November 17, 2003
Mr. Jonathan G. Katz
Re: Proposed Rules Regarding Security Holder Director Nominations,
Dear Mr. Katz:
The Securities and Exchange Commission ("Commission") recently published proposed rules that, under certain circumstances, would require companies to include in their proxy materials shareholder nominees for election as corporate directors. See Security Holder Director Nominations; Proposed Rule; Exchange Act Release No. 34-48626, 68 Fed. Reg. 60,784 (October 23, 2003). I am writing on behalf of the Business Roundtable to ask that the Commission extend the comment period by 60 days. The Business Roundtable is an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees in the United States and $3.7 trillion in annual revenues.
Currently, interested parties are given only 60 days to comment on the Commission's important new proposal. This short 60-day period is insufficient for parties to comprehensively review, comment, and provide requested information on the proposal; accordingly, the period is inadequate under the Administrative Procedure Act ("APA"), 5 U.S.C. § 553(c), and does not provide an opportunity for thorough, well-informed rulemaking in this important area.
As Chairman Donaldson has recognized, "the issue of shareholder nominees in a company's proxy materials is a very serious matter," requiring meaningful public comment. Chairman William H. Donaldson, Introductory Remarks at the October 8 Open Meeting: Proxy Access Proposal (October 8, 2003). Among other things, shareholder access to company proxy materials to nominate directors has the potential to alter dramatically corporate governance. It presents significant questions regarding the Commission's authority, federalism, and the relative roles of the states and federal government in establishing shareholder rights and delineating the responsibilities of shareholders and boards of directors.
The Commission states in the proposing release that its proposal is "somewhat complex." 68 Fed. Reg. at 60,787. Yet, the proposing release does not include important data or provide a detailed analysis of many of the issues implicated by the proposal. Instead, the Commission has largely shifted the burden of data collection and analysis to the public. For example, the proposing release recognizes that the provisions of state law regarding director elections are fundamental factors upon which many of the assumptions, projections, and analyses in the proposing release depend. The proposing release fails, however, to identify, discuss, or analyze the provisions of pertinent state laws. The Commission instead requests the public to provide this data and substantive analysis of state law, effectively asking the public to analyze the proposed rules in light of the applicable laws of each of the 50 states and the District of Columbia. See 68 Fed. Reg. at 60,808. Similarly, the proposal places on commenters a large part of the burden of estimating the likely costs of the proposal for companies, a task that will require commenters such as the Business Roundtable to engage in detailed survey research that will take many weeks to complete. See 68 Fed. Reg. at 60,787.
Indeed, the Commission has posed hundreds of questions for public consideration. Commissioner Atkins has referred to the extraordinary number of questions in the proposing release as "unique," stating:
Commissioner Paul S. Atkins, Remarks at Open Meeting Regarding Shareholder Access Proposal (October 8, 2003). Similarly, Commissioner Glassman has stated that ". . . the release . . . may have broken all records in terms of the number of questions asked." Commissioner Cynthia A. Glassman, Remarks at Open Meeting Regarding Shareholder Access Proposal (October 8, 2003).
In light of the serious nature of the proposed rules and the important questions that have been presented to the public rather than addressed in the proposing release, the current 60-day comment period is inadequate. Interested parties cannot consider and respond meaningfully to all of the questions posed by the Commission within 60 days. See, e.g., Estate of Smith v. Bowen, 656 F. Supp. 1093, 1097-99 (D. Colo. 1987) (finding a 60-day comment period to be inadequate where interested parties did not have enough time to consider and comment on the "details" of a proposed rule).
The APA requires the Commission to provide notice of a proposed rulemaking "`adequate to afford interested parties a reasonable opportunity to participate in the rulemaking process.'" MCI Telecomm. Corp. v. FCC, 57 F.3d 1136, 1140 (D.C. Cir. 1995) (quoting Florida Power & Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988)). The length of a comment period must enable interested parties to comment "meaningfully." Florida Power, 846 F.2d at 771. This requirement is designed "both (1) `to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies'; and (2) to ensure that the `agency will have before it the facts and information relevant to a particular administrative problem.'" MCI, 57 F.3d at 1141 (quoting National Ass'n of Home Health Agencies v. Schweiker, 690 F.2d 932, 949 (D.C. Cir. 1982)). These principles are compromised where, as here, a comment period is too short to permit interested parties to provide meaningful comment and to supply the extensive information the agency itself has requested.
Under these circumstances, the APA and principles of sound public administration indicate that the Commission should extend the comment period for the proposed rules regarding security holder director nominations. The proposing release suggests that the Commission has been evaluating a proposal of this nature periodically for more than 60 years; there would be no harm, and would be great public benefit, in allowing the public an additional 60 days to respond.
cc: Hon. William H. Donaldson