December 22, 2003
Mr. Jonathan Katz
Re: File No. S7-19-03
Dear Mr. Katz:
Trillium Asset Management is an investment firm managing more than $700 million for institutional and individual clients. All of our assets are screened according to a "triple bottom line" criteria consisting of social, environmental and financial performance indicators. On behalf of our clients, we frequently engage in dialogue with our portfolio companies on corporate responsibility issues and exercise our rights to file shareholder resolutions when appropriate.
The purpose of this letter is to offer our comments on Proposed Rule No. S7-19-03. First, however, we would like to acknowledge at the outset the complexity of the issue of shareholder input into the board nomination process and commend the Commission for undertaking the process of change. We urge the Commission to stand firm in championing reform in the face of steadfast opposition from certain quarters of the business community.
Trillium Asset Management is a founder and member of the Social Investment Forum, a membership organization that speaks for the socially responsible investment community. In a letter to the Commission dated December 19, 2003, the Forum eloquently summarized the reasons why expanded shareholder access to the nominations process is badly needed and why arguments by opponents to this change are flawed. The Forum also correctly argues that relying only upon the reforms of Sarbanes-Oxley will continue to perpetuate a system that has rewarded corporate insiders and denied shareholders the ability to take meaningful action to correct corporate malfeasance, incompetence and lack of board oversight in a timely manner.
In addition to endorsing the Forum's points, we wish to emphasize a few themes for your consideration.
It is disappointing that the Commission's rule proposal rests upon triggering events and steep thresholds. We believe that this will result in permitting shareholders to act in only a minority of situations when further involvement is justified and could prove beneficial.
On principle, we believe that shareholders should have the right to nominate the board directors whose rightful task is to represent their interests. (While this right should be restrained to some extent to avoid the cluttering of the ballot with an excessive number of candidates, we believe that a 1%, one-year ownership threshold could meet this need, as relatively few shareholders exceed that level of ownership for most companies traded.) Making this right contingent upon a 35% "no-vote" for at least one director in Year 1of a two-year process negates the inherent value of formal shareholder input as well as the proposition that shareholders should be able to exercise the right to nominate on principle.
We also disagree with the proposed two-year time frame for the unfolding of the shareholder nomination process. The right to be involved in basic governance means little if it cannot be exercised in a timely manner.
The third flaw in the proposal is the raising of the ownership threshold further to 5% once a threshold has been activated. Taken with the other two triggering requirements, this confirms that the proposal is designed to shut out all but the largest investors from the shareholder nominations process, and hence little change would result from the enactment of this proposal.
We support the Social Investment Forum's nine recommendations in its 12/19/03 letter with two exceptions. First, the Forum supports direct access to nominate board candidate(s) by a single investor or group of investors owning 3% of shares, thus eliminating triggering events. We agree in principle, and would prefer to see a threshold of 1% ownership.
Second, we would support the right of investors or investor coalitions to run more than two candidates per election per company.
As a longtime observer of the impact of corporate policies on employees, communities and the environment, Trillium Asset Management has long believed that corporate boards of directors would serve all of their shareholders and other stakeholders better by enhancing their own diversity, broadly defined. On the face of it, it appears that corporate boards remain a largely non-diverse group with respect to certain obvious characteristics (such as race, sex and age) and with respect to outlook (for example, the widespread, frequent approval of outrageous executive pay packages). Shareholders large and small should have the right to nominate and vote for alternative candidates, in a timely manner, when they believe that fresh perspectives are needed. As the ultimate owners of the company, they assume the risks that come with the exercise of this responsibility and therefore it should be presumed that they will not take it lightly.
Thank you for the opportunity to comment on this proposal.