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Performance through Innovation
BARCLAYS GLOBAL INVESTORS
June 13, 2003
Jonathan G. Katz
Dear Secretary Katz:
I am writing on behalf of Barclays Global Investors ("BGI") in support of the proposed changes to the proxy rules and regulations. BGI is the world's largest institutional investment manager, and the world's largest provider of structured investment strategies such as indexing, tactical asset allocation, and quantitative active strategies. At December 31, 2002, BGI and its affiliates, including its wholly owned subsidiary Barclays Global Fund Advisors ("BGFA"), managed over $746 billion in assets for clients in 37 countries around the world. BGI is owned by Barclays PLC, one of the largest companies in the United Kingdom, and one of the world's leading global financial services providers. Our ownership positions on behalf of our clients encompass nearly 4,500 public companies in the United States alone, and typically place us among the companies' largest shareholders. As fiduciary, we exercise all ownership rights attending these holdings in a manner intended to promote the best economic interests of our client beneficiaries, including, but not limited to, the voting of all proxies. BGI tends to be a long-term holder. Our corporate governance activities are therefore designed to avoid micromanagement while attempting to promote the free flow of information to maximize market efficiency, and to eliminate barriers to transactions. Clearly, our activities in this arena are extensive, which gives us a strong and unique vantage point from which to evaluate the rules that currently govern the voting of proxies.
We are taking this opportunity to address five issues:
With respect to shareholder proposals, we would like to see the SEC address the forced precatory nature of these proposals. We understand that state corporation laws have a bearing on this situation. Nevertheless, shareholders are understandably frustrated at instances of majority votes being ignored by boards of directors year after year. Indeed, we see no reason to permit boards to ignore the will of the majority of their owners. Majority votes are extremely difficult for shareholder proposal proponents to achieve. The frequency with which they are ignored stands as a testament to the need for reform in this area. We believe that the solution to this problem is to allow shareholders access to the director nomination process in such cases, subject to a minimum holdings threshold that we would place at 5%. We encourage the SEC, consistent with its powers under the Federal securities laws, to act for the benefit of shareholders in this regard.
Further to the topic of the conduct of director elections, we urge the SEC to address the system of dual proxy cards and the ban on electronic voting of proxies in contested elections. The system as it exists is expensive, confusing, and wasteful of management, dissident and shareholder time.
We also hope to see reform in 13D filing requirements that would ensure that constructive communication among shareholders is not inhibited. We believe that the intent of the 1992 proxy reforms hasn't been fully realized because of fears that certain non-control activities, including "just vote no" campaigns, might trigger the onerous 13D filing requirements. Such fears have had a chilling effect on communications, and we believe that shareholders have thus been deprived of a tool for improving corporate boards that the earlier proxy reforms intended to establish
Broker non-votes is an institution that has outlived its usefulness, if in fact it ever had any. This archaic means of establishing quorum has been used to force through measures that informed shareholders would surely oppose. We suspect that the existence of this rule is largely unknown and its true functioning even less widely understood. The time to abolish this practice has long since passed.
Turning finally to disclosure of director qualifications, it seems beyond argument that board candidates should disclose existing family, professional and financial relationships with the company or its management to the fullest extent possible. This information is basic to the candidate's ability to represent shareholders effectively and we see no possible justification for depriving shareholders of this critical data.
We are deeply grateful to the SEC for undertaking these reforms. We believe that corporate governance is at a critical juncture and that the leadership of the SEC at this time will have an impact for generations. We would be happy to meet with SEC staff to discuss ideas for implementing any changes in regulations in more detail. Thank you for the opportunity to comment on this topic.