Proxy Voting Guidelines and Report: File Numbers S7-36-02 and S7-38-02 From: Rick Hausman [rick@cleanyield.com] Sent: Thursday, December 05, 2002 4:07 PM To: rule-comments@sec.gov Subject: Proxy Voting Guidelines and Report: File Numbers S7-36-02 and S7-38-02 Re: File Numbers S7-36-02 and S7-38-02 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street NW, Washington, DC 20549-0609 Dear Secretary Katz: Clean Yield Asset Managment, a registered investment advisory firm in Greensboro, VT, wishes to go on record in support of the Security and Exchange Commission's recently proposed rules regarding proxy voting guidelines and vote disclosure by mutual funds and investment advisers, File Numbers S7-36-02 and S7-38-02.We commend the agency for setting forth meaningful disclosure standards that will surely bolster confidence in the equity markets. One hundred percent of Clean Yield's clients are social investors. They care a great deal about proxy voting in such areas as environmental audits, staggered boards, and doing business with the heinous regime in Burma. Today, a dozen or so mutual funds issue proxy guidelines and report on their votes. These clients focus their mutual fund investing on these few others that report. But these investors would like all funds to issue proxy guidelines and reports, so they might have a broader range of choices. We are very pleased that the SEC is making a clear statement that proxy voting is a fiduciary duty and should be exercised with the best interests of fund holders in mind. This is consistent with the fiduciary standard already applied to private pension plans under the 1974 Employee Retirement Income Security Act (ERISA). Mutual funds and advisers have enormous potential to shape corporate governance and social policies at portfolio companies. Yet since the 1970s, fund participants and regulators have noted a tendency among mutual funds and advisers to automatically vote with management. We wonder whether this tendency is influenced in part by a desire to win profitable 401(k) and other business from companies where proxies are being cast. It is time this potential conflict of interest be eliminated. Greater disclosure of proxy-voting policies and practices would pressure fund managers and advisers to refrain from unilateral rubberstamping of management's decisions, and would provide investors additional tools to distinguish among funds in the market. Indeed, the proposed rules would not only help investors identify those funds and advisers that carefully examine proxy proposals before voting on them, but also those who emphasize strong corporate governance or high standards of corporate social responsibility. The amendments would also allow for fund owners to be alerted when fund managers vote counter to established voting guidelines, and in essence, would pressure mutual funds and investment advisers to take seriously their voting duties. Domini Social Investments became the first mutual fund in America to begin posting its proxy votes and guidelines on its web site. (That same year, the California Public Employees Retirement System, the largest public pension fund in the world, also began posting its votes and guidelines.) Since then, several dozen mutual funds, advisers, and other institutional investors have instituted such disclosures--through posting their votes or articulating detailed voting policies on their web sites. It is time such disclosure be made by every mutual fund and investment adviser whose fiduciary duties include the voting of proxies on behalf of their investors. Engaged proxy voting helps bring increased managerial accountability and social responsibility to many companies, and there is mounting academic evidence that progress on social, environmental, and corporate governance issues is linked to positive, long-term corporate performance. When all mutual funds and investment advisers reveal how they cast proxy votes, enabling shareholders to know what is being done in their name, we can expect corporate governance and accountability to greatly improve. We appreciate the opportunity to comment on the proposed rules. Sincerely, /s/ Richard D. Hausman, Research Dir. Clean Yield Aset Management P.O. Box 117 Garvin Hill Road Greensboro, VT 05841 802-533-7178