December 30, 1997 Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Filed via e-mail to rule-comments@sec.gov Re: Amendments to Rules on Shareholder Proposals File No. S7-25-97 Dear Mr. Katz: This is in response to the Commission's request for comments on proposed amendments to the rules related to shareholder proposals set forth in Release No. 34-39093 (September 18, 1997). I've been having difficulty with my internet service provider so I am sending this message again, in case my prior message did not go through. My response is as an individual shareholder concerned with the impact of corporate governance activities on my investments, as well as on wider social issues. I believe a more democratic form of corporate governance is critical to maintenance of a free market system which operates both in the best interests of investors and society-at-large. I fully agree with the Commission's stated goals of making it "easier for shareholders to include a broader range of proposals," while at the same time providing "companies with clearer ground rules." However, the proposed language would widely miss the mark and would lead to a further retrenchment of management at the expense of shareholder activists. I hope you will consider the amendments suggested below, particularly the deletion of (c)(8) which precludes use of Rule 14a-8 provisions for nominating directors. This is the most fundamental reform needed since most typical shareholder proposals on poison pills, staggered boards, etc. could be eliminated if board members faced real contests and had to take a stand on the issues. The current system of corporate governance is like having the executive cabinet appoint our legislative representatives and relying on the initiative process to pass any significant legislation. Imagine how badly drafted our laws would be under such circumstances. Now imagine the shareholer proposals twenty years from now if shareholders continue to be locked out of the nominating process. What a mess it will be. Personal Grievance (c)(4): I agree with comments from CalPERS in this area. The motivation of the proponent is completely irrelevant to the question of whether the company's shareholders should have the right to consider and vote upon an issue that is, on its face, unrelated to the "personal grievance." The amendments should be revised so that only those proposals which, on their face, relate to the redress of a personal claim or grievance are excludable; the motivation of the proponent should not constitute grounds for exclusion. The SEC should continue to enforce shareholder rights to access the proxy. The Relevance Test (c)(5): Again, I agree with the CalPERS comment in this area. The proposed language should clarify that gross revenue or cost thresholds would only apply if the proposal, on its face, concerns the purchase or sale of services or products. Current language could be misinterpreted to exclude many social and corporate governance issues. Override (c)(5) and (c)(7): The concept of an override mechanism is a step in the right direction. However, the 3% threshold is too high. Even the largest institutional investors, such as CalPERS, often only own about 0.5% of most large firms. I recommend this provision be amended to lower the threshold to 1% for large cap companies. Reversal of Cracker Barrel (c)(7): I agree with former Commissioner Wallman's remarks that Cracker Barrel should be reversed immediately, regardless of other action taken. In addition, I would delete that portion of the note to paragraph (i)(7) which indicates the revised rule would exclude "the wages a company pays its non-executive employees." Stockholders should not be barred from raising issues regarding the impact of policies on pay related issues as well as profit sharing, stock options and other incentives. Relates to Election (c)(8) This is the most serious flaw in the current regulations. This exclusion should be eliminated; shareholders should not be prohibited from using Rule 14a-8 to nominate candidates for the board of directors. Imagine a counterpart to this provision in the civil society; you can put an initiative on the ballot but you can't nominate a candidate. It would be absurd. The initiative process is used primarily when the candidates we nominate and elect fail to act. We will continue to see more and more issues raised by shareholders unless they believe directors actually represent their interests. Resubmission Thresholds (c)(12): Delete this amendment. Far from expanding access to the shareholder process, the study released by the Social Investment Forum Foundation (see http://www.socialinvest.org/sec/analysis.htm) found the proposal to render it almost meaningless. No fewer than 80 percent of all shareholder resolutions would be ineligible for resubmission after the third year under the proposed rules, compared to 21 percent under the status quo. The proposed SEC rules would wipe out 70 percent of traditional corporate governance resolutions. I haven't seen strong evidence that current resubmission thresholds present an undue burden, in terms of expense, and recommend they not be changed. Eligibility 14a-8(a)(1) I support increasing the market value eligibility threshold from $1,000 to $2,000 and further would support an amendment to allow holders of 1% of the outstanding voting shares to submit proposals under a provision which would decrease the holding period required from 1 year to six months. These provisions would discourage social activists from buying shares and using them primarily as a social forum but would facilitate increased involvement from shareholders with a significant financial interest in the firm. Shareholder-Funded Proposals 14(a)(4): I agree with the remarks made by CalPERS; this change should be rejected. The right to vote uninstructed proxies against a proposal is an enormous benefit for company management, and an enormous disadvantage for shareholder proponents. Most companies have the ability to amend their bylaws to require advance notice of matters to be presented from the floor, should they believe this notice is truly necessary. Review of Company Statements 14(a)(8)(e): The SEC should continue its monitoring role. Although "only a handful of shareholders make use of the mechanism each year," without the threat of Commission review companies would have little incentive to negotiate. Please contact me at the address below or call me at (916) 452-5338 if you have any questions on the above comments. I would be happy to discuss my comments in further detail. Sincerely, James McRitchie, Editor Corporate Governance 2461 Second Avenue Sacramento, CA 95818 URL: http://www.corpgov.net e-mail: jm@corpgov.net