From: Moye, Melissa [MelissaMoye@AmalgamatedBank.com] Sent: Monday, September 15, 2003 6:07 PM To: rule-comments@sec.gov Subject: S7-14-03 September 15, 2003 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549-0609 Re: File No. S7-14-03 Dear Mr. Katz: The Amalgamated Bank and its LongView Funds write to urge the Commission to adopt, with clarifications we suggest below, the proposed regulation to improve disclosure about the corporate nominating committee function and the process of communications between shareholders and boards of directors. See SEC Release Nos. 34-48301; IC-26145. Introduction and Overview By way of background, the LongView Funds are a family of investment funds that seek to replicate the performance of the S&P LargeCap, MidCap, SmallCap and Total Market indices. The LongView Funds were created by Amalgamated Bank to offer investment opportunities for pension funds and currently have over $5 billion under management. The LongView Funds operate as long-term institutional investors that hold their stakes in individual companies for as long as those firms are listed in one of these S&P indices. The LongView Funds are a rarity among indexed funds in that they pursue an active corporate governance program that seeks to improve the performance of companies in the Funds' portfolios. Each year the LongView Funds submit approximately 25 shareholder resolutions to companies on a range of corporate governance and other policy issues. The Funds use these resolutions as a way to open a dialogue with the companies in question. The resolutions are either withdrawn after such dialogues or voted at the annual meeting. Based on our experience in this area, the proposed rule is a useful step towards improved corporate governance, and we commend the Commission for its initiative in this area. The board of directors is the governing body that is directly accountable to the shareholders, yet the process by which candidates are nominated for board seats is often unclear to shareholders. -- A number of companies do not have nominating committees; if they do, the committee members may not be independent of management. Companies generally do not provide information about how the nominees are chosen and how shareholders may (if at all) propose candidates for consideration. -- Once the board does nominate a slate of candidates, the elections are generally uncontested unless a shareholder decides to run an opposing slate at the shareholder's own (and often considerable) expense. -- Finally, once the board is elected, the directors may have no direct contact with their "constituents" - the shareholders who elected them - and it is far from clear at many companies how a shareholder would go about expressing one's concerns to individual board members. Letters may or may not be answered, and rare indeed is the company that will let shareholders directly question an individual director at the annual meeting. This is a curious form of representative government, which in theory is what director elections are supposed to provide. The result under the current system is that corporate boards are often too isolated and insulated from the company's shareowners, whose interest the board is elected to serve. For these reasons, the LongView Funds view the current rulemaking proposal as an important first step towards improved corporate governance and commend the Commission for its initiative in protecting the interests of investors. We commend the Commission as well for its willingness to examine what we view as the second step, i.e., a separate rulemaking proposal that would give long-term shareholders the right to have shareholder-nominated candidates included in the proxy materials that a company prepares and mails to all shareholders. The LongView Funds strongly support the latter initiative and look forward to commenting on the forthcoming access proposal. The Commission's Proposal We have reviewed the items that the Commission proposes to require in a company's proxy statement and believe that the Commission has struck the right balance in terms of requiring disclosure of information that is useful to shareholders while not being unduly onerous on the company. The proposed rule focuses not on trying to mandate particular procedures, either with respect to the nomination process or shareholder communications with directors. Instead, it properly focuses on requiring companies to disclose their practices and policies in ways that are sufficiently specific to be useful to shareholders. That said, there are some specific points that could be clarified in the final rule: 1. Changes in nomination criteria or procedures. If a company alters its criteria or procedures after the publication of its annual proxy materials, the company should disclose the new criteria by filing a Form 8-K. 2. Possibly different criteria for shareholder-nominated candidates. Proposed Item 7(d)(2)(I) requires disclosure of any differences in the manner in which the nominating committee will evaluate candidates based on whether the individual is recommended by a shareholder. We suggest that the language should be amended to make clear not simply whether there is a dual standard at work, but what any such criteria might be. We recall one proxy contest at a company in the Funds' portfolio where the board urged shareholders to reject the insurgent candidate because he had no experience in the industry; after he won, the board decided to expand, and it added three new directors, none of whom had any industry experience either. 3. Specific sources of candidates. Proposed Item 7(d)(2)(J) and (K) would require disclosure of the source of every candidate's name (other than company insiders and independent directors seeking re-election), as well as whether fees were paid to a third party, such as a search firm. We believe that the identity of the source, standing alone, may be insufficiently useful and would suggest that any relationship between the source and the company, or an officer or director thereof, should also be disclosed. 4. Director communications. Proposed Item 7(h) is drafted in terms of a company's policy about sending communications to the board of directors. It is not clear whether this provision is intended to cover only "the board" as a whole or whether it is meant to include as well any committees or individual members of the board. We would recommend clarifying that the broader scope is intended. 5. Director communications and annual meetings. As a related matter, we note that the proposal is silent on the question of whether and how shareholders may communicate with directors at the annual meeting, where some, if not all, directors stand for election. Proposed Item 7(h) is drafted in terms of "send[ing]" communications, presumably written or electronic, to the board. Our concern is as follows: Although many companies time a directors' meeting to coincide with the date of the annual meeting, the directors at some companies do not bother to attend the annual meeting. (The Tyco board under Dennis Kozlowski was a notable example of this, even though the annual meeting was usually held in Bermuda. Two other companies whose annual meetings we attended this spring had no directors present either.) There is something incongruous about the notion of directors who are too busy to show up for their own election, much less to sit and listen once a year to what the owners of the company may have to say. There is thus a need for disclosure of corporate policy on board attendance at annual meetings. We note that in making these comments, the LongView Funds have had an opportunity to review the comments already filed by the Council of Institutional Investors; and we support the Council's commentary, as well. Thank you for the opportunity to file these comments. Please do not hesitate to contact us if the Funds can provide any further information. Respectfully submitted, A. Melissa Moye, Ph. D. First Vice President Trust and Investment Services Amalgamated Bank 1825 K Street, N.W. Washington, D.C. 20006 (202) 293-9800 **************************************************************************** This message contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail or its attachments. Please notify the sender immediately by e-mail if you have received this e-mail in error and delete this e-mail from your system. E-mail transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. Amalgamated Bank therefore does not accept liability for any errors or omissions in the contents of this message which arise as a result of e-mail transmission. If verification is required please request a hard-copy version. ****************************************************************************