December 22, 2003
Mr. Jonathan G. Katz, Secretary
Re: File No. S7-19-03
Dear Mr. Katz:
As a trustee of the Unite National Retirement Fund representing approximately 400,000, and the Textile Workers Pension Fund, representing approximately 70,000, I welcome this opportunity to offer supporting comments on Securities and Exchange Commission proposal S7-19-03 regarding security holder director nominations.
Recent corporate scandals at companies like Enron, WorldCom, Arthur Anderson, Tyco and HealthSouth exposed how ineffective boards can have devastating consequences for corporations and the investors, employees and communities that depend on them. We therefore want to commend the Commission for proposing historic new rules that could limit the traditional power of corporate chief executives to handpick their own directors.
The proposed rules reflect the Commission's thoughtful and careful approach to this very significant corporate reform. In particular, we welcome those safeguards--including significant ownership and holding period requirements, and limitations on the number of shareholder nominees--that ensure that the rules do not facilitate corporate raids or result in potentially frivolous nominees at numerous companies. As proposed, however, the rules also contain certain barriers that would make them difficult for even the largest investors to use, and impossible to do so in a timely manner.
First, the proposed requirements for triggering proxy access entail a two-year process, an untenable delay at a company or board in crisis. Second, the proposed 1% ownership requirement for shareholders to submit a triggering proposal should be lowered. A shareholder seeking to introduce such a proposal at the average S&P 500 company would need to hold shares worth over $180 million; we believe any shareholder that meets the existing 14a-8 requirements should be able to sponsor such a proposal. Third, the proposed 35% director withhold threshold is also too high given historical experience, and should be lowered to 20%.
In addition, while we support a significant ownership requirement for placing nominees in the proxy, we believe the proposed 5% threshold is too high. This threshold would require a shareholder or shareholder group seeking to place nominees in the proxy of the average S&P 500 company to own shares worth roughly $900 million. We encourage the Commission to lower the threshold to 3%, a level that would more fairly balance the Commission's concerns with the interests of corporations and their shareholders. Finally, we believe that any shareholder group meeting these requirements should be allowed to include a minimum of two directors in the proxy, regardless of the size of a company's board.
By adopting final rules that truly give responsible long-term investors timely and effective access to the proxy the Commission can introduce genuine accountability to a boardroom culture that for too long has been characterized by cozy relationships and a resulting unwillingness to challenge management. This is certain to yield significant benefits--in terms of board of director independence, performance and accountability--that extend well beyond the few companies at which the new rules are actually used.
We thank you for this opportunity to offer our strong support for this historic proposal, and encourage the Commission to adopt final rules that are responsive to our concerns.