Santa Monica Partners

August 9, 3003

Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Ladies and Gentlemen:

Professor Henry G. Malone wrote his view of the Commission's proposal to allow 3% holders to submit candidates for Board election and have them listed in the Company Proxies to the Wall Street Journal on Aug. 7, 2003 -- See Opinion Page. I write to the SEC to comment on the Good professors "no nothing" comments and thereby to respond to the Commission's request for comments on the proposal.

This antediluvian man (dean emeritus) Malone) is either not thinking or was writing as the puppet of the Business  Roundtable. The latter is of course a joke on shareholders of public companies in America. Just try calling or writing this organization and asking who their members are? You will find it is a big and dark secret. Suffice to say its members are afraid of corporate democracy and transparency because neither they nor their members practice either...

The gist of the opinion piece is if you don't like what's going on in your public corporation in which you are a part owner, why simply vote out. That is not vote them out (Boards and management), but vote with your feet and simply get out and "leave the driving to us", the corporate insiders who are in place according to the author. Prof. Malone writes "Management and the board are constituent parts of a team that runs a corporation". This fellow, poor soul that he is, apparently never sat in on Corporate Finance 101 which teaches that Boards are representatives of the owners, i.e. the shareholders, and are supposed to oversee management, and are not mere "constituent parts of a team that runs a corporation". Yes it is true that sometimes they are a team such as they were at Enron, WorldCom, Tyco et al. Certainly none of those companies ' directors or managements played for the shareholder team as best we can recall.

Regarding the SEC's proposal to allow "small shareholders", according to Dean Malone, to nominate directors for company boards directly. his comments defy understanding. In a condescending tone, he calls a 3% holder a "small shareholder".  That means a small shareholder is someone who has $3 million invested in a small company with a market capitalization of $100 million, and also it means a "small shareholder" is an institution with a mere pocket change investment of  $30 Million invested in a company with a market capitalization of just $1 billion. Heavens, this professor calls get this, an investment of $300 million in a $30 billion corporation, a "small investor" who shouldn't have a chance to nominate a director of the company.

This author appears to have been duped by big entrenched boards and managements where the whole bunch which is in complete charge, knows all and best, and is likely at most to own well under 3% of the enterprise,. What's more their "small shareholder" ownership no doubt came from exercising stock options granted to them so that they might become shareholders when they could buy their shares way under the prevailing open market price.

As stated above the author espouses totally antediluvian, vote with your feet thinking. Guess he never heard of folks wanting to be long-term investors either.

We believe in corporate democracy. We believe in rights for minorities. Why that is precisely why the Commission allows cumulative voting. It is also precisely why most corporations do not allow cumulative voting by shareholders.  Clearly most public companies are Directed by Boards and Managed by Managements which do not like minorities to have Board representation. In fact Boards and managements very frequently, indeed usually, don't even like 5%, or 9% or 15% or even 49% holders to have representation on their Boards. One reason Boards pay themselves as well as top management with lavish option plans is in fact to dilute "small holders" voting rights and increase theirs at a low, below market cost. But that is another issue. The point is all too many Boards are not for shareholders or their rights. Minority and small shareholders (3% shareholders) have to ask themselves, If I am not for myself, who will be for me? It is about time, and thankfully too, that the SEC has awakened to this crying need, which is only a beginning toward real corporate democracy and shareholder representation on Corporate Boards of companies they, the shareholders , own. Boards and managements have to stop thinking they are the owners where they are not, or are barely, and fractionally shareholders making them believe it is their right to exclude the real owners from the board room.

Bravo the SEC Proposal to permit Board candidates to be nominated and appear in the Company proxies.


Lawrence J. Goldstein
Santa Monica Partners
1865 Palmer Avenue
Larchmont, New York, 10538
(914) 833-0875 New York Office