A Division of United States Trust Company of Boston


September 2, 2003

Mr. Jonathan Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

FILE NO S7-14-03

Dear Mr. Katz:

I am submitting comments on behalf of Walden Asset Management, a division of United States Trust Company of Boston. We believe in the importance of being an informed, involved and active investor. As such, Walden, which manages approximately $1.1 billion on behalf of its clients, has been involved in extensive dialogue with companies on social, environmental and corporate governance issues. In addition, we have been the sponsor and co-sponsor of a number of shareowner resolutions over the years (eg. 30 in 2003 and over 30 in 2002) on these topics. As a result, we have a deep interest in the Proposed Rule the SEC has submitted for public comment.

Let me at the outset commend the staff for the style of the proposed rule. The history, the proposed changes and the guiding questions all work together to make this proposal straightforward and the process for responding relatively simple.

We deeply appreciate the Commission's steady work to help investors regain confidence in the capital markets. This is obviously an ongoing process that requires many steps.

We are also appreciative of the SEC's decision to separate the issues of disclosure and shareowner access to the proxy to nominate Directors into two different proposals for comment.

However, we are concerned that the SEC might perceive the inevitable wave of favorable comments on the first disclosure proposal as a sign that improved disclosure would be an adequate response to investor concerns about the Board nominating process.

We do not believe this is the case. The result must not be a choice between greater disclosure or increased shareowner's proxy action, but rather thoughtful implementation of both proposals.

Certainly the disclosure steps proposed will be an important improvement. However, there are those who may argue that improved disclosure is enough. We strongly believe that the combined approach of improved disclosure and the right of investors with a reasonable percent of shares to nominate Directors, place them on the proxy and have them voted upon, is integral to improving investor confidence and board accountability. Providing "half a loaf" would be a serious error.

Let me turn to comments on the specific rules proposed. Overall the SEC's combination of proposed additions to disclosure are a wise and necessary set of changes. Our comments follow the order of the proposal.


Enhanced nominating committee disclosure- We support the new disclosure requirements for the nominating committee including whether the company has a nominating committee or not. Of course we expect there should be such a committee of independent directors serving as the nominating committee.

We believe it is adequate for the proxy statement to summarize the Committee charter and have the web site include the full charter as an increasing number of Companies are doing. We agree that a description of the independence of the committee's members is essential.

We support the recommendation that requires the company to disclose when it receives nominations from security holders and also the procedures for nominating Directors, the process followed after a nomination has been made and minimum qualifications for nominees. Many companies do this already.

We also strongly recommend additional disclosure regarding whether and how the Nominating Committee takes the issue of diversity on the board into account in making recommendations for new Board members. A number of companies already disclose their commitment to board diversity in their nominating committee charters and elsewhere.

Diverse representation on a Board is an important factor in good governance as is witnessed by the fact that TIAA-CREF lists board diversity in its Corporate Governance guidelines as a positive value. Shareowner resolutions on this topic over the years have either resulted in a change in company policy and disclosure of their new policy or the resolution received reasonably high levels of support.

We therefore recommend that the Nominating Committee be required to disclose if or how they take the issue of diversity, including diversity of gender and race, into account in presenting the slate of Directors and selecting new Directors.

Regarding the issue of stating the nominees source for the nomination, in general we believe it is adequate to identify a simple category, such as the "search firm" or "management" as the source rather than listing each nominator's names, with one exception.

The proposal also asks for comment on a special situation that would trigger additional disclosure.

Specifically the proposal asks if there should be a different process if a group of owners with 3% of the stock submit a nomination. In this case, in general, we believe the names of the security holders making the nomination should be included in the proxy. However, we would suggest that there are occasions where the presentation of the nominee is done on a private, confidential basis and therefore the nominee's name should not be disclosed. On the other hand, if the security holders and the nominee wish to have the nomination be public, they can so indicate and the information would appear in the proxy. In short, whether the nominee's name appears in the proxy should be decided by the shareholders making the nomination and the nominee when the name is put forth.

Since this proposal deals with simply submitting a nomination for the Board Committee's consideration and not officially presenting it for inclusion in the proxy, the stock holding period should not be different. If an investor with 3% of a company's shares submits a nominee for consideration, the past holding period of securities or an intention to keep holding the shares should be irrelevant and not required. Since an investor with 100 shares can also nominate a Director, it seemed unnecessary to have higher and more onerous holding requirements for a larger investor(s) involved in making a nomination.

Certainly the names of search firms, their specific mandate and the process they use for the search should be disclosed, but not necessarily the fee paid them.

We also agree that if the process is established for a group of investors holding a nominal percent of shares to nominate a candidate, then the process for dealing with that nomination and the results and rationale should also be described in some detail. Such disclosure should not focus solely on the candidate nominated by large institutional investors.


We agree with the theme that there should be clear procedures described for a security holder to communicate with Board Committees or Board members. As the SEC is aware, the New York City Pension Funds asked for exactly that type of process to be established with a number of companies in which they held shares. Companies like Pfizer have already set up a solid process for such communication with their outside Directors including a separate email box. Since outside Directors are responsible for Committees such as the Audit and Corporate Governance Committees, it seems vitally important to be able to communicate with those Committees directly. To underline this point, I submitted a letter to all the members of the Corporate Governance Committee at a major Boston company and sent it via the General Counsel's office, with a copy for him, in one envelope. He decided unilaterally that he would only give it to the Chair of the Committee and destroyed the other copies. A clear process and roadmap for communicating with Directors, openly or confidentially, is clearly needed.

Thus we support the proposal stating that there be a description of how security holders can communicate with the Board and the Board Committees, action the Board took in response to such input (General Motors has reported in such a fashion for years) and if communication is not sent on to the Board, who makes that decision and using what criteria.

We are aware that on occasion an investor may write a Director(s) about a matter that is clearly in the purview of management. It is appropriate for those letters to be passed onto management for response and not answered by Board members or Committees. The company should also keep a record of shareowners communication with Directors and their responses.

We believe the disclosure requirements should apply to both independent Directors and inside Directors.

We would also recommend, as the Council of Institutional Investors did in its comment of August 20th, that the new Rule include disclosure of the company policies regarding director attendance at shareholder meetings. We believe it is insulting to shareowners to hold an annual meeting where important items are being voted on and not have the Directors, who represent the shareholders, be present to answer questions and interact.

While the vast majority of companies do follow this practice, we believe noting in the proxy that this is company policy is important as is information on which Directors attended the meetings just as information is disclosed on whether a Director attendance at Board meetings dropped below 75%.


We agree that the proposal should include applying the new disclosure requirements to investment companies ("funds"). This would benefit fund security holders by improving the transparency of the nominating process. The disclosure should include a description of who on the nominating committee are "interested persons" under the Investment Company Act.

SUMMARY - We support the thrust of these proposals as advancing the course of good corporate governance and increased transparency. We strongly urge the issue of Board diversity be explicitly added to disclosure regarding the Nominating Committee's role and responsibilities. We also emphasize the point that this set of disclosures will only be truly meaningful when combined with a second stage that creates a process where by shareowners can nominate Directors to be placed on the company proxy for a vote.


Timothy Smith
Senior Vice President