From: Welch, Ivo [ivo.welch@yale.edu]
Sent: Saturday, June 07, 2003 6:31 PM
To: rule-comments@sec.gov; a_jacobs@cii.org
Cc: Lily Xiaoli Qiu; ira.millstein@yale.edu
Subject: Rule S7-10-03


Dear Sir:

I am a professor of finance at Yale University, and a member of the Yale 
center for corporate governance.  In a recent cite count by ISI, I 
ranked among the top 100 economists.

I was alerted by the CII about the proposal process, even though I have 
no association with them; nor do I know their positions.

In my opinion, there is at best minimal corporate governance in the 
United States today.   The true owners of the firm, the shareholders, 
are mostly powerless.  Staggered boards have vastly reduced external 
corporate control pressures.  If management is determined to "take over" 
the board, very little can be done in most dispersed ownership companies 
to stop management. The best U.S. corporate governance mechanism today, 
sadly, seems to be directors' fear of personal liability.  Unless the 
corporate situation becomes so dire that this liability becomes a real 
threat (and/or in some unusual other cases), U.S. corporations are 
controlled by their management, not by their boards.

(However, there is some evidence of at least some influence by a 
particular class of shareholders.  It appears in a very competent 
working paper by a PhD student at Yale, Lily Qiu [lily.qiu@yale.edu]. 
She finds that public pension fund concentrated shareholder presence 
reduces [value-reducing] acquisition activity.)


I would favor the following proposals:

* Strict separation of the positions of CEO and Chairman of
	the board.  (Prominently proposed by Ira Millstein.)

* A "safe harbor" protection for companies against shareholder
	suits IF shareholders elect board members proportionally.
	(In such a system, a 10% block holder will be able to
	obtain 10% of the board seats.)  The current system,
	in which management typically nominates a full slate
	is reminiscent of voting in Communist regimes---and
	naturally has similarly effective outcomes.

	The SEC should also strongly recommend proportional
	voting systems.

* Forced publication of tax statements by publicly traded
	companies.   This would reduce both the incentives for
	and the effectiveness of corporate earnings manipulation.

Sincerely,

professor ivo welch
yale university