Trillium Asset Management Corporation
June 12, 2003
Jonathan G. Katz
RE: S7-10-03 and Release No. 34-47778
Dear Mr. Katz:
Trillium Asset Management is a Boston-based investment firm that specializes exclusively in socially responsible asset management. Since our founding in 1982, we have grown to manage $600 million in assets for individual and institutional shareholders.
In addition to screening stocks for our clients according to social and environmental criteria, Trillium Asset Management actively and regularly engages in dialogue with our portfolio companies and files shareholder proposals to advance corporate social responsibility. We are also the original founder of the CERES environmental coalition and the Social Investment Forum. Drawing from our experience as engaged investors and the collective experience of the communities in which we work, we know that shareholder engagement can strengthen a corporation's management, with beneficial impact on the bottom line. We pay careful attention to corporate governance, and have exercised our voice as shareholders on corporate governance matters through our proxy vote and the sponsorship of several proposals concerning executive compensation in recent years.
We welcome the Commission's effort to gather public input into the question of the board director nomination process. It is time for the Commission to end the fixed, one-candidate-per-slot "elections" that make "corporate democracy" an oxymoron. The consequences of allowing boards to function in this manner have become disastrously clear in the last two years.
At present, entrance barriers to non-management nominees are prohibitive. As the Commission, Congress and the stock exchanges seek to restore trust in corporations and market mechanisms, opening up access to board nominations is one of the most important and fundamental changes that could be made to effect this goal. Fuller participation of shareholders in the nomination and elections processes will lead to greater accountability, improved governance and greater focus on long-term value. The closed and self-perpetuating clubhouse culture from which the vast majority of board directors are currently selected must be replaced with a system in which candidates from a greater diversity of perspectives, background and experience can run for directorships.
Trillium Asset Management believes that the board elections process should be improved in a manner that will:
More specific recommendations follow.
The obvious forum for shareholder nominees exists already in the proxy ballot. Shareholders could use the proxy ballot to nominate directors, with some differences in qualifying criteria from the shareholder proposal process. This would mean eliminating section (i)(8) of Rule 240.14(a)(8), which excludes shareholder proposals relating to board elections.
Some reasonable formulae might include variations on the following. An ownership threshold could be set at a relatively modest level to cast a wide net -- for example 1% of shares outstanding (held by one long-term owner/nominator or in the aggregate by multiple long-term shareholders). Alternatively, nominations might be restricted to a certain minimum number of investors (e.g., 100), who meet the current shareholder proposal qualifying criteria of having owned at least $2,000 worth of company stock for a minimum of one year.
To prevent the abuse of the nomination process as a takeover device, investors (singly or cumulatively) should be limited to nominating less than a majority of available board positions. If more than half of the nominees are put forward by shareholders, those candidates with the largest aggregate share support should be granted ballot access.
We support the annual election of directors so that shareholders may signal their support or disapproval of board performance on an annual basis.
Proxy statements should contain the following information on candidates, within a 500-word limit:
Proxy statements should also disclose how many people were nominated for the board, and what percentage of nominees were contacted and interviewed.
Solicitation of Proxies
Directors should be required to attend shareholder meetings, and as noted above, attendance records of incumbent candidates should be disclosed in the proxy statement.
We support cumulative voting for board elections.
In closing, we again want to applaud the Commission for inviting comment on this critical issue. We strongly support steps to ensure a greater measure of accountability of boards of directors to the owners of public corporations that they serve. Such steps can help restore faith in the market and help prevent the type of abuses that contributed to an historic destruction of shareholder value over the past several years. We also encourage the Commission to solicit comment on additional matters to ensure the effective protection of shareholders, particularly long-term shareholders. In particular, we strongly support enhanced disclosure requirements of non-financial issues that may have a material effect on a company's long-term valuation, including key environmental and social performance data.