|Sprint||Gary D. Forsee
Chief Executive Officer
|6200 Sprint Parkway|
Overland Park, KS 66251
December 22, 2003
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Re: File No. S7-19-03
Dear Mr. Katz:
I am the Chairman and CEO of Sprint Corporation, a Kansas corporation with approximately $27 billion in annual revenues and approximately 65,000 employees worldwide. 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.
Sprint Has Demonstrated its Commitment to Best Corporate Governance Practices and Responsiveness to the Proxy Process
We strongly support the spirit of the Sarbanes-Oxley Act of 2002, as well as the implementing SEC rules and regulations and the New York Stock Exchange ("NYSE") corporate governance listing standards. We believe they tend to foster sound corporate governance and responsiveness and will encourage more transparent business practices. We have demonstrated our strong commitment to high standards of corporate governance, including by implementing recent best practices such as the following:
In addition, in keeping with the intention expressed in our proxy statement to periodically assess the suitability of our independent auditors, we completed a comprehensive review of our choice of independent auditors and selected a new independent auditor beginning in 2004.
We are also responsive to shareholder concerns. For example, in 2003 as a result of a majority shareholder vote, we adopted a policy limiting future severance agreements with senior executives.
The Proposed Shareholder Access Triggers Are Too Broad to Serve their Stated Goal
If the inclusion of shareholder nominees in company proxy materials is to be required, we agree with the SEC that it only should be triggered by objective criteria indicating that shareholders have not had adequate access to an effective proxy process. However, for the following reasons, we are concerned that the proposed rules run counter to this goal.
Despite our demonstrated commitment to high standards of corporate governance and our responsiveness to shareholder concerns, under the proposed rules, we could be required to facilitate the nomination of candidates for the board of directors by a very small number of shareholders who do not represent the interests of our shareholders generally. We believe that requiring companies to include shareholder nominees in their proxy materials is not good corporate governance and, in fact, will enhance the access to boardrooms of special interest groups. Furthermore, the proposed rules go far beyond the SEC's stated intent of targeting a small number of unresponsive companies, potentially creating unwarranted expense and disruption for many U.S. public companies like Sprint that have good corporate governance practices and are responsive to shareholders.
Below, I would like to address each of the proposed three triggers in more detail.
The 1st Trigger Is Unrelated to a Company's Failure to Respond to the Proxy Process.
Shareholder access could be activated by a majority-vote shareholder proposal that access be activated. This would apply to any company and such a proposal could be motivated by any number of concerns, not merely by a company's failure to respond to the proxy process.
The 2nd Trigger Can Be Tripped for Reasons Unrelated to a Company's Failure to Respond to the Proxy Process.
Shareholder access could be triggered by a director's receipt of more than 35% of "withhold" votes. This trigger could be tripped merely because of voting recommendations that may have nothing to do with the responsiveness of a particular company to the proxy process. Many benefit plans and institutional investors heavily rely on proxy advisory services, such as Institutional Shareholder Services ("ISS"), and follow recommendations provided by these services. These investors typically do not analyze individual shareholder proposals on a company-by-company basis and therefore do not consider when casting their votes whether or not a company has been responsive to shareholder concerns. The already heavy reliance on proxy advisory services is expected to increase as a result of the recent adoption of the rule requiring mutual funds and investment advisors to disclose publicly their proxy-voting policies and procedures.
Although the development of policy-driven voting guidelines (whether internal, through proxy advisory services or a combination of the two) may be expected to have a beneficial effect on institutional investors' voting practices, increased reliance on proxy advisory services' recommendations could substantially increase the likelihood that the 2nd trigger would be tripped by a "withhold" vote recommendation that is based on factors that are unrelated to the responsiveness of a company to the proxy process.
This could occur, for example, because ISS' definition of director independence is far more restrictive than the standards of the NYSE. ISS considers a director not to be independent if any family member is employed in any capacity by the company. As a result, ISS would categorically recommend a "withhold" vote if the director served on any of the key committees on which only independent directors should serve, even if the company's nominating committee determined that such a relationship did not adversely affect the director's independence. In contrast to ISS' independence standard, the relevant NYSE standard applies a materiality threshold - it is triggered if a family member is an executive officer of the company.
In light of the ability of proxy analysis services to cause the 2nd trigger to be tripped for reasons unrelated to the effectiveness of a company's proxy process, it should not be relied upon to gauge the responsiveness of directors or companies to shareholder concerns. Including the proposed 2nd trigger could create the perverse incentive to remove from key committees strong directors who are well qualified under the NYSE independence standards and who add considerable value because of their other qualifications and attentiveness to the substantive matters addressed by key committees. For the same reasons, the 2nd trigger could also dissuade well qualified potential directors from serving on boards because they would be subject to such intense challenges regardless of their performance and the performance of the company.
The 3rd Trigger May be Tripped by Proposals that Boards in the Exercise of Their Fiduciary Duties Have Good Reasons Not to Implement
Shareholder access also could be triggered by a company's failure to fully implement a majority-vote shareholder proposal that could address any number of possible issues. This potential trigger is also highly amenable to being tripped by shareholder proposals that companies may have good reasons not to implement without modification. Directors are required by law to decide on corporate courses of action based on their duties of loyalty and care. A director cannot discharge these duties simply by relying on the formulation of a very brief shareholder proposal. Consequently, a board might have good reason not to adopt a particular majority-vote shareholder proposal or to adopt it in modified form rather than adopting it exactly as proposed.
In 2003, for example, Sprint received a shareholder proposal regarding executive severance arrangements that serves to illustrate the potential for a shareholder proposal to be excessively burdensome and yet trip the 3rd trigger. Specifically, in a majority-vote shareholder proposal, the board was asked to adopt a policy requiring shareholder approval for future severance arrangements that would provide more than 2 times an executive's salary and bonus, a standard that is more restrictive and stringent than the proposals submitted to almost every other company in 2003. Typically shareholder proposals ask companies to seek shareholder approval only for agreements providing more than 2.99 times salary and bonus, indicating that a 2.99 multiple is considered reasonable by the vast majority of shareholder proponents and companies, including companies with whom Sprint competes for executive talent.
Our board, after due deliberation, responded to the 2 times proposal by generally implementing it. However, if, in contrast, Sprint had responded to the shareholder proposal by adopting a policy employing the 2.99 multiple, Sprint could have triggered the shareholder access requirement under the proposed 3rd trigger, even though it implemented a standard that was consistent with the one advanced by most shareholder proponents and endorsed by most companies. This example serves to illustrate the potential for shareholder access to be triggered even when the company is responsive to shareholder concerns.
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, the strengthened role and independence of nominating committees and the enhanced disclosure regarding more robust 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 it is necessary to substantially revise the proposed rules to better target them to non-responsive companies.
Thank you for considering these concerns about the proposed rules. If you would like to discuss these comments or any other issue, please do not hesitate to contact me at 913-794-1100.
Gary D. Forsee
Chairman and CEO