From: olson@lafn.org Sent: Friday, August 22, 2003 11:23 PM To: rule-comments@sec.gov Cc: olson@lafn.org Subject: File No. S7-14-03 Carl Olson Chairman Fund for Stockowners Rights P.O. Box 65563 Washington, D. C. 20035 703-241-3700 West Coast Office P.O. Box 6102 Woodland Hills, California 91365 818-223-8080 August 22, 2003 Mr. Jonathan G. Katz Secretary U. S. Securities and Exchange Commission 450 Fith Street NW Washington, D. C. 20549 Re: File No. S7-14-03 Dear Mr. Katz: The following comments are directed solely to the issues of communications between security holders and boards of directors. 1. The key relationship between a director and security holder is that the director represents the interest of all security holders. Any barrier to communication between the two is an impediment to the best interests of the corporation, and can contribute to socially undesireable results. 2. The necessity for a director to represent the interests of security holder is a fiduciary duty. It cannot be delegated, ignored, or indemnified. Refusal to be available to the stockowners shows prima facie failure of due diligence. 3. Damage has resulted because of the failure to allow security holders to communicate directly with directors: A. In 2003, my stockowner proposal to Occidental Petroleum Corporation to improve on its description of the legal significance of stockowner votes was 3/4 implemented in the 2003 proxy statement. These improvements were presumably approved by the entire board. However, I am frustrated from communicating with each of the directors to urge them to spread this improvement to the 25 companies that they are also directors of. B. In 2000, stockowner Mark Seidenberg proposed a permanent secret ballot policy for The Chase Manhattan Corporation. After initially opposing the proposal, the board endorsed it, and it passed with 94% vote. Following the meeting, Mr. Seidenberg wrote to every director to urge them to adopt similar policies at the 43 other companies on whose boards they also served. However, none replied. The practice did not spread, even though every one of the directors approved it for Chase. C. I have attended numerous annual meetings for the past 25 years. I have often posed questions from the floor for directors to answer. Only rarely does a director reply. The stockowners are routinely stonewalled. In terms of communication from directors, the stockowners might as well be looking at cardboard cut-outs. By stonewalling, directors regularly flout their fiduciary duty to report to the stockowners. 4. In order to provide for complete communication, the disclosure should include each director's mailing address, phone number, fax number, and e-mail address. 5. The disclosure is proposed only to appear in the proxy statement. This is inadequate. Most stockowners do not retain proxy statements for the purpose of being a directory of directors and addresses. The directory of directors should be made available to security holders: A. In the annual report and form 10-K annual report. B. In quarterly reports to stockowners. C. On company websites. D. With company telephone operators. Many don't have a listing for the individual directors. 6. The incremental costs of implementing these lines of communication should be virtually nil. The benefits are limitless. After all, the individual directors are not the fount of all knowledge and experience. They should welcome the assistance of 150 million security holders. 7. This policy should apply to all types of corporations, including investment companies. 8. The S.E.C. should consider a related disclosure policy by which directors would be required to communicate to security holders: A. By reporting in writing on the corporation in the proxy statement. B. By responding to all questions directed to them at stockowner meetings. 9. The adoption of this communication policy will set a good example for other types of corporations. For instance, nonprofit mutual benefit corporations are owned by their members and conduct vast business operations, but disclosures are not regulated by the S.E.C., the Internal Revenue Service, or state attorneys general. The New York Stock Exchange, the National Football League, and the Automobile Club of Southern California (with 3.5 million member-owners) are examples. Without such requirement for openness with directors vis-a-vis the member- owners, these mutual benefit corporations are specially susceptible to director abuse. The misuse of billions of dollars is not socially desireable. In conclusion, the S.E.C. is commended for initiating these proposed rules and is encouraged to propose more.