December 22, 2003
Mr. Jonathan G. Katz
Re: File No. S7-19-03 Security Holder Director Nominations
Dear Mr. Katz:
The initial comments of the Independent Corporate Directors Association ("ICDA"), filed on November 22, 2003, recommended that the "Triggering Events" described in the proposed rules be eliminated. We stand by that recommendation. However, should the Commission decide to keep such preconditions in the final rules, we wish now to propose an additional means of access to the company's proxy materials that could be employed by shareholders as an alternative to access through fulfillment of such triggers.
Business Roundtable Objections. This added path for shareholder nominations is intended to respond to the principal objection to the proposed rules raised by the Business Roundtable and its followers. In press releases, media ads, the Business Roundtable itself, and through "Shareholders for Growth", a special interest organization they formed specifically to influence the SEC process, asserts that implementation of the proposed rules would help special interests infiltrate corporate boards, and would:
New ICDA Proposal. Under the rules currently proposed by the SEC, "independence" of a director candidate is measured by the exchange listing standards involving a lack of financial ties to the company. Accordingly, it is noted at footnote 223 that there "still may be concern that the security holder nominee is informally beholden to the nominating security holder" Thus lending credence to the special interest concerns expressed by the Business Roundtable..
We propose that IF any shareholder nominee(s) pledge in the proxy materials that they are not and will not be beholden to the shareholder or group that nominated them and will not subordinate their duty to the company to the promotion of any special interest (i.e., any social, economic, environmental, religious or political issue or program, however worthy) that:
Board Conflicts. It is apparently true that board conflicts will be the inevitable result of permitting shareholders to nominate just one or two director candidates. But this will not be the result of the shareholders or their nominee(s). It will come about because entrenched management will do their utmost, at the shareholders' expense, to defeat the process.
"When the inevitable occurs, the management and directors will likely try to defeat the actuating resolution or the election of the stockholder-appointed nominee. Any such effort requires extensive communications with stockholders, including travel to the locations of major institutional holders. Management has a finite amount of time and energy to operate the business; allocating a substantial portion of it to this pursuit necessarily detracts from managing the enterprise."
ICDA suggests that the SEC should not subscribe to such blatant protection of incumbents.
Thank you for allowing us to comment on these important matters.