Richard P. Thomas
Vice President and
Tel. (859) 815-3036
Fax: (849) 815-5054
50 E. RiverCenter Blvd.
P. O. Box 391
Covington, KY 41012-0391
December 17, 2003
Chairman William H. Donaldson
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: File No. S7-19-03
Dear Chairman Donaldson:
As the Corporate Secretary of Ashland Inc. ("Ashland"), I am writing to express my concerns regarding the Securities and Exchange Commission's ("SEC") proposed rule that would, under certain circumstances, require Ashland and other publicly listed companies to include shareholder nominees in their proxies for election as corporate directors. Please be advised that Ashland strongly opposes this proposal and requests that it not be implemented in its current form.
In the past year, a number of important initiatives have been undertaken to strengthen the role and independence of nominating committees, and the board as a whole, and substantial progress has been made by public companies in this area. Altering the process for electing public company directors may have far-reaching, unexpected consequences, and any such efforts should be implemented only as a last resort by the SEC.
In this respect, substantial thought and analysis is required to determine the skills that a proposed director will need to complement a company's existing board membership. The New York Stock Exchange ("NYSE") corporate governance listing standards acknowledge this fact and appropriately burden nominating committees with this responsibility. In particular, the NYSE listing standards require that a nominating committee must, inter alia, (1) establish the board's criteria for selecting new directors, (2) identify individuals qualified to become board members, and (3) oversee the evaluation of the board. Significantly, the NYSE listing standards also require listed companies to establish a mechanism for interested parties, including shareholders, to communicate with non-management directors. As such, processes have already been mandated which eliminate much of the concern that is sought to be addressed by the proposal at issue. The SEC should evaluate the effectiveness of the recently promulgated NYSE standards before embarking on additional rulemaking.
Companies should also be afforded a reasonable amount of time to anticipate and prepare for actions and events that may ultimately qualify as a triggering event for shareholder access under the proposed rule. Therefore, at a minimum, shareholder action or voting results during the 2004 proxy season should not qualify as a trigger for shareholder access under the proposed rule. There will be tremendous shareholder and company confusion with disclosures in 2004 proxy statements that attempt to provide information about a shareholder access process that has not been finalized. Companies may need to add additional governance staff or retain counsel to assist with the proposals that may ultimately qualify as triggering events and related issues.
Moreover, permitting shareholders direct access to company proxy statements has the potential to turn every director election into a proxy contest. Such a change could result in divisive, contested director elections, resulting in the substantial disruption and costs that accompanies a proxy contest. Even companies that are performing well could face annual election contests. The prospect of contested elections also could make directors less willing to serve at a time when the pool of qualified directors needs to be expanded rather than contracted. In addition, shareholder nominees will inevitably represent the special interest agendas of the shareholders that nominated them rather than the interests of all shareholders.
Avenues currently exist which enable shareholders to nominate directors for election. State law generally requires that shareholders have the ability at any annual meeting to nominate a director for election, and most companies have by-laws establishing procedures to that effect. Shareholders also have the ability under state and federal law to solicit proxies for the candidate(s) that they nominate.
In summary, the burden that would be created by allowing shareholders direct access to proxy statements far outweighs the speculative benefits that such regulation may yield. Indeed, this proposal would likely have a negative impact on the quality of people serving on boards of directors, and on the effectiveness of boards in general. Time should be permitted to analyze the consequences of the Sarbanes-Oxley Act and the NYSE rules before further regulation is implemented in this area.
Thank you for the opportunity to comment upon this SEC initiative.
Very truly yours,
/s/ Richard P. Thomas
Richard P. Thomas
cc: American Society of Corporate Secretaries, Inc.