Subject: Comments on Shareholder Proposals: File No. S7-25-97 Date: 11/6/97 4:41 PM John V. Surr Advocate for Young Children 8217 Lilly Stone Drive, Bethesda, MD 20817-4505 Telephone/Fax: (301) 469-9170; E-mail: surr@his.com November 6, 1997 Jonathan G. Katz, Secretary rule-comments@sec.gov U.S. Securities and Exchange Commission 450 Fifth St., N.W. Washington, D.C., 20549 File No. S7-25-97 Dear SEC, General Comments: My Story: I own some shares of General Electric that my mother gave me in 1979. Soon thereafter, I filed the first of a series of shareholder resolutions to allow me to live with a clean conscience as an owner of GE. I had read about how the Berrigan brothers were willing to go to jail to get GE to stop producing components for nuclear bombs, and I felt that I should at least use my ownership interest to bring about the same result. More recently, my resolutions have focused on the violence on GE/NBC's programming as it affects children. Over the intervening years, GE has tried to keep my resolutions off its proxy statements a number of times, including once when I did not receive a copy of their submission to your staff to that effect. I have won a few of these struggles to be heard, and lost some. The zeal with which GE pursued even the weakest arguments makes me wonder whether or to what extent companies go to unwarranted efforts to still the voices of conscience among their owners. Conscience and Public Interest: It is the still, small voice of conscience that I hope you will protect in your revisions to the shareholder proposal rules. When we buy into a company, we buy into all that it does, not just the financial bottom line. The SEC and the Securities Exchange Act were established in order to protect the public's interest in the relationships between corporations and their owners. The public's interest extends well beyond questions of finance and governance as they apply to those relationships; the public has a conscience too. Now that many of the nation's corporations are more important in every way in our lives than are most governments, the public and the owners must have effective means to hold corporations accountable for all of their activities. The SEC has a Constitutional, legal, and moral responsibility to us all to maintain and nurture that accountability, "in the public interest [and] for the protection of investors". The proposed rules would have you walk away from that responsibility. The powers that be in corporate America would love such an abdication, as it would remove one of the last channels for conscience to break through the armor of their corporate cultures that refuse to recognize any flaws in the bosses' insular views. My conscience will not let me let you do it without my protest. A Safe Harbor for Issues of Conscience: The easiest way for the SEC to protect the public interest in this context would be for you to create an exception from the requirements or exceptions relating to the amount and duration of ownership, relevance, ordinary business, and re-submission, for those shareholder proposals that would encourage the company to: . comply with applicable U.S., State and local laws and regulations, . comply with foreign laws and regulations not in conflict with them, . correct an abuse of managerial or corporate power, or . observe generally accepted ethical and moral standards. You even could put the burden of proof on the proponent to substantiate the general acceptance of any ethical and moral principles on which a proposal was based. There needs to be a clear channel for these questions of conscience to reach their intended audience, without obstacles that relate essentially to the mere financial aspects or formal structure of a company's operation. Track Record: Owners' proposals based on conscience have been very salutary in improving corporate behavior on a number of issues, ranging from Apartheid to tobacco, from environmental protection to honesty in advertising. Whether these resolutions win or lose is not as important as that they focus the attention of both corporate managers and owners on issues that matter to the public at large, in a context where conscience has a chance to be heard and conduct can be changed. In my case, for instance, GE has abandoned the nuclear weapons business and has reduced the violence in NBC's broadcasts, both of which have moved significantly toward the positions I proposed even though my resolutions never received more than 10 per cent of the vote. I don't pretend to be entirely responsible for these outcomes, but I believe that I helped in a small way to bring them about. Without my opportunities to get on GE's proxy statement, there would have been much less pressure on GE management to move in the direction indicated or even to meet with us shareholders about these issues. Recommendation: I hope that your comments on the Final Regulations will address these issues of conscience directly, rather than peripherally as in the September 22 proposal. Clarity on whether and to what extent corporate owners should be entitled to voice their consciences to management and other owners is needed, to set the stage for a healthier relationship based on mutual understandings of the "tilt of the playing field". The new Q&A format is nice, but clear, understandable criteria would be even nicer. Specific Proposals: Re-submission Limits: In most of the large corporations, it is impossible for any shareholder proposal to prevail, and unlikely for it ever to reach the higher re-submission limits that you propose. Institutional investors and brokerage houses holding shares in street names almost always vote with management, as I learned when I tried to convince the managers of my pension fund's portfolio to take a stand of conscience. Of the investors that remain, most never even look at the questions raised in the proxy statement before they mark their ballots for management and send them in. It is those that remain, and those who show up at the annual meeting, to whom my proposals are addressed. The higher thresholds that you propose appear to have been drawn out of thin air and a desire to yield to the corporation managements' frustrations with the annoyance of batting away these pesky flies. Given the intrinsic tilt of the playing field, your proposals could deprive us shareholders of our remaining voices. Particularly on issues of conscience, persistence is more importance than numbers. We need an opportunity to stay in the forum, through thick and thin. Instead, you would give us only one chance every five years to communicate to our fellow owners. Instead of increasing the re-submission percentages, you should lower them, at least for questions of corporate citizenship. Any particular numbers you pick are likely to be arbitrary, unless you do an empirical study, that I cannot afford to do personally, of the percentages actually achieved by shareholder resolutions on recent ballots. Reflecting on my experience with GE, I would propose, at least for large corporations, 2 percent for the first year, 4 percent for the second, and 8 percent for the third, with a 3-year gap before re-submission if the percentages are not reached. Only actual votes "for" and "against" should be computed in determining any percentages under the rule. Personal Grievances: The proposed change in staff treatment of allegations of personal grievance on "neutral" resolutions is similarly unwarranted. If the resolution is "neutral" on its face, the burden of proof should be on a company's management to establish a specific factual basis for excludability. "No view" is a cop-out that would allow free corporate abuse of this basis for exclusion. Management Functions: The difficulty with a general exclusion for "management functions" is that management should be accountable to the owners for those functions when management abuses its prerogatives for purposes not in the interests of the corporation or the public. Particularly on issues of conscience, management may act without regard for basic corporate or public interests, even if formally within its sphere of discretion. The public law analogy is "abuse of power". Perhaps you could limit the exception with a qualifier, such as: "If the proposal relates to specific business decisions normally left to the discretion of management, and not involving actions contrary to corporate or public policy or ethics or constituting an abuse of power." Employment issues should be treated like any other issues in this context. Relevance: Corporate governance issues shouldn't be the only category of proposals exempted from this category of exclusion. Issues of conscience may involve a very small, very criminal or unethical part of the company's business. If, for instance, a company had been issuing a very noxious pollutant (e.g., Bhopal) from one of its plants, that might involve a very small part of the company's business but a very major threat to the public welfare that shareholders should be allowed to address. Given the wide disparity in corporate sizes, any measures of economic significance that you propose are bound to be irrelevant to most of them and unduly restrictive of stockholder rights for major corporations. One issue of conscience might receive opposite treatment in two corporations, if one is big and the other is small, even though the implications of both were the same. Overrides: First, overrides should not be limited to exclusions (5) and (7), the "relevance" and "ordinary business" exclusions mentioned above. They also should apply to re-submission limits, for the same reasons, unless the inclusion of this category would weaken the arguments for a lower re-submission threshold. As a preferred, less cumbersome alternative to your "override" proposal, you should consider a requirement that proxy statements should include votes on whether specified resolutions excluded from consideration in the stated categories, but known to the company when it sends the proxy statements to the printer, can be considered at the annual meeting or on the following year's proxy statement, with the same 3 percent threshold for inclusion. Such a procedure would enfranchise all shareholders, while preserving management's rights to minimize nuisances and costs. It would be a whole lot simpler than what you propose, and would be fairer to owners of small lots of shares who raise issues of conscience. Incidental to the override and informal submission issues, the proposal to let management use its nonspecific proxies to vote against resolutions raised for the first time at an annual meeting but not on the proxy statement would be unfair to the shareholders in general, especially those who might have favored the proposed resolution. Yet another increase in the "tilt". Eligibility: The time limits for holding shares should apply backwards from the date of the annual meeting at which a proposal might be considered, not from the date of its submission. The meeting date is when the decision in question is made. The "de minimis" share value limit is hard to apply, especially in a fluctuating market. It raises difficult questions of application if the value falls below the limit after the submission but before the meeting. Given that most corporate shares have a value of more than a few dollars, is the value limit necessary? Isn't the fact of corporate ownership more important than its amount? Review of Management's Statement of Opposition: Even if you rule for management in most of these cases, the fact that you now review their statements in opposition is a powerful incentive for managements to be accurate in their statements in opposition. Why give them an exemption from review that is unavailable to share owners? "Tilt" again. "Proposal" You should not permit companies to exclude resolutions that merely express shareholder opinion, because with few exceptions that is all that shareholders can do in any case when they request the company or its board of directors to act. Most such resolutions do not bind directors to specific actions. Costs: I have never spent more than the postage and copying costs in justifying a proposal, although once I paid a proxy solicitation fee of over $100. I have spent quite a few hours in law libraries over the years, but never more than 20 in any year, to keep my resolution on a proxy statement. This degree of effort, and my track record of wins and losses, tells me that the $36,603 that the companies have averaged on the other side is probably inflated by quite a bit. In sum, the proposed rules would tilt the playing field from merely uphill to almost vertical. Most of us small shareholders are not professional rock climbers. Please, in the interest of your own general mandate and the public's general well-being, let the owners and managers of America's companies walk again across a level, if bumpy, playing field to meet each other and find a better way. If you or any other parties reading these comments would like to discuss them with me, please call or write. Sincerely, /s/ John V. Surr John V. Surr cc: Tim Smith, ICCR IRRC