June 12th, 2003
Mr. Jonathan G. Katz, Secretary
Re: S7-10-03 and SEC Release #34-47778
Dear Secretary Katz:
On behalf of Rockefeller & Company's Socially Responsive Investment Division, we would like to submit the following comments in response to the Commission's solicitation of views concerning shareholder proxy access and the election of corporate directors (File Number S7-10-03). We are pleased by the Commission's efforts to revitalize discussions concerning this issue and feel that a review of existing rules concerning the nomination and election of directors is long overdue.
Rockefeller & Co. has been in the investment business for over a century and has a rich history of socially responsive investing. Originally founded as a family office by John D. Rockefeller in 1882, the company now serves a wide variety of clients and manages approximately $3 billion in assets. Our Socially Responsive Investment Division was started in the 1970s and is one of the oldest SRI efforts in the industry. In addition to managing our own clients' investments, we also serve as a sub-advisor on two SRI mutual funds.
We strongly commend the SEC for its work to stem this tide of corporate malfeasance, and to restore confidence in the capital markets. We are greatly encouraged by Chairman Donaldson's strong support for governance reform in general and especially for so-called `equal access' reforms.
In addition to the governance crisis exemplified by the well-publicized cases of Enron, Tyco and WorldCom, we are also concerned about the high rate of failure and turnover among CEOs in recent years. We believe that boards have not only failed shareholders by inadequately supervising CEOs and allowing executive compensation to run out of control, but they also failed shareholders by not providing CEOs with enough support and intelligence in managing crucial strategic issues. We believe that managing a large corporation is now a far more complex task than it was in the past. Effective management cannot be accomplished by one person and the board has an important responsibility to help identify the crucial issues including those that are still emerging. We believe many CEOs have been blindsided by stakeholder issues because their boards lacked sufficient understanding of the issues. The pharmaceutical industry seemed surprised at the extent of the anger among the general public over drug pricing and drug access. Clearly the industry's leaders were out of touch.
Shareholder access to the nominating process would go a long way to ensuring that boards are accountable to the owners they represent and to breaking through the insulation which has been so destructive. Boards have just not had the skill, experience and ability to provide CEOs with the support they need to manage the numerous stakeholder issues which are now part of the job.
We therefore recommend the Commission explore the following ideas to provide a more level playing field for investors, and more adequate opportunities for shareholders to both nominate candidates and to solicit support for them with fewer cost burdens and paperwork:
In addition to the above proposals, the Commission should mandate that the nominating process of board nominating committees be open and transparent. This process should be made available to the same class of shareholders that would be allowed to nominate directly as described above. This should be the shareholders first step in trying to elect a new board member to the board. There should be a consultation process through which the nominating committee and shareholders putting forth a candidate can discuss the nominations and the criteria used to choose board candidates should be reported in the proxy statement. By mandating a more open nominating process, the Commission would eliminate the need for shareholders to go the route of putting candidates directly on the ballot and allow the process to be less confrontational. By allowing "equal access" to the proxy it would give board nominating committees the incentive to be responsive to nomination of qualified candidates. We believe that institutional shareholders should have a duty to insure that they are properly represented on the boards of the company that they and their clients own and should be concerned about the diversity of skills and the structure of these boards. By giving institutional shareholders an adequate process for having input into board structure the commission will increase the motivation for these shareholders to take a more active role in corporate governance.
We believe that significant opportunities exist to improve board nominating and election processes, to improve the structure of U.S. boards and to ensure that the long-term interests of shareholders are served. Shareholder value and long term corporate strategies are hurt by the high degree of insulation that is currently afforded. Reform in this area would be a useful step toward improving corporate performance and restoring investor confidence in accountability mechanisms.
We thank you for your attention to this letter.