December 22, 2003
Mr. Jonathan G. Katz
Re: File No. S7-19-03
Dear Mr. Katz:
I am the Chairman and Chief Executive Officer of American International Group, Inc., a Delaware corporation, the world's leading insurance and financial services organization, with consolidated assets of more than $600 billion and more than 85,000 employees worldwide. Through our subsidiary, National Union Fire Insurance Company of Pittsburgh, Pa., we are the leading U.S. provider of directors and officers liability and fiduciary liability insurance. I appreciate this opportunity to provide comments on the Securities and Exchange Commission ("SEC") proposal to require companies to include shareholder nominees for director in company proxy materials under certain circumstances.
Both philosophically and for practical business reasons, we support efforts to improve the corporate governance practices of public companies, including the SEC's efforts to implement the Sarbanes-Oxley Act of 2002, and the recently enacted New York Stock Exchange and NASDAQ corporate governance listing standards, which we believe will foster sound corporate governance and responsiveness and will encourage more transparent business practices. We agree with Congress, the SEC and the securities markets that corporate boards and management must hold themselves to the highest standards of corporate governance. However, we believe that complicating the director election process by requiring companies to include shareholder nominees in their proxy materials is not good corporate governance and, in fact, will enhance special interest groups' access to boardrooms. Furthermore, the proposed rules go far beyond the SEC's stated intent of targeting a small number of unresponsive companies and will impact many U.S. public companies - regardless of their corporate governance practices or their responsiveness to shareholders.
We believe the SEC should allow the corporate governance reforms adopted by Congress, the SEC and the securities markets to be fully implemented before proceeding with additional regulation. With the increased independence of boards of directors, the strengthened role and independence of nominating committees and the enhancement of shareholder-director communications, we believe that the issues that led to calls for shareholder access will be addressed. If the SEC nevertheless concludes that changes in the director election process are necessary, then we believe that substantial revisions are required to focus the rules on the specific problems posed by non-responsive companies rather than on public companies in general.
For example, we are concerned that the proposed rules do not reflect what we believe should be a central theme: shareholder nominees should be included only if objective criteria indicates that shareholders have not had adequate access to an effective proxy process. In particular, the trigger based on a majority-vote shareholder proposal to activate access would apply to any company, not merely those companies that have failed to respond to shareholder concerns. Moreover, the trigger based on a director's receipt of more than 35 percent of "withhold" votes, while more appropriate than the first trigger, would not give the board and its nominating committee an opportunity to respond to shareholder concerns about a director before the company's proxy process is deemed ineffective, undercutting the role of the nominating committee in the nomination process. The possible third trigger, a company's failure to implement a majority-vote shareholder proposal (other than a proposal to activate access) does not demonstrate the ineffectiveness of the proxy process. Finally, the proposed thresholds for shareholders to submit a proposal to activate access and to nominate directors are too low to justify the cost and substantial disruption of the proxy contests that would result.
In sum, we urge the Commission to allow the corporate governance reforms already enacted to be fully implemented and their success evaluated before rushing to judgment that more regulation is necessary or appropriate.
Thank you for considering our concerns about the proposed rules. If you would like to discuss these comments or any other issue, please do not hesitate to contact me.