McGuireWoods LLP
901 East Cary Street
Richmond, VA 23219

February 14, 2003

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

RE: Securities Act Release No. 33-8173
Ladies and Gentlemen:

I am writing to address one aspect of the "independence" standard for audit committee members in proposed rule 240.10A-3. Under the proposed rule, in order to be independent, a "member of an audit committee . . . may not, other than in his capacity as a member of the audit committee, the board of directors, or any other board committee . . . [a]ccept directly or indirectly any consulting, advisory or other compensatory fee from the issuer."

The application of the proposed rule (which has little explanation in the proposing release) is relatively straightforward in the context of matters such as board retainers and fees. As a number of commentators have noted, however, the question becomes somewhat more complicated when the full range of possible relationships between a director and a company is considered.

Examples of plans and policies that might come into question include the following:

  • Allowing directors to participate in employee purchase discount plans;

  • Maintenance of life insurance policies on behalf of directors, with the proceeds payable either to the director's beneficiaries or to a designated charity;

  • Loans to directors (While Section 402 of the Sarbanes-Oxley Act has placed restrictions on future loans, many directors participate in "grandfathered" plans under which they were, for example, granted loans to purchase company stock.); and

  • Participation of directors in company health and welfare benefit plans.

Lacking any further guidance in the proposed rule, it would appear that so long as any such compensation or benefits are accorded directors by virtue of their status as directors, there would be no implications for independence. If there is any qualification of this position on the part of the Commission or its staff, additional guidance in the final release would be very helpful. Because of the serious consequences of non-compliance, companies and their counsel need particular clarity in the application of this rule.

Thank you for your consideration.


D. Michael Jones