Emerson Electric Co.
December 15, 2003
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Security Holder Director Nominations (Rule No. 34-48626); S7-19-03
Dear Mr. Katz:
On October 14, 2003, the SEC proposed new proxy rules ("Proposal") that would, under certain circumstances, allow shareholders to use a company's proxy and proxy statement to run a director election contest. For reasons set forth both below and in the comment letters from Wachtell, Lipton, Rosen & Katz (dated June 11, 2003 and November 14, 2003), which Emerson Electric Co. endorses, Emerson strongly opposes the Proposal.
Emerson adds the following comments in opposition to the Proposal:
- A contested election, which is being proposed, will have the appearance of a political election - a circus - with insurgent director nominees campaigning for the votes of shareholders. This prospect is not in the best interest of the shareholders, board of directors, company management or the company's other diverse constituents. Such activity will obviously drain the resources of the company and its directors, will detract from the company's corporate governance performance and will adversely impact the company's bottom line. For many years the SEC has had clear rules for conducting proxy contents which should not now be diluted by offering a "back door" mini-contest for insurgents to contest for board seats "on the cheap" in the management proxy statement. Does anyone honestly believe that the availability of such a mechanism would have prevented Enron, WorldCom, etc.?
- The Proposal goes beyond the authority of the SEC and infringes upon (indeed may cause conflicts with) state law matters. State law governs directors' authority and responsibility to supervise the business of a company. This responsibility includes, among other elements, acting in the best interest of ALL shareholders in the selection of director nominees. This state requirements cannot be met by the directors pursuant to the Proposal by allowing one or a few security holders the right to by-pass the Board and the Board Nominating Committee's procedures and standards for selecting Board candidates.
- The Proposal would require directors (who in most cases have access to more and better information about the company than outsiders) to surrender their knowledgeable judgment to less-informed shareholders. This result would be a gross violation of good corporate governance.
As a matter of policy and legal authority, we respectfully submit that the SEC should abandon the Proposal and allow the myriad of other recent reforms to bear fruit before making a major incursion into matters of state corporation law.
W. Wayne Withers