue stream online in a timely fashion. In contrast, the report tells the story of Newmont Mining’s Minera Yanacocha Gold Mine Project in Peru. Newmont chose to ignore the objections of the community, which resulted in the project being indefinitely shut down. Newmont’s shareholders lost more than $1.6 billion in potential revenues according to World Resources Institute.
Proposals Filed Under 14a-8 Help Preserve Shareholder Value and Strengthen Corporation’s Operating Positions
Shareholder engagement plays an important role in both of these corporations’ stories. Shell had been the subject of significant public controversies and shareholder advocacy within Europe (a testimony that other nations in the global economy also value the rights of shareholders to address issues of social concern) as a result of their practices in the Niger Delta. Yielding to these pressures and wishing to avoid these controversies in the future, Shell engaged in different behaviors at its Malampaya development.
Newmont’s community controversies and resultant loss of shareholder funds caused a group of shareholders to utilize the 14a-8 process to introduce a shareholder proposal calling upon Newmont to explain its actions vis a vis the communities in which it operates, including the territories of Indigenous Peoples. That proposal, introduced in Spring of 2007, garnered 95% shareholder support.
There are other means of holding corporations accountable for their behavior on the lands of Indigenous People, but many of these processes drag on for years, often causing irreparable damage to land and culture. The shareholder proposal process creates a once-a-year venue for corporate managers to address the impact of their decisions on both communities and shareholders. The dialogue encouraged by the 14a-8 process can often result in prompter action, which protects both shareholders’ funds and other stakeholders’ interests as well. The fact, that this face-to-face meeting causes great discomfort to many corporate executives and boards of directors is no doubt part of the impetuous for truncating the rights granted to shareholders in the Securities Exchange Act of 1934.
The Commission has expressed concern that the shareholder resolution process is overly political and that it has been taken over by narrow interests. While there are no doubt cases where proposals are frivolous, the current rules create grounds for tossing these proposals out. Those extraneous resolutions that do slip through to a vote are far more the exception than the rule. Many shareholder proposals do deal with moral issues, but moral issues increasingly translate into significant financial costs, so large at times as to threaten the very survival of economies.
Proposals Filed Under 14a-8 Protect Shareholder Interests and the Broader Economy
It was the shareholder resolution process that first raised concerns about predatory lending practices that now threaten not only the U.S. but the entire global economy. And, it was shareholder proposals that first warned of the financial consequences of not attending to environmental liabilities. Also, it has been shareholder proposals on corporate behavior on the land of Indigenous Peoples that has stirred a number of corporations to improve their practices, preserving shareholder value in the process.
The Commission would do well to abandon their efforts to relax the rules governing shareholder proposals and instead develop new rules that strengthen the impact of democratic governance of U.S. corporations by their shareholders, making shareholder proposals filed under Rule 14a-8 binding in all instances.
Thank you for your consideration.
Director of Corporate Engagement