515 South Flower Street
Mailing Address: Box 2679 - T.A.
Los Angeles, CA 90051
Telephone 213 486 2808
Diane A. Ward
Senior Counsel - Securities & Finance
|December 15, 1997||VIA ELECTRONIC MAIL & US MAIL|
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attn.: Jonathan G. Katz, Secretary
|Re:||Atlantic Richfield Company ("ARCO")|
|Charitable Giving by Public Companies|
|File No. S7-26-97|
|SECís Invitation for Comments|
Ladies and Gentlemen:
On behalf of Atlantic Richfield Company ("ARCO" or the "Company"), set forth below are comments requested by the SEC regarding charitable giving by public companies. Currently the federal securities laws do not specifically require public companies to disclose information regarding their charitable contributions. Two bills introduced into the House of Representatives would require specific disclosure of information regarding charitable giving. H.R. 944 would require public companies to disclose to their shareholders the charities to which they made contributions and the amount of each contribution. H.R. 945 would require companies to let their shareholders decide, each year, which charities should receive contributions and the amount of the contributions in proportion to their share ownership. Management would retain the right to make additional contributions. The amounts of all contributions would have to be disclosed under H.R. 944.
We are pleased that the Commission recognizes the importance of the corporate viewpoint on these proposals. We appreciate the time and attention you will be giving to our comments and observations.
1. Purpose of the Bills is Unrelated to Shareholder Involvement in the Proxy Process
The first issue to address is the purpose of the bills. The purpose as stated in the bills is "to require improved disclosure of corporate charitable contributions and for other purposes" (H.R. 944) and "to require corporations to obtain the views of shareholders concerning corporate charitable contributions" (H.R. 945).
In Release No. 34-39093 (requesting comments on the SECís amendments to the shareholder proposal rules), the Commission states that "the purpose of the rule is to ensure proper disclosure and enhance investor confidence in the securities markets by promoting proposals raising significant issues that are relevant to the company and its business." The Commission requests registrants to consider "whether this is the proper purpose of the rule, and if so, what types of proposals are the most relevant and important."
Because these two bills also attempt to give shareholders a voice in the management of their company, we think their appropriateness for inclusion in the proxy rules should be judged by the same standard articulated by the Commission for the shareholder proposal rules. Using this standard, the Company is unable to discern the purpose of amending the proxy rules to include the proposals made by these two bills. Corporate charitable giving is not the purpose of for profit corporations, nor do such contributions generally represent a material portion of net income. Accordingly, corporate charitable giving can hardly be considered a "significant issue...relevant to the company and its business." The Company strongly recommends against amending the proxy rules to require this type of shareholder involvement -- which is totally unrelated to corporate governance concerns -- in a companyís affairs.
2. Including these Proposals in the Proxy Rules Would Undermine the Materiality Test that is the Foundation of Corporate Securities Regulation
We are disturbed by the trend we observe both in these two bills and in the recently proposed amendments to the shareholder proposal rules. This trend towards elimination of the materiality test as a basis for inclusion of information in the proxy statement, if it continues, may undermine the principle that forms the bedrock of securities regulation, both as to disclosure and as to liability. The fundamental and overriding principle that must be followed in assessing the adequacy of disclosure and in levying liability for failure to make adequate disclosure is embodied in the question, "Was the failure to disclose material to the investment decision of a prudent investor?" The proposed requirements for disclosure of immaterial information in the proxy statement appear to be based on social policy concerns that are inappropriate and irrelevant to the corporate governance purposes of the proxy statement. It is, therefore, very difficult for the Company to understand how disclosure regarding its charitable contributions -- a de minimis percentage based on any test, such as its net income, total revenues or total assets -- could have any bearing on the investment decisions of a prudent investor. Accordingly, the Company does not see any possible justification or rationale for these proposed amendments to the proxy rules.
3. Feasibility of Proposals; Cost Benefit Analysis
We cannot see how any perceived benefit -- which we are unable to discern -- that might be gained by requiring shareholder involvement in charitable contributions by public companies could possibly be justified by the increased costs, both to taxpayers and to shareholders. The SEC would have to spend time drafting and reviewing public comment on its implementation of the new rules, including the drafting of exemptions to the rule, to carry out the rather vague directives in the two bills. The SEC would have to make sure that its new rules did not interfere with state corporate governance rules and regulations, nor that they would require companies to engage in illegal acts or spending for causes that might legitimately be challenged by some shareholders as corporate waste.
For their part, companies would have to devote a great deal of staff and management time to discharge their obligations under these proposals. While companies must maintain records of charitable giving sufficient for tax and accounting purposes, such records would require additional staff and management review before they could be included in a public proxy statement. And if indeed every single contribution were to be itemized, proxy statements in many cases in all probability be many pages longer, and therefore cost more to Edgarize, print and mail to shareholders. The administrative time to tabulate and consolidate shareholder directions as to their charities of choice, as well as to ascertain that such contributions were legal and tax exempt, is potentially enormous. Public companies with large shareholder populations relative to their net income or public float would be unfairly discriminated against.
We fail to see how this incredible additional cost could possibly justify whatever purpose Representative Gillmor has in mind.
And, indeed, one response by many companies might be to adopt a policy against charitable giving altogether in order to avoid incurring these administrative costs. It is hard to see the social benefit to be achieved by discouraging corporate charitable giving.
To the extent these bills would require registrants to monitor shareholder involvement in matters that are totally unrelated to the creation of shareholder wealth or to corporate governance, these rules will promote inefficiencies in the proxy process and increase costs for registrants. Accordingly, we urge the SEC to recommend against adoption of these bills as outside the purpose of the proxy rules.
We appreciate having this opportunity to offer our comments and suggestions concerning the proposed amendments. We would be available to answer any questions you may have about this or other related matters.
Diane A. Ward
The Honorable Arthur Levitt
The Honorable Paul R. Carey
The Honorable Isaac C. Hunt
The Honorable Norman S. Johnson
The Honorable Laura Unger
Bruce G. Whitmore, General Counsel
Atlantic Richfield Company