Railways Pension Trustee Company Limited

  Registered Office:
Sixth Floor
Broad Street House
55 Old Broad Street
London EC2M 1LJ

Direct Telephone: 020 7786 7219
Facsimile: 020 7256 8030

December 19th, 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:


The Railways Pension Trustee Company Limited, as trustee of railway pension schemes in Britain, is a major institutional investor with increasing exposure to US equities. As such we are writing to welcome the Commission's initiative in proposing Exchange Act Rule 14a-8 (the `proposal') to open up companies' proxy materials to shareholders. We believe that the Commission shares our aspirations for better corporate governance and we also welcome the fact that the Commissioners themselves in various public appearances have emphasised the focus on shareholders.

We sent an initial email on November 5th to express our support for this initiative to your rule support email address prior to submitting more formal comments. We have also signed a separate joint letter today with the UK Universities Superannuation Scheme and other overseas investors which articulates our views. We are sending this separate letter to reiterate some of our substantive comments on the proposals from our perspective as the corporate trustee of a major UK occupational pension fund with total assets of approximately $23 billion and a long standing supporter of better corporate governance.

As trustees we have a fiduciary responsibility to act in the best interests of the schemes that we manage. As long-term investors, an important aspect of that duty is the protection and enhancement of our investments. In this context, we believe that directors' accountability to shareholders is an essential corporate governance mechanism that strengthens the responsible exercise of our ownership rights and duties. We believe that directors should be accountable to shareholders and this extends to the election process.

Although we commend the Commission for recognising the importance of addressing this issue now, we have a number of significant reservations and concerns regarding the proposed `trigger' events necessary to activate the mechanism for shareholder participation in the nomination process. As written, these risk weakening the proposal's effectiveness.

The proposal fails to recognise the experience in other markets. Basic ownership rights in the United Kingdom entitle shareholders the right to:

  • cast a binding vote for or against the election of a director at the first Annual General Meeting ("AGM") following his/her appointment (simple majority required);

  • cast a binding vote for or against the re-election of a director when his/her term of office is up for renewal (simple majority required);

  • under Section 376 of the UK's Companies Act 1985, include a binding resolution at an AGM for the appointment of a director (simple majority required). The only trigger is that the requisitionists must either:

      (i) include 100 shareholders with an average amount paid up of at least £100 (UK Sterling) per shareholder; or

      (ii) represent in excess of low voting rights threshold (at least 5% of the voting rights at the general meeting);

  • requisition an Extraordinary General Meeting ("EGM") where they can put forward binding resolutions to appoint and/or remove directors (again a simple majority required). The only trigger is that the shareholders calling such a meeting must represent 10% or more of the voting share capital.

Similar rules apply in other jurisdictions where statutes are modelled on UK company law. The voting right thresholds for the US should be set at levels which recognise the level fragmentation that exist in the US market. In the UK they are 5% (AGM resolution) and 10% (EGM requisition) given the high degree of ownership concentration that exists. This might be 3% and 6% in a US context.

We understand that arguments have been presented that US boards could be destabilised through greater access to the proxy. The plentiful evidence available in markets where executives are properly accountable to shareholders does not support such assertions. For example, in the United Kingdom, while the right to nominate directors is important to institutional shareholders, it is rarely used. Given the need for the support of a majority of shareholders, frivolous requisitions are unlikely to succeed. We argue that including this right is more likely to lead to stability, a reduction in proxy battles and a shift of emphasis towards more serious, collaborative and constructive dialogue based on accountability.

Additionally, the timescales envisaged in the proposal also risk distorting the situation. Delaying access beyond the next annual meeting helps maintain and possibly exacerbate situations that undermine business and shareholder value. Limiting the time period for an application to two years may discourage shareholders to work for constructive change and resolution within the company. We consider the time period be extended to five years instead.

In addition to these adjustments, we would urge you to:

  • where a company receives a certain level of withhold votes on at least one of the company's nominees for board of directors, decrease the level to 20% from the proposed 35%

  • include a trigger where a company fails to implement a shareholder proposal submitted in accordance with U.S. Securities Exchange Act 1934 which received support from the majority of votes cast;

  • adopt the trigger that the company become subject to a shareholder proposal under the shareholder nomination rule solely on the basis that it received support from the majority of votes cast (original sponsorship is irrelevant); and

  • add additional triggers tied to specific events, including SEC enforcement actions and criminal indictments of any executives or directors. These should not require other triggers that delay proxy access for an additional year.

In conclusion we would urge the you to reconsider the proposal and remove the hurdles that have been incorporated which could hinder shareholders' ability to respond to potentially significant problems in the companies they own. We look forward to seeing how the proposal develops from here. We hope that these comments are helpful but please contact me if they need clarification or you feel that we can otherwise be of assistance.

Yours sincerely

Frank Curtiss
Special Projects Officer