December 17, 2003
Mr. Jonathan G. Katz, Secretary
Re: File No. S7-19-03
Dear Secretary Katz,
On behalf of the 227,000 active participants and beneficiaries of Western Conference Teamsters Pension Fund, I welcome this opportunity to offer supporting comments on Securities and Exchange Commission (SEC) proposal S7-19-03, "Security Holder Director Nominations." Collectively, Teamster Pension and Health and Welfare trusts have nearly $100 billion in assets. These assets represent the deferred income of hundreds of thousands of Teamster families. As a fiduciary of our fund, I wish to commend the SEC for proposing historic new rules that could give institutional investors an opportunity to nominate independent board candidates for listed corporations.
Recent corporate scandals at many companies exposed to investors prove how self-serving Chief Executive Officers and passive boards can have devastating consequences for corporations and their investors, employees and the communities that depend on them. In fact, since 2000, retirees' portfolios have shrunk by about $678 billion, according to a recent study by the Institute for Social Research at the University of Michigan. These reductions can be linked to the swarm of corporate frauds perpetrated on U.S. investors over the past two years. Investors today are interested in taking a more active role in corporate governance issues of the companies in which they hold equity interest.
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 larges investors to use and impossible to do so in a timely manner.
In particular, we believe the triggering requirements are unnecessary given the high ownership threshold required for shareholders to place nominees in the proxy. Moreover, the two proposed triggers create serious additional problems. First, the proposed triggers 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 is far too high. A shareholder seeking to introduce such a proposal at the average S&P 500 Company would need to hold shares worth over $180 million.
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.
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.