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Staff Report: Review of the Proxy Process Regarding the Nomination and Election of Directors

Division of Corporation Finance
July 15, 2003

This is a report of the Division of Corporation Finance. The statements in this report are those of the staff and are not statements of the Securities and Exchange Commission.

I. INTRODUCTION

Earlier this year, the American Federation of State, County and Municipal Employees Pension Plan requested that the Commission review the Division of Corporation Finance's no-action position in letters issued to six companies. The AFSCME Employees Pension Plan had submitted a shareholder proposal to those companies that would have required the companies to include in their proxy materials the nominee of any shareholder or group of shareholders beneficially owning 3% or more of the companies' outstanding common stock. The Division allowed the companies to exclude the proposals under Securities Exchange Act of 1934 Rule 14a-8(i)(8) because the proposals "relate[d] to an election for membership on the company's board of directors or analogous governing body."¹ The Commission let stand, rather than review, the determination of the Division.

Although the Commission determined not to review the Division's position, on April 14, 2003, the Commission issued Press Release No. 2003-46, announcing that it had directed the Division to formulate possible changes in the proxy rules and regulations and their interpretations regarding procedures for the election of corporate directors. As we discuss below, increased shareholder participation in the processes related to elections has been a topic of interest and debate over the past 60 years. In particular, shareholder access to a company's proxy materials has been addressed previously by the Commission, outside commenters and shareholder advocates. This staff report summarizes prior Commission action and discusses alternatives for increasing shareholder participation in the proxy process regarding the nomination and election of directors and otherwise improving the proxy process in this area. Finally, the discussion of each alternative closes with a list of questions that are among those that the Commission could consider or submit for public comment if it were to propose that alternative.²

II. BACKGROUND

A. Prior Commission Action

The Commission first addressed the issue of shareholder access to a company's proxy materials for the nomination of directors as early as 1942, when it requested that the staff review the proxy rules and submit to the Commission recommended changes.³ The Commission solicited comments on the staff proposals, including a proposal to revise the proxy rules to provide that ". . . minority stockholders be given an opportunity to use the management's proxy material in support of their own nominees for directorships."⁴ According to testimony of Chairman Ganson Purcell before the House Committee on Interstate and Foreign Commerce, the staff had proposed that "stockholders be permitted to use the management's proxy statement to canvass stockholders generally for the election of their own nominees for directorships, as well as for the nominees of the management."⁵ Under the proposal, a company would not have been required to include more than twice as many candidates on the proxy as director positions to be filled.⁶ The Commission did not adopt rules to provide this access.⁷

In 1977, the Commission again focused on shareholder access to a company's proxy materials regarding the nomination and election of directors during its broad review of shareholder communications, shareholder participation in the corporate electoral process, and corporate governance generally. In anticipation of public hearings held in September of 1977, the Commission, without formally proposing rule changes, requested comment on a number of issues, including whether "... shareholders [should] have access to management's proxy soliciting materials for the purpose of nominating persons of their choice to serve on the board of directors."⁸ In addition to this overarching question, many of the other issues raised in the releases relating to the 1977 review remain issues that the Commission will have to address if it proposes to provide shareholder access to company proxy materials.

After the 1977 hearings, the Commission proposed and adopted amendments to the proxy rules. These amendments did not relate directly to shareholder access to a company's proxy materials regarding the nomination and election of directors. The Commission, however, did adopt a requirement that companies state whether they have a nominating committee and, if so, whether the nominating committee will consider shareholder recommendations. Although the Commission stated its intent to address "some of the more complex questions which have been raised in this proceeding relating to corporate governance and the means by which corporations can best account to shareholders and the public" and determine "what further action, if any, is appropriate with respect to shareholder communications and shareholder participation in the corporate electoral process generally," the Commission did not take further action on shareholder access to company proxy materials.⁹ According to a 1980 staff report to the Senate, the staff concluded that, due to the emerging concept of nominating committees, the Commission should not propose and adopt a shareholder access rule at that time.¹⁰ The staff report recommended, however, that the staff monitor the development of nominating committees and their consideration of shareholder recommendations.¹¹ The staff report further cautioned that, if an insufficient number of companies adopted nominating committees or the efforts of these committees with regard to shareholder nominations proved insufficient, Commission action might be necessary.¹²

In the broad proxy revisions adopted in 1992,¹³ the Commission briefly revisited the shareholder access issue in connection with amendments to the bona fide nominee rule set out in Exchange Act Rule 14a-4, which provides that no person shall be deemed a bona fide nominee "unless he has consented to being named in the proxy statement and to serve if elected."¹⁴ In adopting the Exchange Act Rule 14a-4 amendments, the Commission noted "... the difficulty experienced by shareholders in gaining a voice in determining the composition of the board of directors," but stated the following with regard to shareholder access to the company's proxy materials:

Proposals to require the company to include shareholder nominees in the company's proxy statement would represent a substantial change in the Commission's proxy rules. This would essentially mandate a universal ballot including both management nominees and independent candidates for board seats.¹⁵

Rather than mandating a "universal ballot," the Commission revised the bona fide nominee rule to allow shareholders seeking minority board representation to "fill out" a partial or "short slate" with management nominees, thus making it easier for shareholders to conduct an election contest in a non-control context. For example, if a shareholder wishes to nominate only two candidates to a seven person board, Exchange Act Rule 14a-4(d) permits the shareholder to choose five of management's nominees to fill out his or her ballot, provided that the shareholder does not name those management nominees on his or her proxy card, but instead names only those management candidates that the shareholder is opposing. Although the shareholder still must disseminate and file a separate proxy statement and proxy card, he or she can now, in essence, allow shareholders to vote for some of management's nominees on the shareholder's proxy card.

Currently, shareholders who wish to effect a change in the composition of a board of directors may conduct an election contest, as noted briefly above, nominate a candidate at an annual meeting, or recommend candidates to a company's nominating committee or group of directors fulfilling a similar role. Election contests can require substantial expenditure by the shareholder, who must prepare and disseminate proxy materials that comply with the Commission's proxy rules. Shareholders may instead nominate directors at the annual meeting, subject to compliance with applicable state law requirements, as well as any requirements contained in the company's governing instruments; however, most shareholders vote through the grant of a proxy before the meeting instead of voting in person. Accordingly, a nominee presented at an annual meeting has little chance of receiving sufficient support. Finally, although shareholders generally may recommend candidates to a company's nominating committee or group of directors fulfilling this role, shareholders have indicated that this is not effective, as companies rarely nominate candidates recommended by shareholders.

B. Summary of Public Recommendations for Greater Shareholder Involvement in the Election of Directors

In Press Release 2003-59, issued on May 1, 2003, the Commission solicited public views on the Division's review of the proxy rules and regulations relating to the nomination and election of directors.¹⁶ The majority of commenters supported the Commission's decision to direct this review. Reflecting concern over the lack of accountability of corporate directors and recent corporate scandals, the commenters generally urged the Commission to adopt rules that would grant shareholders greater access to the nomination process and greater ability to exercise their rights and responsibilities as owners of their companies. In addition, many commenters noted that the current director nomination procedures afford little meaningful oversight to shareholders.

The 690 commenters who responded to the solicitation were comprised of the following:

424 individuals;
165 unions, pension funds, institutional investors, and institutional investor associations;
24 social, environmental, and religious funds and their related service providers;
18 law firms and attorneys;
16 associations;
10 corporations and corporate executives;
10 shareholder resource providers;
8 investment advisers and managers;
5 academics;
5 other shareholder groups;
2 governmental representatives; and
3 miscellaneous commenters.

The vast majority of commenters supported modifying the proxy rules and regulations related to the nomination and election of directors. Commenters who did not support such a modification included all of the corporations and corporate executives, most of the legal community, and the majority of associations (mostly business associations).

Few commenters provided specific suggestions about how the proxy rules should be reformed to allow shareholders to access proxy materials to nominate directors. Of those commenters who did submit detailed proposals, the level of specificity in those proposals ranged from merely suggesting minimum shareholder ownership thresholds for submitting director nominations to outlining extensive proposals for general proxy reform.

Most of the individual investors who commented indicated that they consider the current process for the nomination and election of directors to be an ineffective means of providing shareholders with the rights of company ownership, but very few offered detailed proposals. Shareholder groups who supported some level of proxy reform stated that, aside from providing shareholders with access to the election process to nominate director candidates who would represent investors' best interests, such reform also would have the effect of making all corporate directors more responsive to shareholder concerns. An explicit or implicit reason behind the desire for reform in several comment letters was that reform was particularly necessary in those cases where the proxy process and shareholder communications were ineffective.

Commenters who opposed proxy reform to provide shareholders with access to company proxy materials to nominate directors advocated a cautious approach with regard to any changes to the nomination and election process. In this regard, the commenters posited that such access would be "terribly disruptive to the corporate governance process" and the Commission instead should give the Sarbanes-Oxley Act of 2002 and proposed listing standard changes "a chance to operate before making such a fundamental change to the director nomination process."¹⁷ In addition, some commenters also questioned the Commission's authority to adopt shareholder access rules under Exchange Act Section 14(a).

A few of the commenters opposing shareholder access to company proxy materials recommended that the Commission instead consider requiring enhanced disclosure about nominating committees or revising Exchange Act Rule 14a-8(i)(8) to allow shareholder proposals to establish a process for shareholder nominees on a company-by-company basis.

For an expanded discussion of the comments received, please refer to the Summary of Comments, attached as Appendix A.

III. ALTERNATIVES

Based on the public comments, the principal alternatives for increasing shareholder involvement in the nomination and election of directors, some of which could be employed in combination with others, appear to include the following:¹⁸

requiring companies to include shareholder nominees in company proxy materials;
requiring companies to deliver nominating shareholder proxy cards along with company proxy materials;
requiring expanded disclosure regarding companies' nominating committees, the nominating process, and nominating committee consideration of shareholder recommendations, with possible requirements under applicable listing standards that nominating committees consider shareholder recommendations;
requiring expanded disclosure regarding shareholder communications with board members, with possible requirements under applicable listing standards that companies provide shareholders with increased access to, and direct communications with, boards of directors; and
revising Exchange Act Rule 14a-8 to allow shareholder proposals relating to a company's nomination process.

A. Alternative A - Require Companies to Include Shareholder Nominees in Company Proxy Materials

Under this alternative, a company would include on its proxy card the shareholder nominee or nominees and would include specified information, such as biographical information, about the shareholder nominee in the proxy statement. Arguments for and against each of the company's and the nominating shareholder's candidates could be included either in a word-limited form in the proxy statement or wholly outside the proxy statement, for example, on one or more designated websites. All soliciting materials, including website postings, would be filed electronically with the Commission, as is currently the case for definitive additional soliciting materials. In addition, all disclosure and communications would be subject to the prohibition against false and misleading statements in Exchange Act Rule 14a-9.

To the extent that the Commission determines to propose new rules based on this alternative, it may want or need to consider the following topics, among others:

whether there should be triggering events for enhanced shareholder access;
if enhanced shareholder access is based on triggering events, whether there should be time limits following these events for the enhanced access;
whether to impose nominating shareholder eligibility requirements, such as percentage of company stock held and length of time held thresholds;
whether to allow aggregation of shareholders into groups for purposes of forming a "nominating shareholder";
whether there should be limits on the number of directors or percentage of the board that may be nominated by shareholders and/or hold office at any given time under a shareholder access rule;
whether there should be a process for assuring that shareholder nominees are qualified to serve on the board;
whether there should be independence standards for the shareholder nominee, both from the company and from the nominating shareholder;
requirements applicable to any related solicitations, both for formation of a shareholder nominating group and for election of a shareholder nominee;
the extent of shareholder nominee disclosure, if any, to be included in the company's proxy materials;
possible conflicts between any rule changes and controlling state corporate law, federal law, or listing standards;
whether nominating shareholders, including groups, should be deemed to have a "control" purpose that would create additional beneficial ownership filing and disclosure requirements;
whether to adopt an exemption from Exchange Act Section 16 reporting requirements for nominating shareholder groups; and
whether to create a safe harbor to provide that nominating shareholders would not be deemed "affiliates" of the company solely as a result of using a shareholder access rule to nominate a candidate.

Two fundamental considerations in proposing any shareholder access rule, which are reflected in the list above, are when the rule may be used and by whom. In addressing the former, the Commission would need to determine whether the proposal should require one or more types of triggering events to occur before a shareholder could invoke the rule to nominate a director or directors. The result of conditioning the operation of a proposal on triggering events would be to focus the impact of the rule on those companies where there are objective criteria showing that the proxy process may be ineffective. This approach could address the concerns of some commenters regarding the adverse impact of such a proposal on all public companies. Although a triggering event requirement would add additional complexity to the operation of the rule, it also would limit the use of a shareholder access rule to situations where the proxy process may otherwise have failed to permit shareholder views to be adequately taken into account. The clear purpose of such a shareholder access proposal, particularly where conditioned on triggering events, would be to improve the proxy process.

Triggering events could include a company's failure to act on shareholder proposals that receive majority votes or the receipt of significant percentages of "withhold" votes in director elections.¹⁹ Another triggering event could be approval of a shareholder proposal to activate the shareholder access rule.²⁰ Though other triggering events could be used, including economic performance, e.g., lagging a peer index for a specified number of consecutive years,²¹ the Division is of the view that any triggering event should be more closely tied to evidence of ineffectiveness in the proxy process.

A related issue if the Commission proposes a shareholder access rule that uses triggers based on percentage of withhold votes or shareholder proposals is whether the use of these triggers would result in increased numbers of shareholder proposals and "vote no" campaigns by shareholders who are attempting to trigger the nomination procedure.²² With regard to "vote no" campaigns, the Division has been advised that the possibility of triggering Exchange Act Schedule 13D reporting requirements currently may have a chilling effect on shareholders who otherwise would organize such an effort. Accordingly, the Commission may wish to consider whether the Commission or the Division should issue an interpretation stating its views with regard to "vote no" campaigns and beneficial ownership reporting. A similar interpretation may be appropriate with regard to the application of the proxy rules to these activities.

The second consideration, shareholder eligibility, generated a great deal of comment from the public. While some believe that all shareholders should be able to access a company's proxy materials for the purpose of nominating directors, others advocate share ownership thresholds ranging from the $2,000 threshold required to submit an Exchange Act Rule 14a-8 proposal to substantial share ownership percentages (e.g., from 3% to 10% or more) of a company's outstanding common stock. Those who advocate no threshold or a nominal dollar amount argue that the imposition of a threshold would unfairly advantage larger shareholders who already may have the resources to run their own slates using the existing rules for contested elections. Those who advocate a larger share ownership threshold contend that, to use company funds to nominate a candidate, a nominating shareholder should have a substantial stake in the company. In addition, advocates of a larger share ownership threshold point out that the composition of the board of directors is critical to a corporation's functions and, accordingly, shareholders should have to satisfy a substantial threshold in order to use any new shareholder access rule.

The eligibility thresholds recommended most frequently were 3% and 5%. For example, the Council of Institutional Investors, which has expressed its support for shareholder access to company proxy materials, advocated that "a long-term investor or group of long-term investors owning in aggregate at least 5% of a company's voting stock" should have access to company proxy materials to nominate "less than a majority of the directors." The CII expressed the position that nominating shareholders must have owned their stock for "at least three years" and company proxy materials and related mailings should provide "equal space and equal treatment" of shareholder nominees. The AFL-CIO, another supporter of shareholder access to company proxy materials, has recommended that the Commission adopt new rules granting shareholder access to those who have held a minimum of 3% of the company's shares, where a majority of those shares have been held for more than one year. Under this recommendation, nominating shareholders could nominate the greater of two directors or one-third of the nominees standing for election at a particular meeting, but in no case a majority of the board.

The determination of the appropriate eligibility threshold for share ownership will affect not only who may use the rule, but also the reporting requirements to which nominating shareholders may be subject. For example, a share ownership eligibility threshold of 5% or greater raises the issue of subjecting a nominating shareholder group to the beneficial ownership reporting requirements of Exchange Act Section 13(d) or Exchange Act Section 13(g).²³ Thus, some may argue that a benefit of establishing an eligibility requirement of less than 5% would be that nominating shareholders or shareholder groups will not necessarily become subject to the disclosure obligation imposed by Exchange Act Schedule 13D or Exchange Act Schedule 13G. On the other hand, there may be more benefit in establishing a threshold percentage that would trigger the beneficial ownership reporting requirements to ensure that nominating shareholders or shareholder groups provide notice of their intentions in the form of a beneficial ownership report filed electronically with the Commission. In addition, a possibility with regard to the shareholder nomination alternative is to create a new "passive investor" category of filer who could nominate a director and still use the short-form Exchange Act Schedule 13G, provided that the filer could certify that he or she did not acquire or hold the securities with a control purpose or effect and could also confirm that he or she (or the nominating shareholder group to which he or she belongs) had held the subject securities for the minimum holding period specified under a shareholder access rule. This certification of non-control intent and eligibility for shareholder access could provide additional certainty that shareholder access was being used for the intended purpose and not to facilitate a surreptitious contest for control.

For shareholder groups with holdings of 10% or more, an additional consideration is Exchange Act Section 16, which provides, among other things, that a director or officer of a company with a class of equity securities registered under Exchange Act Section 12, or a shareholder who beneficially owns more than 10% of such a class of equity securities, must report the amount of securities owned and any changes in such ownership. Because the rules under Exchange Act Section 16 define beneficial ownership for purposes of determining who is a 10% owner by reference to the definition under Exchange Act Section 13(d), a shareholder who is a member of a "group" will be deemed to own beneficially the securities owned by the other members of the group. Accordingly, a shareholder who is not otherwise subject to Exchange Act Section 16, but who joins a nominating shareholder group that holds, in the aggregate, greater than 10% of a company's equity securities, may be viewed as owning the aggregate amount and, therefore, be subject to Exchange Act Section 16. Although Exchange Act Rule 16a-1(a)(1) provides that specified institutional investors who hold for the benefit of third parties or in customer or fiduciary accounts in the ordinary course of business shall not be deemed beneficial owners of the securities for Exchange Act Section 16 reporting purposes, there is no similar exception for passive investors who do not also fit within one of the institutional investor categories listed in Exchange Act Rule 16a-1(a)(1). Therefore, any 10% or greater eligibility requirement for nominating shareholder groups may trigger additional reporting requirements by the members of the nominating shareholder group, as well as possible short-swing profit liability under Exchange Act Section 16(b) and the short sale prohibitions in Exchange Act Section 16(c).

Another consideration in evaluating any eligibility threshold greater than 10% is the operation of shareholder rights plans (poison pills) under state law, which frequently are triggered by beneficial ownership of 15% or greater. Thus, if nominating shareholders or shareholder groups beneficially own 15% or more of a company's shares, nominating shareholders may trigger applicable poison pill provisions under state law.²⁴

In considering rules mandating shareholder access to company proxy materials regarding the nomination and election of directors and how best to structure those rules, the Commission will need to consider the scope of its authority under the federal securities laws. In this regard, several commenters raised questions about the Commission's authority to adopt such rules. The Commission historically has been found to have significant authority to adopt rules in the proxy area, and that authority has been found to extend beyond mere disclosure. However, Commission authority in this area is not unlimited, as indicated by some court decisions taking a more narrow view of the Commission's authority. The Division believes that Exchange Act Section 14 provides an appropriate basis for Commission authority to provide for a properly crafted rule in this area. A detailed analysis of authority issues will depend on the contours of an actual rule proposal.

Advantages and Disadvantages

Much of the public input that we have received suggests that shareholder access to a company's proxy materials would be the most direct and effective method of giving shareholders a meaningful role in the nomination and election process. This input also suggests that another result would be to make corporate boards more responsive and accountable to shareholders, as well as, in many instances, more diverse. This alternative has been advocated on a number of occasions over the last 60 years and would certainly give shareholders a new and more cost-effective way to effect change in the management of their companies. As it stands today, shareholders generally are given an opportunity to vote only on those candidates nominated by the company. In addition, many companies use plurality rather than majority voting for board elections, which means that candidates can be elected regardless of whether they receive more than 50% of the shareholder vote.²⁵ Accordingly, all board nominees generally are elected, regardless of the number of "withhold" votes by shareholders. Many shareholders, therefore, view the proxy process as ineffective and the election of directors as a mere formality or "rubber stamping" of the board's choices.

Currently, a shareholder or group of shareholders that is dissatisfied with the leadership of a company must undertake a proxy contest, at its own expense, to put nominees before the shareholders for a vote. A board's nominees, on the other hand, do not bear the cost of their candidacies, which are funded out of corporate assets. While shareholders can recommend a candidate to a company's nominating committee, shareholder comments suggest that this rarely is effective and that, in some cases, it may be difficult for shareholders to gain access to members of company boards and their committees.

On the other hand, the business community and many of its legal advisors commented that giving shareholders access to company proxy materials could turn every election of directors into a contest, which would be costly and disruptive to companies and could discourage some qualified board candidates from agreeing to appear on a company's slate. Because the composition of the board of directors is fundamental to a company's corporate governance, the current filing and disclosure requirements applicable to shareholders who wish to propose an alternate slate are, in the view of these commenters, more appropriate than the shareholder access alternative. Also, shareholder nominees who are elected to the board could alter the dynamics of the board and cause the board to become fragmented and less efficient. In particular, corporate commenters have posited that a shareholder access rule would result in "special interest" board members who represent particular causes rather than the interests of the company and its shareholders overall. Finally, while nominating committee members have a fiduciary duty to act in the company's best interest, commenters noted that nominating shareholders would not have this same duty. Accordingly, it is argued that candidates advanced by a nominating shareholder may not be as qualified to serve on a board as a company nominee. Although this concern may be mitigated if a shareholder access rule were drafted to require all shareholder nominees to be screened through the board's nominating committee, such a provision could create additional problems of its own, e.g., nominating committees may not want to take on the duties and any attendant liabilities associated with recommending a shareholder's nominee. In any event, it likely would be difficult to ensure that the same screening criteria are applied to management and shareholder nominees, and shareholders may view the screening process as a deterrent to nominating candidates.

A shareholder access proposal could require that shareholder nominees meet applicable independence requirements from companies. The proposal also could impose limitations on relationships between nominating shareholders and their nominees, as well as disclosure requirements regarding nominee interests. These types of requirements could narrow the potential pool of persons who could be nominated by shareholders, but they would also, at least in part, address some of the concerns regarding nominees who would represent the interests of particular shareholders or be "single-issue" directors.

Refinements to a shareholder access proposal could affect the balance of advantages and disadvantages in important ways. For example, requiring triggering events to occur before allowing enhanced shareholder access to the proxy process would be expected to significantly restrict the number of companies where access is available. It would also, therefore, be expected to limit the number of companies subject to the perceived risks of frequent proxy contests, chilling effects on board nominees, and altered board dynamics. While it would restrict access, access based on triggering events would limit the proposal to only those companies where specified criteria may suggest that the proxy process has otherwise not permitted adequate or effective access for shareholders in the past.

Potential Questions for Public Comment

Would adoption of modified proxy rules to give shareholders the ability to place shareholder nominees in a company's proxy materials conflict with state law, e.g., state law requirements applicable to the expenditure of corporate assets or nominating procedures?
Should any new rule require a triggering event to occur before shareholders would be able to use the shareholder nomination process? If so, what events should trigger the access? Should there be a time limit on the access? If so, how long after a triggering event should shareholders be able to use the nomination process, (e.g., two years, three years)? How should shareholders be notified that a triggering event has occurred?
What, if any, eligibility requirements should the Commission impose on nominating shareholders? For example, should nominating shareholders be required to beneficially own a specified dollar amount or percentage of company securities, e.g., 3% of voting securities, in order to place a nominee on the company's proxy card? Should this percentage be higher or lower (e.g., 1%, 5%, 10%)? Should nominating shareholders be required to have held their shares continuously for a minimum period of time? If so, what is the appropriate length of time, (e.g., one year, two years, three years)?
Should shareholders be permitted to aggregate their holdings in order to meet any ownership eligibility requirement to nominate directors? If so, must all members of a nominating shareholder group individually satisfy the minimum holding period?
Should all or any of the proxy rules apply to soliciting activities by shareholders attempting to form a nominating shareholder group? If so, what rules? For example, should this type of soliciting activity be exempted from the proxy rules, subject to limitations on the number of shareholders solicited and/or the content of the soliciting materials?
In order to avoid the use of a shareholder nomination procedure in contests for corporate control, should there be a limit on the number of directors or the percentage of the board that shareholders may nominate? Should there be a limit on the number of shareholder-nominated directors that could hold office at any given time? If so, what limitations are appropriate? Would such a limitation conflict with state law? Should there be other requirements to ensure the "non-control" purpose of those using a procedure of this type?
What independence standards should apply to shareholder nominees? Should they be independent of the company? If so, under what independence standard? Should nominating shareholders be required to establish the nominee's independence, e.g., by certifying to the company that the nominee is independent? Should shareholder nominees be independent of nominating shareholders? If so, under what independence standard?
Should nominating shareholders be independent of the company? If so, under what independence standard?
Should there be required qualifications for shareholder nominees? If so, should shareholder nominees be screened by the company's nominating committee? Should the nominating committee be able to reject shareholder nominees based on objective criteria related to the nominee's qualifications?
Is there a risk that companies will form "friendly" nominating groups to ensure that a candidate of the company's choice is nominated through any new shareholder access rule? If so, should the Commission adopt rules to address this possibility? For example, should a nominating shareholder be required to confirm that it is acting solely on its own behalf and not that of the company? Should the company be required to disclose any communications between board members and nominating shareholders?
Should companies be exempted from a shareholder nomination procedure for any election of directors in which another party commences, or evidences its intent to commence, a solicitation in opposition as defined in Exchange Act Rule 14a-12(c)? If so, should the period in which shareholders may use the nomination process be extended to the next year (assuming a time limitation)?
What requirements should apply to soliciting activities conducted by nominating shareholders? For example, what filing requirements and specific parameters should apply to any such solicitations? Should all soliciting materials be filed with the Commission on the date of first use?
Should all soliciting activities be limited to one or more designated websites? If so, who should pay for the websites?
What shareholder nominee and/or nominating shareholder disclosure, if any, should be included in company proxy materials and/or be made available on a designated website? For example, should nominating shareholders be required to provide biographical information about the nominee? Should nominating shareholders be required to provide "participant" disclosure similar to that required in a traditional election contest?²⁶ Should nominating shareholders be entitled to space in a company's proxy materials to campaign for the shareholder nominee? If so, should there be a word limit on the nominating shareholder's disclosure? What would be an appropriate word limit?
Should nominating shareholders, including groups, be deemed to have a "control" purpose that would create additional filing and disclosure requirements under Exchange Act Section 13(d)?
Would Exchange Act Section 16 reporting and short-swing profit liability deter the formation of nominating shareholder groups with greater than 10% beneficial ownership? If so, should nominating shareholder groups be exempted from reporting under Exchange Act Section 16(a)?
Should the Commission create a safe harbor that provides that nominating shareholders will not be deemed "affiliates" of the company solely as a result of using a shareholder nomination procedure?
What would be the cost to companies if the Commission adopted proxy rules giving shareholders access to companies' proxy materials to nominate directors? Who should bear that cost?
What direct or indirect effect would enhanced shareholder access have on companies' policies relating to the election of directors? For example, will companies be more or less likely to adopt cumulative voting policies and/or elect directors annually?
What impact would this alternative have on small businesses? Would this alternative have a disproportionate impact on small businesses as compared to other public companies?
Would shareholders without access to electronic media be disadvantaged in making their voting decisions by having certain information available only on a website? Would this represent a significant change from current requirements?
Do large and small shareholders share the same interests? If not, how do they differ and how would each be served under a shareholder access rule?
Is a shareholder access rule consistent with Congressional intent regarding Exchange Act Section 14(a)?

B. Alternative B - Require Companies to Deliver Nominating Shareholders' Proxy Cards with Company Proxy Materials

A variation on the above alternative has been noted by the individual members of the ABA's Task Force on Shareholder Proposals. Under this variation, the Commission could propose new rules requiring companies to include a nominating shareholder's proxy card along with the company's proxy materials and proxy card. Similar to the shareholder access alternative discussed above, as Alternative A, this alternative could be limited to situations where a triggering event has occurred. A company would be required to note briefly in its proxy materials that a shareholder or shareholder group had nominated a candidate to the board of directors, that the shareholder's proxy card is included in the company's mailing, and that additional disclosure about the shareholder nominee may be found on a specified website. Any disclosure related to nominating shareholders and shareholder nominees, in addition to any campaigning for shareholder nominees, would appear on nominating shareholders' websites and would be filed electronically with the Commission. Similarly, a company's soliciting materials could be required to appear on the company's website. As with communications under the enhanced shareholder access alternative, all disclosure and communications would be subject to the prohibition against false and misleading statements in Exchange Act Rule 14a-9.

This alternative differs from the enhanced shareholder access alternative discussed above, in that it would not result in shareholder nominees appearing in the company's proxy materials. Instead, a company would absorb the cost of mailing a nominating shareholder's proxy card.²⁷ Because this alternative would involve the mailing of both a company and a shareholder proxy card, rather than one company card that includes shareholder nominees, this alternative would be equivalent to running a "short slate" (nominating fewer candidates than there are available board seats) without the disclosure and filing requirements associated with a traditional proxy contest.

Another potential difference between this alternative and the enhanced shareholder access alternative relates to disclosure by nominating shareholders. Currently, no person engaged in a solicitation may deliver a proxy card to a shareholder unless the shareholder is concurrently given, or has previously received, a definitive proxy statement.²⁸ Under this alternative, a company would mail a nominating shareholder's proxy card, but shareholders would not concurrently receive proxy statement disclosure about the shareholder nominee. Any new rule would, therefore, need to allow a means to provide shareholders with the disclosure required to make an informed voting decision between board nominees and shareholder nominees. As noted above, one possibility would be to allow shareholders to provide all biographical and other appropriate information about their nominees on a designated website.

Advantages and Disadvantages

As with the enhanced shareholder access alternative, this alternative would decrease substantially the cost for shareholders to nominate a candidate to the board of directors, in that a nominating shareholder would not be required to print and mail a full proxy statement satisfying the requirements of Exchange Act Schedule 14A. Instead, a company would incur the mailing cost of distributing the nominating shareholder's proxy card and the nominating shareholder could place all required disclosure and other communications on a website. In addition, if all shareholder nominee disclosure appeared outside the proxy statement, companies would avoid the printing and mailing costs of expanding the proxy statement to include this disclosure. Also, a separate proxy card may mitigate any state law concerns related to a shareholder's right to nominate directors by imposing a mailing requirement on the company rather than a requirement that a company give shareholders access to the company's proxy materials.

On the other hand, this alternative could be viewed as a substantial departure from our current requirement that specified disclosure be included with, or precede, the delivery of a proxy card to shareholders. In addition, this option has many of the same potential disadvantages raised in the comments with regard to an enhanced shareholder access proposal, including the possibility that the new rule could turn every election of directors into a contest, thus disrupting a company's operations, requiring substantial expenditures of corporate funds, discouraging qualified nominees from agreeing to run for election, and fragmenting boards. As discussed with regard to the enhanced shareholder access alternative, however, the use of triggering events would address, at least in part, some of the more serious disadvantages perceived by the corporate community.

Potential Questions for Public Comment

With a few exceptions, most of the questions applicable to an enhanced shareholder access proposal would also be relevant to this alternative. The following additional questions may also be appropriate:

Should all soliciting activities and/or disclosure be limited to one or more designated websites? If so, who should pay for the websites? Is a designated website an adequate means to provide shareholders with required disclosure? Why or why not? For example, would shareholders without Internet access be disadvantaged?
Should disclosure relating to shareholder nominees and nominating shareholders be provided on a website in advance of, or simultaneously with, a company's mailing of a nominating shareholder's proxy card? If not, what effect would this have on shareholders' ability to make informed voting decisions? If so, how should shareholders be made aware that such information is available on a website? For example, should shareholders receive notice through a company's proxy statement alone or should the nominating shareholder be required to provide separate notice? If a nominating shareholder is required to provide such notice, when should the notice be provided and by what means, (e.g., in a press release)?
What would be the cost savings to companies and shareholders of this alternative as compared to an enhanced shareholder access proposal?
Should a nominating shareholder pay the additional costs to the company for printing and mailing an additional proxy card?

C. Alternative C - Nominating Committee Disclosure

Another alternative that would provide shareholders with increased information and access to the nomination process would be to require expanded disclosure in company proxy statements regarding a company's nominating committee and the nominating process. This could be in addition to possible changes to the markets' listing standards to require nominating committees to consider shareholder nominees. While companies currently are required to disclose whether they have a nominating committee and, if so, whether the nominating committee considers shareholder nominees, the Commission could expand this disclosure requirement to require the committee to report on how many nominees were submitted by shareholders (or by shareholders meeting certain qualifications) for the current election and, for any such nominees who are not included on the company's proxy card, a report on the committee's reasons for not nominating those candidates. The Commission also could propose rules requiring companies to disclose to shareholders information that would make the nomination process more accessible and understandable, such as a description of the qualifications the company looks for in director nominees, its process for developing and considering nominees, and how the board initially became aware of, or associated with, each of its nominees.

As described below, both the New York Stock Exchange and the Nasdaq Stock Market have proposed revised listing standards that would require listed companies to have independent nominating committees; however, they have not proposed any changes that would require nominating committees to consider shareholder nominees. Accordingly, to effectuate this alternative using a means other than Commission disclosure rules that are based on the beneficial impacts of transparency, markets would need to add such a requirement to their listing standards.

Background

The current disclosure requirement related to nominating committees was proposed and adopted in connection with the Commission's 1977 review of the proxy rules.²⁹ In addition to soliciting comment on shareholder access to company proxy materials, the Commission requested comment on whether more disclosure requirements related to the nomination process and nominating committees would be appropriate.³⁰

The Commission put forth a series of questions relating to nominating committee disclosure in preparation for the 1977 public hearings. As is the case now, some commenters favored increased shareholder access to the nominating committee and increased disclosure relating to the actions taken by the nominating committee rather than direct shareholder access to a company's proxy statement.³¹ In particular, commenters recommended that the nominating committee be required to consider shareholder nominees, that outside directors comprise all or a majority of nominating committees,³² and that shareholders be advised of "the existence and purpose of such committee and its standards for director qualifications."³³ Other recommendations were that shareholders be encouraged to suggest nominees to the committee and that nominating shareholders be given adequate notice in order to undertake an election contest if the nominee were rejected.³⁴ In addition, some commenters thought that the nominating committee should issue a report to shareholders concerning its determinations.³⁵ Advocates of the nominating committee alternative emphasized that this approach would limit conflict and enable the committee to ensure that the proxy statement included a limited number of shareholder nominees.³⁶ They also asserted that the committee was better equipped than shareholders to ensure that the nominees were qualified.³⁷ These alternatives, as well as the arguments for them, are very similar to those advanced by representatives of the business community and legal community who have provided their views in the course of the current review.

Commenters favoring disclosure in 1977 thought that it would encourage shareholders to contact nominating committee members with their recommendations; however, the 1977 commenters were less supportive of disclosure relating to the nominee selection process, the criteria to be applied by the nominating committee in selecting nominees, and the required qualifications of nominees.³⁸ Those who did not support expanded nominating committee disclosure stated their concern that companies would merely make "self-serving `boilerplate'" disclosures.³⁹ This concern, in particular, has been repeated by some of the commenters who have provided their views in the course of the current review. The general sentiment of these commenters seems to be that, though increased disclosure might be helpful if it were not merely boilerplate, it would not be sufficient on its own to adequately provide shareholders with a meaningful role in the proxy process relating to the nomination and election of directors, at least where the process was otherwise inadequate in reflecting shareholder input.

When it proposed amendments to the proxy rules to include the current disclosure requirements related to nominating committees, the Commission stated generally its belief that the new disclosure requirements would facilitate improved accountability.⁴⁰ Specifically, the Commission stated that:

... information relating to nominating committees would be important to shareholders because a nominating committee can, over time, have a significant impact on the composition of the board and also can improve the director selection process by increasing the range of candidates under consideration and intensifying the scrutiny given to their qualifications. Additionally, the Commission believes that the institution of nominating committees can represent a significant step in increasing shareholder participation in the corporate electoral process, a subject which the Commission will consider further in connection with its continuing proxy rule re-examination.⁴¹

Although the Commission received positive feedback on its proposed nominating committee disclosure requirements, some commenters argued that the disclosure was designed to encourage companies to establish nominating committees rather than to provide useful disclosure to shareholders.⁴² The Commission noted this concern, but adopted disclosure requirements related to nominating committees substantially as proposed.⁴³

In light of the fact that nominating committee disclosure was advanced as, and ultimately adopted as, an alternative to shareholder access to a company's proxy statement in 1978, some likely will argue that any attempt now to facilitate shareholder access to the nomination and election process through nominating committee disclosure will not be any more effective than the existing disclosure has been in facilitating shareholder nominations.⁴⁴ At a minimum, any new disclosure requirements would need to strengthen substantially those adopted in 1978. As noted above, possible new listing standards requiring nominating committees to fully consider all qualified shareholder nominees could bolster the effectiveness of this alternative.

Disclosure

The current proxy statement disclosure about whether a company has a nominating committee and will consider shareholder nominees could be expanded to require a discussion of:

where a company does not have a nominating or similar committee, why the board of directors believes that it is in the best interest of the company not to have such a committee;
the nominating committee charter, if any;⁴⁵
nominating committee member independence;
the criteria used by the nominating committee to screen nominee candidates, including shareholder recommendations;
the nominating committee's policy with regard to the consideration of shareholder recommendations;
the qualifications the nominating committee believes company directors, or a given director, should have;
the nominating committee's process for developing and considering nominees;
the source of each of the board's nominees, including the use of third-parties to identify potential nominees;
the process by which shareholders can recommend a nominee; and
if the nominating committee receives a recommended nominee from a shareholder who has beneficially owned a specified amount (e.g., 1%) of the company's voting common stock for a specified period (e.g., at least one year) and the nominating committee chooses not to nominate that candidate:
1. who recommended the candidate;
2. why the nominating committee did not include the candidate as a nominee; and
3. whether each member of the nominating committee believes that it was in the company's best interest not to nominate the candidate and, to the extent members of the nominating committee do not have such belief, why the candidate was not included as a nominee.

NYSE and Nasdaq Proposed Rule Changes

On April 11, 2003 the Commission published a notice for comment regarding proposed rule changes submitted by the NYSE.⁴⁶ In the commentary on its proposed rule change, the NYSE describes nominations as "among the board's most important functions."⁴⁷ The NYSE proposes to amend its listing standards in an effort to help restore investor confidence by addressing director independence and strengthening corporate governance practices. One of the features of the proposed rule changes is the requirement that listed companies have a "nominating/corporate governance committee composed entirely of independent directors."⁴⁸ The proposed rule provides that these committees have a written charter that addresses:

the committee's purpose - which, at a minimum, must be to: identify individuals qualified to become board members and to select, or to recommend that the board select, the director nominees for the next annual meeting of shareholders; and develop and recommend to the board a set of corporate governance principles applicable to the corporation;
the committee's goals and responsibilities - which must reflect, at a minimum, the board's criteria for selecting new directors and oversight of the evaluation of the board and management; and
an annual performance evaluation of the committee.⁴⁹

The Nasdaq Stock Market also has submitted a proposed rule change, which was published for comment by the Commission on March 17, 2003.⁵⁰ Although the proposed changes to the Nasdaq listing requirements also address director independence and nominating committee standards, they do not include a requirement that the nominating committee have a charter. Nasdaq's proposal would require, with certain exceptions, that either a majority of independent directors or a nominating committee comprised solely of independent directors nominate directors.⁵¹

These proposed rule changes demonstrate the current focus on the importance of the nominating process and the nominating committee. In addition, they represent a substantial difference from 1978, when the Commission proposed and adopted the current disclosure requirements for nominating committees. As the summary of comments relating to the 1978 proposals demonstrates, much of the input received from commenters and participants in the 1977 hearings focused on the need for outside directors on the nominating committees. The combination of independence standards and, in the case of the NYSE, the charter requirement, represent a strengthening of the nominating committee that may well support the efficacy of the nominating committee disclosure alternative. The proposed rule changes do not, however, require that candidates recommended by shareholders be considered.

Advantages and Disadvantages

An advantage to this alternative is that it could serve as a vehicle for shareholders to influence board composition without requiring extensive changes to the proxy rules or implicating state law issues surrounding the nomination and election of directors. As is noted frequently by members of the business community from whom we have received input, this option could provide shareholders with access to the board and to the nomination process without involving contested board seats. On the other hand, this option would not ensure that shareholder recommended candidates are included in the company's proxy materials, and commenters raise the concern that some companies may include boilerplate disclosure in their proxy statements to satisfy any expanded disclosure requirements. Some undoubtedly will argue that this alternative to shareholder access has been tried and, over the past 25 years, has not led to a change in the ability of shareholders to have their candidates nominated, though this position would not take into account the proposed new listing standards and other changes that have occurred since 1978.

Potential Questions for Public Comment

Would increased disclosure related to the nominating committee and its policies and criteria for considering nominees be an effective means to improve shareholder involvement in the nomination process, board accountability, board responsiveness, and corporate governance policies?
If so, what disclosure would be most useful? For example, should a company disclose how many shareholder recommendations it considered, what criteria it applied to shareholder recommendations, and why it rejected any shareholder recommendations? If so, would this type of disclosure raise privacy issues for rejected candidates, even if the candidates are not specifically named in the company's disclosure?
Do most corporations currently consider shareholder recommended candidates to the board? If so, do these corporations apply the same criteria to shareholder recommendations as to company nominees?
Would it be helpful if the markets amended their listing standards to require nominating committees to consider shareholder recommendations? Since not all companies would be subject to any listing requirements that require companies to consider shareholder recommendations, is this an appropriate result for those companies who are not listed?
Would this alternative be a less costly means to address issues of board accountability, board responsiveness, and corporate governance than an enhanced shareholder access proposal?

D. Alternative D - Disclosure Regarding Shareholder Communications With the Board

Similar to the nominating committee disclosure alternative, another alternative would be for the Commission to propose that companies be required to disclose what process, if any, companies have in place for shareholders to communicate directly with board members. If the company has no such process, it would need to disclose this fact and the reason(s) it has no such process in place. As with the nominating committee disclosure, the impact of the disclosure would be more effective if coupled with a change in market listing standards. The NYSE's proposed listing standard amendments would require a means for shareholders to communicate directly with independent directors, as discussed in more detail below.⁵²

The Commission did not specifically consider this alternative in its 1942, 1977 or 1992 reviews of the proxy rules. Representatives from the business community have suggested that an alternative to an enhanced shareholder access proposal would be to disclose current processes that companies have in place to provide shareholder access to board members, as well as to further expand and explore changes to listing requirements.

Shareholders have demonstrated ongoing interest in meeting with board members over the past proxy season. For example, two pension funds submitted proposals seeking greater shareholder access to corporate boards. The AFSCME Employees Pension Plan submitted a shareholder proposal to The Kroger Co. to amend Kroger's bylaws to provide for the creation of a shareholder committee to communicate with the board regarding shareholder proposals under Exchange Act Rule 14a-8 that were approved but not adopted.⁵³ Several New York City pension funds⁵⁴ submitted shareholder proposals to Advanced Fibre Communications, Inc. and PeopleSoft, Inc. requesting that these Nasdaq-listed companies establish an "Office of the Board of Directors" to facilitate communications between non-management directors and shareholders, including meetings, based on the proposed NYSE standard.⁵⁵

Although Exchange Act Rule 14a-8 already creates a mechanism for shareholders to seek further access to the board, investors and investor advocacy groups have indicated that a change through listing standards would be more effective by allowing shareholders to communicate with board members about issues that may be significant but that constitute "ordinary business." Shareholder proposals, amendments to listing standards, and required disclosure relating to board communications would strengthen further the effectiveness of this alternative. There also has been some explicit and implicit suggestion that improved communications between shareholders and boards, and structural encouragement of those communications would lessen the need for more intrusive measures, such as reforms to the proxy process.

Disclosure

If the Commission chooses to propose disclosure requirements related to communications between shareholders and boards, the disclosure could address:

whether or not the company provides a process for shareholders to send communications to the board of directors;
if the company does not have a process for shareholders to send communications to the board of directors, why the company does not have such a process and why the board of directors believes that it is in the best interest of the company not to have such a process;
the manner in which shareholders can send communications to the board;
identification of those board members to whom shareholders can send communications;
if all shareholder communications are not sent directly to board members, the company's process for determining which communications must be relayed to board members;
the number of times individual board members met with shareholders in the prior year; and
any action taken by the board as a result of the communications.

NYSE Proposed Rule Change

As with the nominating committee disclosure, this alternative would be more effective if the markets amended their listing requirements to mandate a process to allow shareholders to communicate with board members. The NYSE's proposed changes to its listing standards address briefly the issue of greater access to the board.⁵⁶ Specifically, proposed Section 303A(3) states, "In order that interested parties may be able to make their concerns known to non-management directors, a company must disclose a method for such parties to communicate directly and confidentially with the presiding director or with non-management directors as a group."⁵⁷ Under the NYSE's proposal, that method could include shareholder communications and be analogous to any process established for communications with the audit committee required by Section 303A(7)(c)(ii), which states that the audit committee must "establish procedures for the receipt, retention and treatment of complaints from listed company employees on accounting, internal accounting controls or auditing matters, as well as for confidential, anonymous submissions by listed company employees of concerns regarding questionable accounting or auditing matters."⁵⁸

Advantages and Disadvantages

Representatives of the business community contend that an advantage of this alternative is that it may address issues of accountability and responsiveness without imposing the disruption and costs associated with the enhanced shareholder access alternative. In particular, they assert that the current proposed listing standards, Sarbanes-Oxley reforms, and the increasing popularity of, and responsiveness by companies to, shareholder proposals will resolve many of these issues.

Although investors and investor advocacy groups believe that this alternative would be helpful, they contend that it would not fully address any problems with boards' lack of accountability and responsiveness to shareholders. In particular, they note that larger minority shareholders already can meet with board members in many public companies and that this has not served to effectively change board behavior. Further, the existence of a process for shareholders to communicate with board members does not ensure that the board members will be responsive to shareholder concerns. Representatives of the business community also have indicated that the greater the number of communications with board members, the less likely it is that a board member may be responsive to a particular communication. Moreover, an intermediary may be necessary to screen voluminous communications.

Because not all companies would be subject to listing requirements that require companies to provide a means for shareholder communication with board members, the Commission would need to consider this alternative's lack of impact on unlisted companies. This could be a significant issue, as some groups contend that issues of accountability and responsiveness can be more problematic with smaller companies.

Potential Questions for Public Comment

Would increased disclosure relating to shareholder communications with board members be an effective means to improve board accountability, board responsiveness, and corporate governance policies?
If so, what disclosure would be most useful? For example, should companies disclose the specific policies in place with regard to shareholder communications with board members, how the communications are screened, and how the communications are relayed to board members?
Do corporations currently provide a means for allowing shareholders to communicate with board members? How effective have these methods been in improving board accountability, board responsiveness, and corporate governance policies?
Would it be helpful if the markets expanded upon existing listing standards or adopted new listing standards to allow shareholders to communicate with board members?
If so, what type of communications should be available to shareholders? A general e-mail account? The establishment of an office associated with the board of directors? In-person meetings with board members? Should there be any limitation on the type of communications? Should there be a share ownership eligibility threshold in order to communicate with board members or to have access to a particular means of communication?
Should communications with board members that are addressed in disclosure rules or listing standards be limited to independent directors or should the communications extend to the entire board? Should only shareholders be able to communicate with board members or should all interested third parties be able to communicate with board members?
Because not all companies would be subject to any listing requirements that require shareholders to be able to communicate with board members, is this an appropriate result for unlisted companies?
Would this alternative be an effective and less costly means than an enhanced access proposal to address issues of board accountability, board responsiveness, and corporate governance?

E. Alternative E - Revise Exchange Act Rule 14a-8(i)(8)

Exchange Act Rule 14a-8(i)(8) allows companies to exclude proposals that "relate[] to an election for membership on the company's board of directors or analogous governing body." As evidenced by its determination regarding the AFSCME Employees Pension Plan nomination proposals discussed in Section I, the Division's analysis under Exchange Act Rule 14a-8(i)(8) focuses on whether the proposal either directly or indirectly may result in an election contest. If a proposal may have such a result, the Division's analysis permits a company to exclude the proposal.

An alternative to an enhanced shareholder access proposal would be to establish a new analysis under existing Exchange Act Rule 14a-8(i)(8) or an amendment to Exchange Act Rule 14a-8(i)(8) that would allow for inclusion of proposals seeking to establish a process to allow shareholders to access a company's proxy card in a non-control context. Under this framework, state law would require at least many of the proposals to be precatory, leaving the board to decide whether to implement a process to allow shareholders to nominate directors.⁵⁹ Exchange Act Rule 14a-8(i)(8) could continue to be a basis for exclusion of certain proposals, such as those that nominate a particular person to the board, proposals that seek to remove current directors from the board, and proposals that seek to indirectly affect an election of directors by questioning the business judgment, competence and service of a particular board member who is up for election.

Impact on Other Proxy Rules

Any change to Exchange Act Rule 14a-8(i)(8) or the Division's analysis of that rule to allow for shareholder proposals seeking access to the proxy card for the purpose of nominations, would have to be addressed in other proxy rules. A company's adoption of a procedure to allow shareholders to access company proxy materials to nominate directors, either through its own actions based on a precatory proposal or through a mandatory bylaw proposal, would:

impact many of the same rules as the enhanced shareholder access alternative; and
require clarification of the application of the requirements governing election contests, as defined by Exchange Act Rule 14a-12(c), to nominating shareholders.

As noted above, the majority of shareholder proposals under this alternative likely would be precatory. In such a case, the board could adopt a proposal that seeks to establish a process to allow shareholders to nominate directors. Because the board would decide whether to implement the process, the nomination of a candidate to the board by a shareholder likely should not be viewed as a "contest" as defined by Exchange Act Rule 14a-12(c). The Commission could take the position that the board's decision to implement a process to allow shareholders to nominate candidates to the board constitutes, in essence, board sanctioning of these nominees and, thus, there would not be a "contest" as defined by Exchange Act Rule 14a-12(c). This also may be analogous to bylaws that allow shareholders to recommend nominees to the board directly or on the floor at an annual meeting.

A mandatory bylaw proposal that forces the board to include shareholder nominees in company proxy materials could raise issues under state law. Further, if a mandatory bylaw proposal to allow shareholders to nominate directors is permitted, the Commission would need to determine whether a mandatory process that allows for shareholder nominees and board nominees on the company's card is a "contest" as defined by Exchange Act Rule 14a-12(c). This is a more difficult determination because, unlike precatory proposals, the board would not have discretion in implementing the process. As such, it is more difficult to make the argument that any shareholder nominees are sanctioned by the board.

Advantages and Disadvantages

There are several advantages to this alternative. Exchange Act Rule 14a-8 proposals can be drafted individually to reflect the make up of a particular company as opposed to a "one size fits all" access rule that applies to all companies. The exemption in Exchange Act Rule 14a-8 for proposals that would violate state law would eliminate any potential federal law or state law authority issues. Investor groups have questioned the intrinsic fairness of providing only larger minority shareholders (e.g., 3% or 5%) with access to company proxy materials to nominate directors, given that these individuals can best afford the cost of conducting a contest as defined by Exchange Act Rule 14a-12(c). This alternative would provide shareholders with the flexibility to draft each proposal to establish different thresholds for ownership, length of holding period and other applicable requirements, on which all of a company's shareholders could then vote.

There are, however, also disadvantages to this alternative. Investor groups supporting an enhanced shareholder access proposal have claimed that the impact on board accountability and responsiveness to shareholder concerns would not be as significant under this framework. In the case of a precatory proposal, the board would not be required to implement the proposal. In the case of a mandatory bylaw proposal, it is unclear whether companies could avoid implementing this type of proposal by amending their governing instruments to require board approval of shareholder nominees. Further, because each proposal could be drafted differently, this alternative may create a complex structure that does not set clearly a universal standard for interpreting the proxy rules, as each proposal, and its effect, will need to be examined on a company-by-company basis. Finally, the flexibility offered by this proposal brings some disadvantages, as shareholder access could become subject to an array of confusing company-specific rules.

Potential Questions for Public Comment

Would revising Exchange Act Rule 14a-8 or its interpretation be an effective means of improving board accountability, board responsiveness, and corporate governance policies?
What are the potential benefits and detriments of granting access to company proxy materials through shareholder proposals? For example, would a company-by-company approach allow a shareholder to tailor a proposal to account for a company's characteristics such as board composition, record on accountability, responsiveness to shareholder proposals, and corporate governance policies? Would this be a less costly mechanism than an enhanced shareholder access proposal?
If a company establishes a process to allow shareholder access to company proxy materials to nominate directors for less than a majority of the seats, would the Division still need to provide interpretive guidance on the applicability of the proxy rules? If so, should shareholders who nominate a director under a procedure established in response to a shareholder proposal be subject to the proxy rules governing election contests? Should solicitations for the purpose of forming a shareholder group to nominate directors and/or other soliciting materials be exempt from the proxy rules? Should nominating shareholders, including groups, be deemed to have a "control" purpose that would create additional filing and disclosure requirements under Exchange Act Section 13(d)?
Would a proposal seeking a mandatory bylaw to establish a process to allow shareholders to nominate directors be appropriate under state law? Could a company negate the effect of a mandatory bylaw proposal to establish a process to allow shareholders to nominate directors by amending its governing instruments to require board approval of all nominees?

IV. RECOMMENDATION

The Division recommends that the Commission solicit public comment with regard to proposed changes in two areas - improved disclosure and improved shareholder access to the director nomination process. The Division, therefore, recommends that the Commission publish proposals and solicit public comment with regard to the following actions:

requiring more robust disclosure related to nominating committees and the nomination process;
requiring specific disclosure regarding shareholder communications with board members; and
requiring conditional shareholder access to a company's proxy materials for purposes of nominating candidates for election as director.

Accordingly, the Division recommends that the Commission, consistent with its authority under Exchange Act Section 14(a), proceed with the rulemaking process that we describe below.

Recommended Disclosure Enhancements

The Division recommends that the Commission propose and solicit comment on new requirements for disclosure in company proxy materials relating to nominating committees and the company's procedures, if any, for allowing shareholders to communicate with board members, as follows:

Enhanced disclosure regarding a company's nomination process, including:
1. the nominating committee charter, if any;
2. nominating committee member independence;
3. the criteria used by the nominating committee to screen nominee candidates, including candidates recommended by shareholders;
4. the nominating committee's policy with regard to candidates recommended by shareholders;
5. the qualifications the nominating committee believes company directors, or a given director, should have;
6. the nominating committee's process for developing and considering nominees;
7. the source of each of the board's nominees;
8. how shareholders can recommend a nominee; and
9. if the nominating committee receives a recommended nominee from a shareholder who has beneficially owned greater than a specified amount of the company's voting common stock for a minimum specified period of time, and the nominating committee chooses not to nominate that candidate:
  1. who recommended the candidate;
  2. why the nominating committee did not include the candidate as a nominee; and
  3. whether each member of the nominating committee believes that it was in the company's best interest not to nominate the candidate.
Disclosure regarding shareholder communications with board members, including:
1. the manner in which shareholders can send communications to the board;
2. identification of those board members to whom shareholders can send communications;
3. if all shareholder communications are not sent directly to board members, the company's process for determining those communications that are relayed to board members;
4. the number of times individual board members met with shareholders in the prior year; and
5. any action taken by the board as a result of the communications.

Shareholder Access to Company Proxy Materials

Recommended Structure for Shareholder Access to Company Proxy Materials

The Division recommends that the Commission propose and solicit public comment on new proxy rules that would allow a shareholder or a group of shareholders to place their nominees in a company's proxy materials within the following parameters:

applicable state corporate law must provide the company's shareholders with the right to nominate a candidate for election as a director;
neither the candidacy nor the election of a shareholder nominee may otherwise violate, or cause the company to violate, controlling state law, federal law or listing standards;
the availability of a shareholder nomination process should be premised upon the occurrence of one or more triggering events that are objective criteria evidencing potential deficiencies in the proxy process such that shareholder views - especially those of a majority - may not otherwise be adequately taken into account;
there should be appropriate standards for independence of shareholder nominees;
there should be minimum standards with regard to shareholdings and the length of time those shares have been held by a nominating shareholder or shareholder group; and
there should be limitations on the total number or percentage of permitted shareholder nominees.

Impact of Recommendation on Other Commission Rules

Proposal of a shareholder access rule could affect a number of existing proxy rules and regulations, as well as the reporting requirements for large shareholders and shareholder groups. Some of the key changes that the Commission may wish to consider if it proposes a shareholder access rule include the following:

possible amendments to the proxy rules to address specifically soliciting activities in connection with the formation of a nominating shareholder group;
possible amendments to the proxy rules to address specifically soliciting activities by the nominating shareholder(s) in support of the shareholder nominee;
possible amendments to the proxy rules to facilitate solicitations by electronic means on one or more specified websites;
possible amendments to the beneficial ownership reporting requirements to address specifically nominating shareholders and nominating shareholder groups;
possible amendments to the insider transaction reporting requirements to address specifically nominating shareholder groups; and
possible amendments to the definition of "affiliate" to address specifically nominating shareholders and nominating shareholder groups.

Attachments: Appendix A - Summary of Comments

____________________________

¹ Exchange Act Rule 14a-8(i)(8).
² As is evidenced in the attached Summary of Comments, commenters provided their views on a number of topics that are related to director elections that are not addressed specifically in the body of this staff report. These topics include amending New York Stock Exchange Rule 452, which allows brokers to vote shares where the beneficial owner has not provided voting instructions 10 days prior to a scheduled meeting, and evaluating the impact of proxy advisory services on institutional investor voting. The Division has considered these issues in developing its recommendations and will address such issues, as appropriate, if the Commission directs the Division to draft proposed rules based on the Division's recommendations.
³ See Securit[ies] and Exchange Commission Proxy Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the House Comm. on Interstate and Foreign Commerce, 78th Cong., 1st Sess., at 17-19 (1943) (testimony of Chairman Ganson Purcell).
⁴ Release No. 34-3347 (December 18, 1942).
⁵ Securit[ies] and Exchange Commission Proxy Rules: Hearings, supra note 3, at 19.
⁶ Id., at 157.
⁷ The Commission did not provide an explanation for its determination, stating simply that, "a number of the suggestions proposed by the staff were not adopted," including the suggestion related to shareholder access to the company's proxy material. Release No. 34-3347 (December 18, 1942).
⁸ Release No. 34-13482 (April 28, 1977), in which the Commission also asked:

a) what criteria should be applied to nominating shareholders;
b) what disclosures should be required of nominating shareholders;
c) whether shareholder nominations are permissible under state law; and
d) whether a meaningful distinction can be drawn between control and non-control nominations.

See also Release No. 34-13901 (August 29, 1977), in which the Commission published the final schedule of issues to be considered at the hearings, which included:

a) whether shareholders should have access to the company's proxy soliciting materials for the purpose of nominating directors;
b) whether shareholder nominations are permissible under state law and consistent with Congressional intent in enacting Exchange Act Section 14(a);
c) what type of rule would be most appropriate and what criteria should be applied to nominating shareholders;
d) whether the proxy rules should apply to soliciting activities by a nominating shareholder; and
e) whether nominating shareholders should be subject to the then-existing rules governing election contests.
⁹ Release No. 34-14970 (July 18, 1978). See also Release No. 34-15384 (December 6, 1978).
¹⁰ The Task Force on Corporate Accountability was formed as an outgrowth of the review of the proxy rules that began in 1977. The work of the Task Force culminated in the Staff Report on Corporate Accountability, completed and presented to the Senate Committee on Banking, Housing, and Urban Affairs. Division of Corporation Finance, Securities and Exchange Comm'n, Staff Report on Corporate Accountability (Sept. 4, 1980) (printed for the use of Senate Comm. on Banking, Housing, and Urban Affairs, 96th Cong., 2d Sess.), at A60-65.
¹¹ The Staff Report on Corporate Accountability states: "...all nominating committees should be open to suggestions of nominees from shareholders." Id., at A56.
¹² Id., at A60-65, A69.
¹³ See Release No. 34-31326 (October 16, 1992).
¹⁴ Exchange Act Rule 14a-4(d).
¹⁵ Release No. 34-31326 (October 16, 1992).
¹⁶ See Release No. 34-47778 (May 1, 2003). In addition, the Division spoke with interested parties representing shareholders, the business community and the legal community, including individuals from the Amalgamated Bank LongView Funds, the American Bar Association Task Force on Shareholder Proposals, the American Federation of Labor and Congress of Industrial Organizations, AFSCME, the American Society of Corporate Secretaries, Automatic Data Processing, Inc., The Business Roundtable, the California Public Employees' Retirement System, the Committee of Concerned Shareholders, the Connecticut Retirement Plans and Trust Funds, CorpGov.Net, Hermes Investment Management, the International Brotherhood of Teamsters, Laborer's International Union of North America, and the United Brotherhood of Carpenters and Joiners of America.
¹⁷ Alston & Bird LLP.
¹⁸ The Division's review of the proxy rules and regulations focused on operating companies. However, investment companies generally are treated like operating companies under the proxy rules. Ultimately, the Commission will need to determine, and request comment on, how any changes to the proxy rules should apply to investment companies.
¹⁹ In the election of directors, shareholders may vote for or withhold authority to vote for each nominee rather than vote for, against or abstain as is the case for other matters to be voted on by shareholders. See Exchange Act Rule 14a-4(b)(2). As discussed in footnote 25 and accompanying text, below, withhold votes have little or no effect under plurality voting.
²⁰ For example, a shareholder who does not believe that the proxy process has been effective at a company in which that shareholder holds stock could submit a proposal through Exchange Act Rule 14a-8 to request that the company comply with the shareholder access procedure. Although most proposals are precatory in nature, a majority vote on such an "opt-in" proposal could trigger a shareholder access rule. This alternative would require a revision to Exchange Act Rule 14a-8 to reflect shareholders' ability to submit such a proposal under the rule (provided that the shareholder and the proposal otherwise meet all procedural and substantive requirements).
²¹ Other triggering events could include being delisted by a market, sanctioned by the Commission, indicted on criminal charges, or having to restate earnings more than once in a specified period.
²² In "vote no" campaigns, a shareholder or group of shareholders attempts to persuade other shareholders
(e.g., through press releases or website postings) to vote against a proposal or "withhold" their votes for certain or all of a company's nominees for director.
²³ Any shareholder who acquires, directly or indirectly, beneficial ownership of greater than 5% of an equity security registered under Exchange Act Section 12 must report such ownership on Exchange Act Schedule 13D or, if eligible, on Exchange Act Schedule 13G. See Exchange Act Rule 13d-1.
²⁴ Other, more general effects of any shareholder access rule may include changes in companies' policies with respect to the election of directors. In the Commission's 1977 request for comments in connection with its review of shareholder communications, shareholder participation in the corporate electoral process, and corporate governance, commenters asserted that granting shareholders enhanced access to the proxy would be effective only if bundled with cumulative voting for and/or the annual election of directors. An indirect effect of implementing the enhanced shareholder access alternative could be that companies would adopt corporate governance policies to insulate incumbent board members. Companies also may attempt to avoid use of a shareholder nomination procedure by limiting shareholder nominations to the extent allowed under state or federal law.
²⁵ Under plurality voting, the candidate with the greatest number of votes is elected; therefore, in an election in which there are the same number of nominees as there are board positions open, all nominees will be elected.
²⁶ For example, a participant, as defined in Instruction 3 to Item 4(b) of Schedule 14A, must describe any substantial interest in the matter to be acted on at the meeting and disclose his or her name, business address and occupation. See Item 5(b) of Schedule 14A.
²⁷ Note that, under Exchange Act Rule 14a-7, a company currently may decide to mail a shareholder's proxy materials rather than provide the shareholder with its shareholder list; however, under the current rules, a company mails the shareholder's proxy materials separately from the company materials, at the shareholder's expense.
²⁸ See Exchange Act Rule 14a-4(f).
²⁹ See Release Nos. 34-14970 (July 18, 1978) and 34-15384 (December 6, 1978). The nominating committee disclosure currently is required under Item 7 of Schedule 14A.
³⁰ See Release Nos. 34-13482 (April 28, 1977) and 34-13901 (August 29, 1977).
³¹ See Staff Report on Corporate Accountability, supra note 10, at A53-57.
³² See Re-Examination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process and Corporate Governance Generally, Summary of Comments (1978), at 65.
³³ Staff Report on Corporate Accountability, supra note 10, at A54.
³⁴ See Summary of Comments, supra note 32, at 65.
³⁵ Id.
³⁶ See Summary of Comments, supra note 32, at 65; Staff Report on Corporate Accountability, supra note 10, at A55-56.
³⁷ Id.
³⁸ See Summary of Comments, supra note 32, at 75.
³⁹ Id.
⁴⁰ See Release No. 34-14970 (July 18, 1978).
⁴¹ Id.
⁴² See Release No. 34-15384 (December 6, 1978). In particular, commenters argued that the requirement that companies disclose "whether" they had nominating committees was inappropriately designed to encourage the formation of such committees. Conversely, commenters in 1977 expressed support for such a requirement. See Summary of Comments, supra note 32, at 74.
⁴³ See Release No. 34-15384 (December 6, 1978).
⁴⁴ See, e.g., AFSCME, in which AFSCME contends that "[e]vents that have transpired since the 1977-78 rulemaking . . . demonstrate that reliance on disclosure and nominating committees - whose members, while meeting the legal standard necessary to be considered independent, are nominated by incumbent directors - has not remedied the passivity common to corporate boards."
⁴⁵ Companies also could be required to make available to shareholders a copy of the nominating committee charter, if any.
⁴⁶ See Release No. 34-47672 (April 11, 2003).
⁴⁷ Id.
⁴⁸ Id.
⁴⁹ Id.
⁵⁰ See Release No. 34-47516 (March 17, 2003).
⁵¹ Under the proposed Nasdaq listing standard, nominating committees of three or more directors may include one director who is not independent, provided that he or she is not a current officer, employee or family member of a current officer or employee, and "exceptional and limited circumstances" cause that individual's membership to be in the best interests of the company and its shareholders. In this case, the board would have to include disclosure in the next annual meeting proxy statement describing the nature of the relationship that causes the director not to be independent and the reasons for the "best interests" determination. Such members could serve for no more than two years. A second exception would allow a director to serve who owns 20% or more of the company's common stock or voting power, who is not independent by virtue of his or her position as an officer, if the board determines that the individual's membership on the nominating committee is in the best interests of the company and its shareholders. The board would have to disclose the nature of the director's relationship and the reasons for including that individual on the nominating committee. Finally, those companies that meet the definition of a "controlled company," would be exempt from the requirements related to director independence, including the nominating committee requirements. A "controlled company" is a company of which more than 50% of the voting power is held by an individual, a group or another company. These companies would have to disclose in their annual meeting proxy statements that they are controlled companies. Id.
⁵² See Release No. 34-47672 (April 11, 2003).
⁵³ The Kroger Co. (April 11, 2003). The Division did not grant a no-action position to Kroger regarding
exclusion of the proposal under the ordinary business exclusion, as the proposal limited the nature of the communications to other than ordinary business matters.
⁵⁴ The New York City Employees' Retirement System, the New York City Teachers' Retirement System, the New York City Police Pension Fund, and the New York City Fire Department Pension Fund submitted the proposals.
⁵⁵ Advanced Fibre Communications, Inc. (March 10, 2003); PeopleSoft, Inc. (March 14, 2003). The Division granted a no-action position to PeopleSoft and Advanced Fibre regarding exclusion of the proposals under the ordinary business exclusion, as the proposals did not limit the nature of the communications to other than ordinary business matters.
⁵⁶ See Release No. 34-47672 (April 11, 2003).
⁵⁷ Id.
⁵⁸ Id.
⁵⁹ A shareholder proposal that would mandatorily effect a change in the company's bylaws may violate state law and/or a company's governing instruments. See, e.g., AOL Time Warner Inc., Exhibit B (February 28, 2003) (legal opinion from Richards, Layton & Finger regarding the AFSCME Employees Pension Plan proposal submitted to AOL Time Warner).

APPENDIX A

SUMMARY OF COMMENTS
In Response to the Commission's
Solicitation of Public Views Regarding
Possible Changes to the Proxy Rules
Exchange Act Release No. 34-47778
File No. S7-10-03

Prepared by:
Division of Corporation Finance
July 15, 2003

TABLE OF CONTENTS

List of Commenters
Overview
General Observations on the Need for Greater Corporate Accountability
1. Corporate Abuses and the Current Corporate Governance Environment
2. The Current State of Director Elections
Efficacy of Existing Accountability Mechanisms
Shareholder Access to Company Proxy Materials
Other Alternatives to Increase Corporate Accountability

I.	List of Commenters
	A.	Academics
		1.	Jayne W. Barnard, College of William & Mary, School of Law	("Barnard")
		2.	Lucian Arye Bebchuk, Harvard Law School	("Bebchuk")
		3.	Jennifer E. Bethel, Babson College and Stuart L. Gillan, University of Delaware	("Bethel & Gillan")
		4.	Harvard Business School/Harvard Law School ad hoc group on the study of corporate governance	("Harvard")
		5.	Ivo Welch, Yale University	("Welch")
	B.	Associations
		6.	American Bankers Association	("ABASS")
		7.	American Corporate Counsel Association	("ACCA")
		8.	American Society of Corporate Secretaries	("ASCS")
		9.	Association of California School Administrators	("ACSA")
		10.	Association of the Bar of the City of New York	("ABCNY")
		11.	The Business Roundtable	("BRT")
		12.	The Committee on Investment of Employee Benefit Assets	("CIEBA")
		13.	Investment Company Institute	("ICI")
		14.	Investment Counsel Association of America	("ICAA")
		15.	LPA, the HR Policy Association a. Letter dated June 4, 2003 b. Letter dated June 9, 2003	("LPA")
		16.	National Association of Corporate Directors	("NACD")
		17.	National Association of State Retirement Administrators	("NASRA")
		18.	National Association of State Treasurers	("NAST")
		19.	New York State Bar Association	("NYSBA")
		20.	Task Force on Shareholder Proposals, Section of Business Law of the American Bar Association	("ABA")
		21.	U. S. Advocacy Committee of the Association for Investment Management and Research	("AIMR")
	C.	Corporations and Corporate Executives
		22.	Abbott Laboratories	("Abbott")
		23.	Agilent Technologies, Inc.	("Agilent")
		24.	AutoZone, Inc.	("AutoZone")
		25.	Robert H. Bohannon, Viad Corp.	("Viad")
		26.	ConocoPhillips	("ConocoPhillips")
		27.	CSX Corporation	("CSX")
		28.	Patrick T. Mulva, Exxon Mobil Corporation	("ExxonMobil")
		29.	Intel Corporation	("Intel")
		30.	Richard P. Thomas, Ashland Inc.	("Ashland")
		31.	G. Richard Wagoner, Jr., GM	("GM")
	D.	Governmental Representatives
		32.	Senator Carl Levin, Ranking Minority Member, Permanent Subcommittee on Investigations	("Levin")
		33.	Daniel P. Vrakas, State Representative (Wisconsin) and Co-Chair of the Joint Survey Committee on Retirement Systems	("Vrakas")
	E.	Investment Advisors and Managers
		34.	Barclays Global Investors	("Barclays")
		35.	Jerome L. Dodson, Parnassus Investments	("Parnassus")
		36.	Hermes Pension Management Limited a. Letter dated June 10, 2003 b. Letter dated June 13, 2003	("Hermes")
		37.	ISIS Asset Management	("ISIS")
		38.	Lawndale Capital Management, LLC	("Lawndale")
		39.	Marco Consulting Group, Inc.	("MCG")
		40.	Relational Investors LLC	("Relational")
		41.	Tweedy, Browne Company LLC	("Tweedy")
	F.	Law Firms and Attorneys
		42.	Richard A. Bennett, Lens Governance Advisors, P.A.	("LENS")
		43.	Daniel R. Blickman, Klehr Harrison Harvey Branzburg & Ellers LLP	("Blickman")
		44.	Terence P. Boyle, Boyle Partnership, P.C.	("Boyle")
		45.	David E. Brown, Jr., Bryan E. Davis, Dennis O. Garris, Gary C. Ivey, Kathryn C. Kling, and Mark F. McElreath, Alston & Bird LLP	("Alston & Bird")
		46.	Sue Ellen Dodell, Esq.
		47.	Eric M. Fogel, Schuyler, Roche & Zwirner, P.C.
		48.	Harshbarger Governance Practice at Murphy, Hesse, Toomey & Lehane, LLP	("Harshbarger")
		49.	Gay L. Harwin, Esq.
		50.	Cornish F. Hitchcock	("Hitchcock")
		51.	Halsey G. Knapp, Jr., Foltz Martin, LLC
		52.	Ian D. Lanoff
		53.	Benjamin P. Pugh, Enterprise Counsel Group	("Pugh")
		54.	Lisa Greer Quateman, Quateman & Zidell LLP
		55.	Stephen M. Rosenblatt, Esq.
		56.	David A. Simpson, Simpson Partners LLP
		57.	Sullivan & Cromwell LLP	("Sullivan")
		58.	Dorothy B. Vinski, Rein Evans & Stestanovich LLP
		59.	Wachtell, Lipton, Rosen & Katz	("Wachtell")
	G.	Shareholder Resource Providers
		60.	Neil J. Cohen, Bank and Corporate Governance Law Reporter
		61.	Davis Global Advisors, Inc.	("Davis")
		62.	D. F. King & Co., Inc.	("DF King")
		63.	Georgeson Shareholder Communications Inc.	("Georgeson")
		64.	Institutional Shareholder Services	("ISS")
		65.	Mark Latham, The Corporate Monitoring Project	("Latham")
		66.	Nell Minow, The Corporate Library	("Minow")
		67.	James McRitchie, CorpGov.Net and PERSWatch.Net a. Letter dated May 26, 2003 b. Letter dated June 13, 2003	("McRitchie")
		68.	Pension & Investment Research Consultants Ltd.	("PIRC")
		69.	Providence Capital, Inc.	("Providence")
	H.	Unions, Pension Funds, Institutional Investors and Institutional Investor Associations
		70.	1199 National Pension Fund^a
		71.	Amalgamated Bank LongView Funds	("AMBANK")
		72.	American Federation of Labor and Congress of Industrial Organizations	("AFL-CIO")
		73.	American Federation of State, County and Municipal Employees	("AFSCME")
		74.	Anheuser-Busch Cartersville Brewery/Teamsters Local 1129 Pension Plan^a
		75.	Arkansas Public Employees Retirement System	("APERS")
		76.	Board of Investment Trustees	("BIT")
		77.	Brewery and Beverage Drivers Pension Fund (Teamsters Local 67)^a
		78.	Brewery and Related Workers Pension Plan of the Rochester, New York Area^a
		79.	Bricklayers and Trowel Trades International Pension Fund^a
		80.	California Labor Federation^a
		81.	California Public Employees' Retirement System, California State Teachers' Retirement System, Connecticut Retirement Plans and Trust Funds, Los Angeles County Employees' Retirement Association, Maine State Retirement System, New York City Board of Education Retirement System, New York City Employees' Retirement System, New York City Fire Department Pension Fund, New York City Police Pension Fund, New York Teachers' Retirement System, New York State Common Retirement Fund, Pennsylvania State Employees' Retirement System, State Teachers' Retirement System of Ohio, and State of Wisconsin Investment Board	("RETIREFUNDS")
		82.	California Public Employees' Retirement System	("CalPERS")
		83.	California School Employees Association	("CSEA")
		84.	California State Teachers' Retirement System	("CalSTRS")
		85.	Central Laborers' Pension, Welfare & Annuity Funds	("CLPWAF")
		86.	Central Pennsylvania Teamsters Pension Fund (Local Union 229)^a
		87.	Central States Pension Fund a. Local Union 71^a b. Local Union 568^a c. Local Union 574^a d. Local Union 654^a e. Local Union 838^a f. Local Union 886^a g. Local Union 974^a
		88.	Central States Southeast and Southwest Areas Health and Welfare and Pension Fund a. Local Union 509^a b. Local Union 1196^a c. 20 letters signed by individuals^a
		89.	Jack H. Chapman, Ohio State Teachers Retirement System
		90.	Chicago Newspaper Publishers' Drivers Union Pension Plan^a
		91.	Colorado Public Employees' Retirement Association
		92.	Communications Workers of America Pension Fund	("CWA")
		93.	Connecticut Retirement Plans and Trust Funds	("CRTPF")
		94.	Council of Institutional Investors a. Letter dated April 15, 2003 b. Letter dated May 10, 2003	("CII")
		95.	CWA/ITU Negotiated Pension Plan	("CWA/ITU")
		96.	Dairy Union Employees Benefit Fund^a
		97.	District of Columbia Retirement Board	("DCRB")
		98.	Employees Retirement System of Texas
		99.	Employer-Teamsters Locals 175 & 505 Pension Fund^a
		100.	Fresno County Employees Retirement Association	("FCERA")
		101.	General Teamsters, Chauffeurs and Helpers, Local 378^a
		102.	Health, Welfare and Annuity Pension Fund (Local 1180)^a
		103.	Alan G. Hevesi, Comptroller of the State of New York, New York State and Local Retirement Systems And New York State Common Retirement Fund	("Hevesi")
		104.	Hotel Employees and Restaurant Employees International Union Pension Fund a. Letter from Ron Richardson dated May 22, 2003 b. Letter dated June 10, 2003
		105.	I.A.M. National Pension Fund^a
		106.	IBEW 769 -- Management Pension Plan
		107.	IBEW/NECA Chicago Area Construction Industry Pension Fund^a
		108.	Illinois Teachers' Retirement System
		109.	Indiana Teachers' Retirement Fund
		110.	International Association of Machinist and Aerospace Workers, AFL-CIO^a
		111.	International Brotherhood of Electrical Workers' Pension Benefit Fund^a
		112.	International Brotherhood of Teamsters	("IBT")
		113.	International Union, UAW
		114.	Iron Workers' Local 25 Pension Plan^a
		115.	IUE-CWA Pension Fund
		116.	Kern County Employees' Retirement Association
		117.	Robert S. Leggett, Kentucky Retirement Systems
		118.	Dale McCormick, State Treasurer of Maine	("McCormick")
		119.	Local 111 Pension Fund^a
		120.	Local 212 IBEW Pension Fund^a
		121.	Local 400 Food Terminal Pension Fund^a
		122.	Local 418 Pension Fund^a
		123.	Local 535 (Marin County)^a
		124.	Local 550 Pension Fund^a
		125.	Local 638 Health and Welfare Fund^a
		126.	Local 705 International Brotherhood of Teamsters Pension Fund^a
		127.	Local 734 Pension Fund^a
		128.	Los Angeles City Employees' Retirement System	("LACERS")
		129.	Los Angeles County Employees Retirement Association	("LACERA")
		130.	Maine State Retirement System a. Letter from Kay R. H. Evans dated May 30, 2003 b. Letter from Dale McCormick, State Treasurer dated June 12, 2003.	("MSRS")
		131.	Massachusetts Pension Reserves Investment Management Board	("MPRIM")
		132.	Midwestern Teamsters Pension Fund^a
		133.	Milwaukee Employees' Retirement System	("MERS")
		134.	Minnesota State Board of Investment
		135.	Brian N. Minturn, Teachers' Retirement System of Louisiana
		136.	Missouri State Employees' Retirement System
		137.	Montana Board of Investments
		138.	Richard H. Moore, State Treasurer of North Carolina (North Carolina Pension Funds)	("Moore")
		139.	Municipal Fire & Police Retirement System of Iowa
		140.	N.C.L.H. and W.T.F. (Hod Carriers and General Laborers No. 326)^a
		141.	New England Teamsters and Trucking Industry Pension Fund^a
		142.	New Hampshire Retirement System a. Letter from Eric Henry dated May 29, 2003 b. Letter dated June 12, 2003	("NHRS")
		143.	New York City Employee Retirement System a. Letter from Lillian Roberts, Executive Director, dated June 3, 2003^a b. City Employees Union Local 237
		144.	New York State Teachers' Retirement System	("NYSTRS")
		145.	New York Teamsters Conference Pension & Retirement Fund^a
		146.	North Carolina Department of State Treasurer
		147.	Ohio Public Employees Retirement System
		148.	PACE Industry Union-Management Pension Fund^a
		149.	Pennsylvania State Employees' Retirement System	("SERS")
		150.	Plumbers and Pipefitters National Pension Fund^a
		151.	Public Employee Retirement System of Idaho
		152.	Public Employees' Retirement Fund (State of Indiana)
		153.	Rochester Dairy Industry Individual Pension Account Plan^a
		154.	Sacramento County Employees' Retirement System
		155.	San Diego City Employees' Retirement System	("SDCERS")
		156.	San Jose Police and Fire Department Retirement Plan^a
		157.	SEIU Local 113 (Twin City Hospital Pension Fund) ^a
		158.	SEIU National Industry Pension Plan^a
		159.	The Sheet Metal Workers National Pension Fund
		160.	South Dakota Investment Council
		161.	Southern California Pipe Trades Retirement Fund^a
		162.	Southern States Savings and Retirement Plan Trust Fund^a
		163.	Southwestern Pennsylvania & Western Maryland Area Teamsters & Employers Pension Fund^a
		164.	Marlyn J. Spear, Building Trades United Pension Trust Fund
		165.	State Board of Administration of Florida	("SBA")
		166.	State of Wisconsin Investment Board	("SWIB")
		167.	State Retirement and Pension System of Maryland	("SRPSM")
		168.	State Teachers Retirement System of Ohio
		169.	Paul J. Tavares, General Treasurer of Rhode Island	("Tavares")
		170.	Teacher Retirement System of Texas	("TRST")
		171.	Teamsters Affiliates Pension Fund^a
		172.	Teamsters Coverage on Health & Welfare of the Joint Benefit Trust Fund^a
		173.	Teamsters Joint Council No. 46 Pension Plan^a
		174.	Teamsters Joint Council No. 83 of Virginia Pension Fund^a
		175.	Teamsters Local 52 Pension Fund^a
		176.	Teamsters Local 264 Income Replacement Plan^a
		177.	Teamsters Local 293 Pension Fund^a
		178.	Teamsters Local 264 Moving Division Pension Fund^a
		179.	Teamsters Local 301 Pension Fund^a
		180.	Teamsters Local 338 Pension and Welfare Funds^a
		181.	Teamsters Local 408 Pension Fund^a
		182.	Teamsters Local 682 Health and Welfare Funds^a
		183.	Teamsters Union 142 Pension Trust Fund^a
		184.	Tennessee Consolidated Retirement System
		185.	William C. Thompson, Jr., Comptroller of the City of New York, New York Pension Funds	("Thompson")
		186.	U.A. Plumbers Local #68 Welfare Fund Trust^a
		187.	UFCW and Food Employers Pension Plan of Central Ohio^a
		188.	Union of Needletrades, Industrial and Textile Employees
		189.	United Brotherhood of Carpenters and Joiners of America	("UBCJA")
		190.	United Food and Commercial Workers International Staff Trust Fund and UFCW International Savings and Retirement Fund^a
		191.	UPS/177 Pension Fund and 177 Pension Fund
		192.	Upstate New York Bakery Drivers & Industry Pension Fund^a
		193.	Utah Retirement Systems
		194.	David S. Wakelin, Maine State Retirement System	("Wakelin")
		195.	Washington State Investment Board	("WSIB")
		196.	Western Conference of Teamsters Pension Fund a. Local Union 38^a b. Local Union 87^a c. Local Union 386^a d. Local Union 439 e. Local Union 601^a f. Local Union 896^a
		197.	Western Pennsylvania Electrical Employees Pension Trust Fund^a
		198.	Western Pennsylvania Teamsters and Employers Pension Fund (Local 397)^a
		199.	Western Pennsylvania Teamsters and Employers Pension Fund (Local 926)*
		200.	West Virginia Investment Management Board	("WVIMB")
		201.	William Caspar Graustein Memorial Fund*
		202.	Wisconsin Laborers' Pension Fund*
	I.	Social, Environmental and Religious Funds and Related Service Providers
		203.	Alaska Conservation Foundation, As You Sow Foundation, Beldon Fund, Bullitt Foundation, Conservation Land Trust Foundation for Deep Ecology - Patagonia Land Trust, Educational Foundation of America, Nathan Cummings Foundation, Jessie Smith Noyes Foundation, Rose Foundation for Communities and the Environment, Seventh Generation Fund for Indian Development, and the Shefa Fund	("SOCFUNDS")
		204.	Joe Breddan, Colorado Environmental Committee^c
		205.	Boston Common Asset Management, LLC	("BC")
		206.	Calvert Group, Ltd.	("Calvert")
		207.	Christian Brothers Investment Services, Inc.	("CBIS")
		208.	Citizens Funds	("Citizens")
		209.	Coalition for Environmentally Responsible Economics	("CERES")
		210.	Creative Investment Research	("CRI")
		211.	Domini Social Investments	("Domini")
		212.	Granary Foundation and Center for Rural Affairs^c
		213.	Green Corporate Accountability Project
		214.	Harrington Investments, Inc.^c
		215.	Conrad MacKerron^c
		216.	Laurie McClain Socially Responsive Investments^c
		217.	The Nathan Cummings Foundation	("Cummings")
		218.	Needmor Fund^c
		219.	Progressive Investment Management^c
		220.	Rockefeller & Company's Socially Responsible Investment Division	("Rockefeller")
		221.	Shefa Fund	("Shefa")
		222.	Sisters of Notre Dame de Namur^c
		223.	Social Investment Forum	("SIF")
		224.	Southwest Center for Economic Integrity	("Southwest")
		225.	Trillium Asset Management Corporation	("Trillium")
		226.	Walden Asset Management	("Walden")
	J.	Other Shareholder Groups
		227.	Committee of Concerned Shareholders a. Letter dated May 5, 2003 b. Letter dated May 22, 2003 c. Letter dated June 7, 2003	("CCS")
		228.	eRaider.com Inc. a. Letter from Staff dated June 12, 2003 b. Letter from CEO dated June 12, 2003	("eRaider")
		229.	Fund for Stockowners Rights	("FSR")
		230.	The Horizon/Alaska Customer/Employee Co-Ownership Association, Inc.	("Horizon")
		231.	The Responsible Wealth Project (United for a Fair Economy)	("RWP")
	K.	Individuals
		232.	Brad Abel
		233.	Norm Achen	("Achen")
		234.	John Adler and Sherri Levine	("Adler & Levine")
		235.	Abbie Agner
		236.	Matthew Aiello	("Aiello")
		237.	David L. Althoff
		238.	Jeff Altman
		239.	Mike and Cindy Amirault	("Amirault")
		240.	James D. Amstutz
		241.	Carol J. Andreae	("Andreae")
		242.	Michael Asato	("Asato")
		243.	Randy Ashway^b
		244.	Stuart Auchincloss	("Auchincloss")
		245.	Lee and Renee Augustine
		246.	Mary Ann Avasino^b
		247.	Barbara L. Baer^c
		248.	Alexis Bailey
		249.	Christine L. Baker	("Baker")
		250.	Colleen Dooling Ball
		251.	George H. Ball
		252.	Larry F. Ball	("Ball")
		253.	Nancy C. Ball
		254.	Susan Marya Baronoff
		255.	Harry C. Barr	("HBarr")
		256.	Pamela Barr	("PBarr")
		257.	M. Barrows	("Barrows")
		258.	Abdullah Baytops	("Baytops")
		259.	Tanya Baytops
		260.	Bill Belding
		261.	Dana J. Belding
		262.	Lamonica D. Bell	("Bell")
		263.	Dr. Gregory Benford
		264.	Pauline Berberian
		265.	Rose M. Berkowitz
		266.	Dr. Andrew Berman
		267.	Michael Berns
		268.	John D. Berryman, M.D.
		269.	Carolyn Beshara
		270.	Jennifer Bethel	("Bethel")
		271.	James Biedenbender	("Biedenbender")
		272.	Carrie Biggs-Adams
		273.	Jim Blau	("Blau")
		274.	Rand Bleimeister
		275.	Brian Bomer	("Bomer")
		276.	Elizabeth Boschee
		277.	Jennie Bowen
		278.	TA Bower
		279.	Boy2crow@aol.com
		280.	Bart Bracken
		281.	Jan Brawner
		282.	Austin Brentley
		283.	Bettye Brentley
		284.	Joyce Ann Brentley
		285.	Robert Brittian
		286.	James N. Brophy^b
		287.	Elisabeth Brown
		288.	Eva Brown
		289.	Joshua Brown
		290.	John W. Bullard
		291.	Doug Bullock
		292.	George Burgoyne	("Burgoyne")
		293.	Tracy Burt_
		294.	Ben Bycel
		295.	Carl A. Cappello
		296.	Barri Carian	("Carian")
		297.	Don Carlson	("Carlson")
		298.	Robert Carnevale
		299.	Ed Carroll
		300.	Kathleen Carter
		301.	Grace Chang
		302.	Jacob Cherian
		303.	John Chevedden Four letters dated June 13, 2003	("Chevedden")
		304.	Leila Chirayath
		305.	Jeff Chivers
		306.	Portia Clark^b
		307.	Richard W. Clayton III
		308.	Alan P. Cleveland	("Cleveland")
		309.	Joseph and Donna Cocalis
		310.	Eliot Cohen	("ECohen")
		311.	Richard W. Cohen	("RCohen")
		312.	Terry L. Colling	("Colling")
		313.	Donna Corry
		314.	Matthew Corsaro	("Corsaro")
		315.	Cportm101@aol.com
		316.	Mary Crane
		317.	CRice445@aol.com	("CRice")
		318.	E. David and Mary Jean Cronon
		319.	Jason Croston
		320.	Joseph Crump
		321.	Graef Crystal
		322.	Edward T. Cunneen
		323.	Lori Dale
		324.	Evelyn Y. Davis a. Letter dated May 15, 2003 b. Letter dated June 13, 2003	("Davis")
		325.	Carl and Shari DeLong	("DeLong")
		326.	Scott Detienne
		327.	David Di Fiore
		328.	Scott Dillingham
		329.	Dana Dillon_
		330.	Kelly Dillon
		331.	dlippin04@yahoo.com
		332.	docelc@webtv.net
		333.	Jim Dollinger
		334.	Hank Drabin
		335.	Joe Drain
		336.	Richard Drapkin	("Drapkin")
		337.	Gary K. Duberstein	("Duberstein")
		338.	Maureen Dwyer
		339.	Janice Edwards
		340.	Peter Edwards
		341.	Lisa Strauch Eggers, Esq.	("Eggers")
		342.	Steven A. Elias
		343.	Katy Ellis
		344.	Kevin Ellsworth
		345.	emercier@webtv.net
		346.	Craig J. Englander	("Englander")
		347.	Douglas C. Estes	("Estes")
		348.	Kay R. H. Evans
		349.	Francis M. Fandrick	("Fandrick")
		350.	Michael R. Fanning	("Fanning")
		351.	George Farmer	("Farmer")
		352.	Mary Feay
		353.	Robert D. Feinstein	("Feinstein")
		354.	David Feit a. Letter dated June 11, 2003 b. Letter dated June 16, 2003
		355.	William Finkle
		356.	Thomas and Nancy Finnegan
		357.	Fired Broker
		358.	Sarah Flick	("Flick")
		359.	Richard D. Foley
		360.	Nathaniel Forster
		361.	John Foss
		362.	Powell Foster
		363.	Mark Foulon	("Foulon")
		364.	Edward E. Foxworth
		365.	Alexandre Freedman
		366.	Joseph C. Friedman
		367.	Barbara Fritz	("Fritz")
		368.	J. W. Fuleky
		369.	John Furqueron
		370.	Dorothy W. Gach, Ph.D	("Gach")
		371.	Fred Gaffney
		372.	Gordon Garney	("Garney")
		373.	Shirley H. Garris
		374.	GBowers677@aol.com
		375.	Barbara Genzel
		376.	Martin Glotzer
		377.	Richard Goette^c
		378.	Charles Goins	("Goins")
		379.	Michelle Goins
		380.	Phillip Goldstein	("Goldstein")
		381.	Ben Gong
		382.	Kevin F. Granger	("Granger")
		383.	Richard E. Greenberg
		384.	Judy Groves
		385.	John Guarrera
		386.	Valerie Gutierrez
		387.	Carl T. Hagberg	("Hagberg")
		388.	Elizabeth B. Haile	("Haile")
		389.	Joseph S. Handler, M.D.	("Handler")
		390.	Michael Harder
		391.	James P. Haren
		392.	Victoria Harris
		393.	Dan Hartley
		394.	Dixon R. Harwin
		395.	Lois W. Harwin
		396.	John Hayes	("Hayes")
		397.	Dave Heggen
		398.	Alan Helig
		399.	Nell Hennessy
		400.	Ken Hennika
		401.	Tom Herndon	("Herndon")
		402.	Jay Hill	("Hill")
		403.	Melissa Hill
		404.	Gregory L. Hirsch, M.D.
		405.	Kathy A. Holewinski
		406.	Suzanne Hopgood
		407.	Joseph P. Horgan
		408.	Patrick Howell
		409.	Lawrence Hubenak
		410.	Adam Hughes
		411.	Ronald W. Hunt
		412.	Jeni Incontro
		413.	Ashwin Jacob
		414.	Relly Jacob
		415.	Taylor Janis
		416.	Crystal Jiang
		417.	Kent Johnson^b
		418.	Lola L. Johnson
		419.	Mary Joyce
		420.	Susan Kaiser
		421.	Jane Kallander
		422.	Bruce Kallos
		423.	Peter Kandel
		424.	Edward Karecki
		425.	Dorothy Karlsen
		426.	Mitchell Karton
		427.	Adrienne Katzow
		428.	Michelle Katzow
		429.	John Keane
		430.	Francesca Kearney
		431.	Peter J. and Clare J. Kearney
		432.	Margaret L. Keon	("Keon")
		433.	Ken Kesler
		434.	Charles Kimmel
		435.	Philip Klein, Esq.
		436.	Thomas A. Kornfeld	("Kornfeld")
		437.	Judith Krain
		438.	Marsha Kramarck
		439.	Lyn Krause^b
		440.	Jason Kressel
		441.	Joseph Krislov and Louise Miller
		442.	Bob Kroetch
		443.	Mark Kronenberg
		444.	Janet Krueger
		445.	Ivan J. Krupit
		446.	Henry Kuehn
		447.	Ilyana Kuziemko
		448.	Olena Berg Lacy
		449.	J Bushrod Lake	("Lake")
		450.	Mary Lake
		451.	Story Landis
		452.	Jason Lawley
		453.	Abbott A. Leban
		454.	Huan Lee
		455.	Claude and Jean LeTien
		456.	Paul Levin
		457.	Barton T. Lewis
		458.	Joe Lexa
		459.	Bridget E. Lidy
		460.	Chris Lidy
		461.	Daniel Link	("Link")
		462.	Ron Linton
		463.	Steve Lomax
		464.	William F. Long, Jr.
		465.	Mary K. Lund^b
		466.	Sophia Lynn
		467.	Alyssa Machold
		468.	Roland M. Machold
		469.	Ernest Patrick Mahar
		470.	Kevin D. Mahar
		471.	majohns@fas.harvard.edu
		472.	Lucy Malcolm
		473.	Corrinne Mann
		474.	Rafael Manrique a. Letter dated June 9, 2003 b. Letter dated June 10, 2003	("Manrique")
		475.	Willis and Kay Martin
		476.	Jeffrey S. Masarek	("Masarek")
		477.	David Kratz Mathies	("Mathies")
		478.	Jim Matthews	("Matthews")
		479.	Keith B. Maynard
		480.	Gerald Maynus
		481.	Karen M. Mazza, Esq.
		482.	Lynne McCartin
		483.	Michael McCartin
		484.	Patty McCarty^b
		485.	William D. McGrath
		486.	Joel Mcintosh
		487.	Don A. McKenzie
		488.	Mary Meeker
		489.	Glenn Melero^b
		490.	Mike Mellon^b
		491.	Frank Mester Jr.	("Mester")
		492.	Dena Mihovich
		493.	Tracy Moavero
		494.	Robert A. G. Monks	("Monks")
		495.	Claudette Moskalik	("Moskalik")
		496.	mthirkell@juno.com
		497.	Cindy Mui
		498.	Bill Murphy
		499.	Jodi Nagel
		500.	Ken Nathanson
		501.	Bartlett Naylor	("Naylor")
		502.	Joshua C. Needle
		503.	Sarah Nelson
		504.	James Nesfield	("Nesfield")
		505.	Hans-Dieter Neuen
		506.	Gordon Newland
		507.	Thomas Newren
		508.	Donelle Nieman	("Nieman")
		509.	Robert J. Noble
		510.	Carol Nolan_
		511.	Sally Northcutt
		512.	Barbara Norton
		513.	Bill Nugent
		514.	Gary L. Nystrom
		515.	Ed and Peg O'Hara
		516.	Elleen Okada	("Okada")
		517.	Maidie E. Oliveau
		518.	William J. and Priscilla-Anne O'Neill
		519.	Joseph L. Oppenheimer
		520.	Pamela Palmer^b
		521.	Thomas O. Pandick	("Pandick")
		522.	Jackie Panos
		523.	Billy Parish
		524.	James F. Parker
		525.	Will Pattison
		526.	Kyle Paulson
		527.	Andrew Pavelchek
		528.	Rich Peppers
		529.	Robert A. and Kay Perkins	("Perkins")
		530.	Paul Perritt
		531.	Ruth Petersen	("Petersen")
		532.	Joel W. Pett
		533.	Richard Pilgrim
		534.	Tyrone Pitts
		535.	Philip Pulliam
		536.	Justin Purnell
		537.	Beverly Rajnes
		538.	Christy Rajnes
		539.	David Rajnes
		540.	John Rajnes
		541.	Andrew Randall	("Randall")
		542.	Patty Rath	("PRath")
		543.	Roger J. Rath	("RRath")
		544.	Ronald D. Rattner
		545.	ray2qqq@webtv.net
		546.	rcd_1992@yahoo.com
		547.	Kevin Reel
		548.	Mike Rejsa
		549.	RFLORA1@aol.com
		550.	Michael Ring
		551.	Arnold Ritterband, M.D.
		552.	Barry N. Riu
		553.	Glenn W. Robertson
		554.	Robert Rocco
		555.	Lee Rodgers
		556.	Sally Rodgers
		557.	John Paul Rollert
		558.	Sigmund J. Roos
		559.	Nick Rossi, Chris Rossi, and Emil Rossi
		560.	Barbara Roth
		561.	Lori L. Roth
		562.	Steve Roth
		563.	Robert Russ
		564.	Saman Saedi
		565.	Sairah Saeed
		566.	Wayne Sage
		567.	Sheila J. Salenger
		568.	Ann Sanders
		569.	Charles Sandmel
		570.	Rowena Santos
		571.	Ralph S. Saul	("Saul")
		572.	Arnold Scarpitti
		573.	Kurt N. Schacht a. Letter dated June 11, 2003 b. Letter dated June 12, 2003	("Schacht")
		574.	L. Scheffler	("Scheffler")
		575.	Gerald Schissell^b
		576.	Leslie Schmuhl
		577.	Kevin Schneider
		578.	Joyce Schorr
		579.	Scot Schulte
		580.	Lisa Schultz
		581.	Anne-Marie Zell Schwerin
		582.	Payson Schwin
		583.	Susan F. Scott^b
		584.	Joe Seal
		585.	Harold J. Sealman
		586.	Peter Seidman
		587.	Gene Sensale
		588.	Brad Sherwood
		589.	Joan Sherwood
		590.	Paul B. Shiring
		591.	Donald W. Shuper
		592.	Richard A. Sigler^b
		593.	Lisa Rebecca Silverman
		594.	Jane Sindell
		595.	Amar Singh
		596.	Ned A. Skipper
		597.	Dan M. Slack
		598.	Kim Slack
		599.	Mary Slack
		600.	R. Gene Slack
		601.	Robin Slocum
		602.	Donna Spell
		603.	Dick Spinazzola
		604.	Joseph Stackpoole
		605.	Bob Stanfield
		606.	W. J. Sterner
		607.	Eric Stockel
		608.	Susan R. Stockel	("Stockel")
		609.	F. Barron Stone, C.P.A.
		610.	Rick Strassman
		611.	Ellen Strauss
		612.	Kelly Sullivan
		613.	JoAnne Svendsgaard
		614.	Summer Sweeney^b
		615.	Melissa Sweet
		616.	Allen Sykes	("Sykes")
		617.	Elizabeth Sykes
		618.	Denise Szkatulski
		619.	Trish Taniguichi
		620.	Larry R. Taylor
		621.	Duane and Marilynne Temple^b
		622.	Chris Terlecky
		623.	Lee Teslik
		624.	Carol M. Thomas
		625.	Marnie Thompson	("Thompson")
		626.	Constance Thurber
		627.	Andy Timchalk
		628.	Mary Tkach
		629.	Paul Tomasik
		630.	Clayton H. Toppin
		631.	tpender@morganlewis.com
		632.	Jim Traweek
		633.	Deborah Underwood
		634.	Mike Vajdos
		635.	Stuart Vance
		636.	Dru van Hengel
		637.	Elise Varela
		638.	Anoo Verghis
		639.	Mary Vogel	("Vogel")
		640.	Martin Wachs
		641.	Michael Wanyama
		642.	Anne Webb
		643.	Sean H. Webb
		644.	Raymond L. Wehling	("Wehling")
		645.	Arnold Weiner
		646.	Francine Weiss
		647.	Jerry White
		648.	Wendy Widlus
		649.	Katherine Wigent	("Wigent")
		650.	Jay S. Wiley
		651.	Ilene J. Williger	("Williger")
		652.	Frank G. Winant
		653.	Michael Yu
		654.	Kristen Zehner
		655.	Leita Zeugner	("Zeugner")
	L.	Miscellaneous
		656.	Martin Cohen, Balanced Financial Securities
		657.	FlyRight, Inc.^c
		658.	Public Sector Superannuation Scheme and Commonwealth Superannuation Scheme	("PSS & CSS")

^a Form Letter A ("FORM A")

^b Form Letter B ("FORM B")

^c Form Letter C ("FORM C")

II. Overview

In Press Release 2003-59, issued on May 1, 2003, the Commission solicited public views in connection with the Division's review of the proxy rules and regulations relating to the nomination and election of directors.¹ The 690 commenters who responded to the solicitation were comprised of the following groups:²

424 individuals;
165 unions, pension funds, institutional investors, and institutional investor associations;
24 social, environmental, and religious funds and their related service providers;
18 law firms and attorneys;
16 associations;
10 corporations and corporate executives;
10 shareholder resource providers;
8 investment advisers and managers;
5 academics;
5 other shareholder groups;
2 governmental representatives; and
3 miscellaneous commenters.

Commenters generally supported the Commission's examination of the proxy rules or specifically supported granting shareholders access to company proxy materials to nominate directors. The exceptions were all of the corporations and corporate executives, the majority of law firms and individual attorneys, and most of the associations (mostly business associations).

The majority of commenters who advocated a change to the proxy rules referenced past and current corporate scandals as an indication of an overall problem in the system of corporate governance. Although many of these commenters acknowledged the importance of current initiatives under the Sarbanes-Oxley Act of 2002 and the markets' amendments to listing standards in addressing director conflicts of interests, a majority were of the view that greater accountability of board members to shareholders was a necessary step in addressing these systemic issues. A number of commenters also expressed dissatisfaction with the effectiveness of current mechanisms to effect changes in corporate governance, such as submitting shareholder proposals under Exchange Act Rule 14a-8, conducting election contests, submitting candidates as potential board nominees to the nominating committee, and generally communicating with the board about shareholder concerns. At least ten commenters found that recommendations made to the nominating committee were not an effective means to place shareholder nominees on the board.³

Although the vast majority of responses supported a change to the proxy rules to allow shareholders to access company proxy materials to include nominees to the board, the majority of these commenters did not provide any specific suggestions about how the proxy rules should be reformed. The commenters who did provide specific guidelines suggested the following parameters in promulgating a shareholder access rule:

Minimum Ownership Threshold - Although the majority of commenters supported setting an ownership threshold, many commenters differed on the need for such a threshold and, if needed, the proper threshold amount. One commenter suggested no minimum threshold. Those who favored a minimum threshold suggested up to 10% of the outstanding shares, with the majority of commenters suggesting a range between 3% and 5% of the outstanding shares. Some commenters also suggested a lower ownership threshold for each individual if a coalition of shareholders could be formed (e.g., 1% minimum threshold with a coalition of 25 individuals each owning at least $2,000 worth of shares). Also, upon noting the unlikelihood of a single shareholder holding even 3% of shares in a large corporation, most commenters favored allowing shareholders to aggregate their shares to meet any required threshold.
Minimum Holding Period - Nearly all of the commenters supported the idea of a minimum holding period. The majority of commenters suggested a period of one to three years.
Maximum Permissible Slate - The vast majority of commenters agreed that any enhanced shareholder access rule should be limited to shareholders who nominate candidates for less than a majority of the board. A few commenters suggested enhancing shareholders' ability to replace all or a majority of the board. Those who favored a possible shareholder access rule for less than a majority of the seats suggested allowing shareholders to nominate from one seat up to the number of seats equal to one seat less than 50% of the board.
Competing Nominating Shareholders - The majority of commenters agreed that, in a situation where there were more shareholder nominees than permitted, the nominating shareholder who represented the largest shareholder block should be allowed to nominate candidates to the board. Several of these commenters expressed concern with this solution, however, on the basis that companies could use board-friendly nominating shareholders to nominate candidates to the board. These commenters suggested that any access rule include safeguards against these types of "collusive" activities.
Disclosure - The majority of commenters advocated allowing shareholder nominees to include in company proxy materials information similar to the information currently provided for board nominees. Some commenters requested "equal space and equal treatment" of all shareholder nominees. Some commenters also suggested that shareholder nominees be allowed to include a statement of support varying from 200 to 500 words.
Exchange Act Regulation 13D - The majority of commenters recommended that the Commission provide relief (e.g., an exemption or safe harbor) from Exchange Act Regulation 13D filing requirements for activities relating to shareholder nominations of directors. This relief would be available to shareholders and shareholder groups who beneficially own over 5% of a company's shares and are not seeking control. The majority of commenters did not address whether these shareholders would still need to file an Exchange Act Schedule 13G.
Broker Votes - A large majority of commenters recommended that New York Stock Exchange Rule 452, which allows brokers to vote shares where the beneficial owner has not provided voting instructions 10 days prior to a scheduled meeting, not be used during contested or uncontested elections.
Expenses and Fees - Several commenters suggested that corporations reimburse nominating shareholders for expenses regardless of the election outcome. Several commenters also suggested a reimbursable nomination fee of between $2,000 to $3,000.

Most of the commenters who opposed shareholder access to company proxy materials suggested that the Commission defer any action until the current reforms under Sarbanes-Oxley and the markets' listing standards are implemented. These commenters also expressed concern over the detrimental effects that a shareholder access rule could have on boards. For example, commenters stated that shareholder access to company proxy materials could be costly to shareholders, result in special interest directors, disrupt and polarize boards, discourage qualified candidates from serving on boards, increase the likelihood of election contests and result in director nominees who do not meet legal requirements. Several commenters also noted that the nomination and election of directors is an area that generally is governed by state law. Many commenters questioned the appropriateness of federal rules in an area that is traditionally governed by state law. Other commenters questioned the Commission's authority to promulgate a shareholder access rule.

Commenters also suggested alternatives, in addition to, or in lieu of, a shareholder access rule. These alternatives included the following:

greater disclosure from the nominating committee on the nomination process;
more meaningful ways to communicate with independent directors;
revisions to Exchange Act Rule 14a-8 or the staff's interpretation of Exchange Act Rule 14a-8; and
revisions to clarify the application of when there is "control" under Exchange Act Regulation 13D for certain activities such as the performance of management, evaluations of proposed corporate actions, evaluation of proposed shareholder actions, and "vote no" campaigns.

The comments are discussed in more detail below.

III. General Observations on the Need for Greater Corporate Accountability

A. Corporate Abuses and the Current Corporate Governance Environment

The majority of commenters who supported changes to the proxy rules relating to the election of directors pointed to past and current corporate scandals as evidence of the need to reform the current system of corporate governance.⁴ Many of the individual commenters expressed frustration and disappointment with declining share prices and sought any change that would improve the value of their investments.⁵ The commenters called upon the Commission to restore public confidence in the markets.⁶

Many commenters, particularly individuals and pension funds, sought to enhance the value of their investments through better corporate governance.⁷ One commenter noted the view that corporate governance is different today because investors have "greater direct financial exposure, are more informed, and are more willing to be involved in governance matters than in the past."⁸ In addition, though one commenter noted that active managers of mutual funds can sell their shares in a company with an "ineffective or unresponsive board,"⁹ pension fund managers noted that the issue of director accountability is more important to them because they are necessarily long-term investors who cannot easily sell.¹⁰ One commenter noted that "[c]ompanies should be run ultimately in the long-term interests of shareholders."¹¹

The majority of commenters who sought corporate governance reforms specifically sought greater board accountability to shareholders¹² and greater shareholder oversight over boards.¹³ Many commenters contended that the only way to make boards accountable to shareholders is to reform the proxy rules to allow shareholders to nominate directors in company proxy materials.¹⁴

B. The Current State of Director Elections

Commenters specifically expressed dissatisfaction with the current rules governing the election of corporate directors. Commenters indicated their view that the current system insulates incumbent directors.¹⁵ Commenters also noted that boards run virtually unopposed because of the prohibitive cost of conducting an election contest¹⁶ and, when there is an election contest, companies can avail themselves of the corporate treasury to solicit shareholders.¹⁷ Two commenters expressed their view that the cost of running an election contest is prohibitive in relation to the benefit that a minority shareholder will receive (e.g., a 5% shareholder will pay 100% of the cost of running an election contest but will capture only 5% of the benefits).¹⁸

Commenters noted the lack of a democratic process and called for "authentic" elections of directors.¹⁹ One commenter noted that corporate elections are different from a democratic political process because "boards that nominate candidates are under a fiduciary duty to make decisions in the best interest of all shareholders. Voters in political elections are free to make choices based on which candidate would serve the voter's own individual interest."²⁰ Another commenter noted that "the debate should not center on whether . . . a proposed change is more or less `democratic' but, rather, whether the proposal will contribute positively to the achievement of the function of a corporation."²¹

Some commenters expressed the belief that the election of directors is a self-selecting process because the nominating committee or board selects incumbent nominees.²² A number of commenters believed that shareholders are merely "rubberstamping" board nominees.²³ Some commenters suggested that the Chief Executive Officer effectively chooses board nominees.²⁴ This process leaves board members beholden to each other and to the CEO, despite regulations governing conflicts of interest.²⁵ Although this may make the board a more cohesive group, commenters noted that this also makes board members less likely to challenge management or other board members.²⁶

Commenters indicated that the current nomination and election process leaves board members less accountable to shareholders and more able to ignore shareholder concerns.²⁷ Commenters suggested that the way to make boards accountable to shareholders is to create a mechanism to challenge board insulation by allowing shareholders to nominate directors in company proxy materials.²⁸

IV. Efficacy of Existing Accountability Mechanisms

A. Sarbanes-Oxley and the Markets' Listing Standards

The overall response regarding the efficacy of Sarbanes-Oxley's reforms and the markets' listing standards was split, based on whether the commenters supported or opposed shareholder access.

Nearly all of the commenters who opposed shareholder access stated that there has not been enough time to evaluate the impact that Sarbanes-Oxley's reforms and the markets' listing standards will have on corporate governance and, therefore, there currently is no need to amend the proxy rules.²⁹ One commenter noted that these reforms are directed at "assuring that directors are independent and accountable to all shareholders."³⁰ One commenter noted that the reforms "are designed to enhance dramatically the overall corporate accountability to shareholders and potential investors" and will lead to more "meaningful long-term improvements in corporate governance than ... the adoption of an access proposal."³¹ One commenter noted that these reforms would promote "sound corporate governance and transparent business practices."³² One commenter noted that the system of selecting directors would be strengthened by these reforms.³³ One commenter contended that these reforms would serve to make boards "even more responsive to input from shareholders on board nominations."³⁴

Nearly all of the commenters who supported shareholder access and who discussed current corporate governance reforms recognized the importance of the reforms. These commenters did not believe, however, that Sarbanes-Oxley's reforms or the markets' listing standards amendments would remedy board accountability problems.³⁵ Several commenters explained that Sarbanes-Oxley and the markets' listing standards related to independent directors, thus addressing the problem of director conflicts of interest, not director accountability.³⁶ Commenters noted that independent boards alone would not remedy the problem with board accountability, as the current system does not provide any incentive for boards to be accountable to shareholders.³⁷

B. Exchange Act Rule 14a-8

The majority of commenters who discussed Exchange Act Rule 14a-8 expressed varying degrees of dissatisfaction with the rule.

A large number of commenters sought to revise Exchange Act Rule 14a-8, either partially or completely, as discussed below. On the other hand, a primary complaint about using the Exchange Act Rule 14a-8 process was the lack of board response to shareholder concerns. Several commenters noted that many companies have ignored a number of resolutions that received a majority shareholder vote when put to shareholder votes.³⁸ One commenter specifically noted that in 2002, 98 shareholder resolutions received a majority of votes, but only 14 proposals were adopted.³⁹ Commenters also noted that boards have failed to act on resolutions even where the proposal received majority votes for several consecutive years.⁴⁰ One commenter noted these concerns but cautioned that the Commission "not blur the important distinctions between the issues surrounding majority vote proposals and issues involving control of the corporation."⁴¹

C. Contested Elections

The comments on the effectiveness of the current proxy rules for governing election contests were also divided based on whether the commenters supported or opposed shareholder access.

One commenter noted that there is "the very real alternative of conducting an election contest under the existing rules."⁴² One commenter noted that "bank and bank holding company shareholders are not at all reticent to conduct election contests."⁴³ Several commenters who opposed shareholder access contended that the current proxy rules are the best mechanism for election contests.⁴⁴ These commenters had several specific responses. One commenter noted that the current rules "assure[] transparency in the election process and allow[] both sides to the contest to present their cases."⁴⁵ One commenter stated that the current rules "promote full disclosure and a proper level of accountability."⁴⁶ One commenter contended that the current proxy rules "provide the information necessary to vote in an informed manner."⁴⁷ One commenter noted that the rules provide "increased disclosure and clear identification of the soliciting party."⁴⁸ Three commenters contended that, to the extent that a shareholder access rule includes a minimum threshold, the cost of an election contest would not provide a greater impediment than the ownership threshold because shareholders holding a large percentage of shares in large companies already can afford their own proxy solicitations.⁴⁹ One commenter noted that "when [] investors encounter instances where they believe the expenditure of such effort is justified, monetary expense is not often an obstacle to action."⁵⁰ Two commenters also cited to Exchange Act Rule 14a-4(d), the short slate rule, and stated that it already contemplates shareholders seeking to nominate less than a full slate.⁵¹

Commenters who supported shareholder access noted the prohibitive cost of conducting an election contest.⁵² Commenters estimated that the cost of running a contest ranges from "several hundred thousand to over a million dollars"⁵³ into "the millions of dollars."⁵⁴ Commenters also noted that the federal regulatory requirements deter investors from undertaking election contests.⁵⁵

One commenter noted that "[a]ttempts to elect directors not nominated by the company are extremely rare outside the takeover context."⁵⁶ This commenter explained that while there are "several dozens" of contests each year to seek control, contests where directors seek only a seat to improve a company's operations are "exceedingly rare."⁵⁷ Further, although commenters estimated that there have been between 33 to 40 contests a year, one commenter who supported shareholder access stated that contests are "exceedingly rare."⁵⁸ Another commenter who opposed shareholder access stated that contests are conducted on a "regular basis."⁵⁹

D. Shareholder Recommendations to the Nominating Committee

Although the commenters were divided in their opinions about nominating committees, commenters who opposed shareholder access did not appear to believe that recommending candidates to the board has been effective.

Two commenters who opposed shareholder access noted that shareholders have an existing right to recommend board candidates, but the commenters did not address the efficacy of this alternative.⁶⁰ Commenters contended that screening by nominating committees is the best way to assess the skills and qualities of potential nominees⁶¹ and ensure that nominees meet the markets' listing standards' definition of independence.⁶² One commenter noted that institutional investors and special interest groups do not necessarily know the specific needs of a particular company and may not be the most qualified group to nominate directors.⁶³

Several commenters who supported shareholder access to company proxy materials were of the opinion that recommendations to the nominating committee are not effective.⁶⁴ One commenter noted that "talk is not enough" and shareholders need a way to "effectively compete with the nominating committee."⁶⁵ One commenter believed that shareholder access would induce the nominating committee to include shareholder nominees who have a broad base of support.⁶⁶

E. Dialogue with the Company

The commenters' views on the effectiveness of communicating with the board varied based on the individual commenters' experiences with particular companies.

Two companies noted that they already have mechanisms in place to facilitate good investor relations with their shareholders. One noted that it "engage[d] directly with [its] institutional and retail investors through [its] Investor Relations and Corporate Social Responsibility groups" and sought to meet with proponents about shareholder proposals.⁶⁷ The other company noted that it hosted regional stockholder forums and has set up a phone line and e-mail account to allow shareholders to express their views.⁶⁸

One commenter who supported shareholder access to company proxy materials expressed that it has had "considerable success" in "engaging companies in dialogue to effect changes in company practices."⁶⁹ Two commenters noted that the annual meeting is one of the few means to access board members but noted that boards often are not responsive to shareholders at the meetings.⁷⁰ One commenter noted that the proxy rules should not be revised based on "anecdotal input" suggesting that "institutional investors and special-interest groups are being uniformly kept from meaningful discussions with companies."⁷¹

V. Shareholder Access to Company Proxy Materials

A. Specific Proposals

The CII and the AFL-CIO each drafted specific proposals that received support from other commenters. At least nineteen individuals and entities stated that they supported the CII proposal,⁷² and at least four individuals and entities stated that they supported the AFL-CIO proposal.⁷³

The CII proposal would allow shareholders or shareholder groups who own at least 5% of a company's voting shares for at least three years to nominate less than a majority of the board of directors. Under the proposal, company proxy materials and related mailings would provide "equal space and equal treatment" for shareholder nominations. The CII proposal seeks a safe harbor from the Exchange Act Regulation 13D filing requirements for shareholder communications related to the nomination of directors for less than a majority of the board. The CII proposal also seeks to prohibit uninstructed broker votes during contested or uncontested elections.

The AFL-CIO proposal would allow shareholders or shareholder groups who own a substantial block (e.g., 3%) of a company's shares, a majority of which have been held for over one year, to nominate the greater of two directors or one-third of nominees standing for election at a particular meeting, but in no case a majority of the board. Under the proposal, each shareholder nominee would be allowed to include a background statement to support his or her candidacy (e.g., 500 words maximum). The AFL-CIO also seeks an exemption from Exchange Act Regulation 13D for communications limited to efforts to nominate directors. In the case of competing shareholder groups, a "simple" rule (e.g., the largest shareholder block) would prevail. The AFL-CIO proposal indicates that the board should not be allowed to collude with management-friendly shareholders to nominate someone of the board's choosing.

Two commenters also provided examples of companies who have adopted proposals to allow shareholders to nominate directors as examples to "inform the debate"⁷⁴ or "as a model for rulemaking."⁷⁵ Relational outlined a shareholder access policy that was recently adopted at Apria Healthcare Group Inc. The policy allows shareholders who hold at least 5% for two years to nominate up to two candidates. If more than two candidates are submitted, the nominee of the nominating shareholder holding the greater number of shares will be included in company proxy materials. The information about the candidate is limited to the proxy disclosure requirements. If the nominee fails to receive 25% of the vote, the nominee will be prohibited from running for four years. LENS outlined the Hanover Compressor settlement, which included a number of corporate governance reforms including the nomination of two outside directors by shareholders. The settlement requires the nominating committee to select two nominees from a list of candidates provided by plaintiff's counsel, including shareholders who own from between 1% to 10% of the company's shares. If the nominating committee does not determine that the candidates are qualified, plaintiff's counsel will be required to submit additional candidates.

B. Specific Guidelines for Shareholder Access

The majority of shareholder access supporters did not provide any specific comments on the parameters of a new rule. The vast majority of commenters who did not support shareholder access also did not provide specific comments.

Of those who did provide specific guidelines, nearly all of the commenters agreed that any new rule must be drafted to ensure that the rule is not used to facilitate hostile takeovers or overburden companies with excessive proxy disclosure.⁷⁶ The following describes the responses of the commenters who made specific recommendations regarding shareholder access.

1. Minimum Ownership Threshold

Of the specific recommendations made, commenters varied the most with regard to an appropriate ownership eligibility threshold. One commenter noted that "only those with a serious and sustained financial commitment to the company should be afforded access to the proxy."⁷⁷ Nearly all of the commenters agreed that a minimum ownership threshold was necessary.

Some commenters did not make any specific recommendations but provided some of the following general guidelines:

Four commenters generally supported a requirement for a "reasonable,"⁷⁸ "meaningful,"⁷⁹ "significant"⁸⁰ or "substantial"⁸¹ ownership threshold.
One commenter suggested a "substantial ownership stake" that is not so high as to make it impractical to use the shareholder access rule.⁸²
Two commenters suggested "strong screens (high minimum, long holding period)" initially, with the possibility of relaxing the screens only after "substantial experience demonstrated that greater shareholder participation in the director selection process would not have a significant negative effect on corporate performance or boardroom cohesion of successful companies."⁸³

Other commenters suggested specific minimum thresholds or lower minimum thresholds per investor if a shareholder coalition could be formed. One commenter did not support requiring shareholder coalitions since a nominating shareholder would already have a sense of the "strength of its coalition," making this requirement "superfluous and an unnecessary burden."⁸⁴ The range of thresholds included the following:

One commenter recommended no minimum threshold.⁸⁵
Three commenters suggested a $2,000 minimum threshold, similar to the requirement under Exchange Act Rule 14a-8.⁸⁶
One commenter suggested a $100,000 minimum threshold.⁸⁷
Several commenters suggested a 1% minimum threshold with a coalition of at least 25 investors who each own at least $2,000 worth of shares.⁸⁸
One commenter suggested a 1% minimum threshold or, in the alternative, 0.1% with a coalition of 10 individuals.⁸⁹
One commenter suggested the greater of $5 million or 1% as a minimum threshold.⁹⁰
Three commenters suggested a 1% minimum threshold.⁹¹
Several commenters suggested a 1% - 3% minimum threshold.⁹²
Several commenters suggested a 3% minimum threshold.⁹³ One commenter noted that 3% is ideal because: (1) it is the figure required for resubmission of an Exchange Act Rule 14a-8 proposal; (2) it is the figure proposed by the Commission five years ago to override the exclusion in Exchange Act Rule 14a-8; and (3) this figure would be a significant barrier at many publicly-traded companies.⁹⁴
Two commenters suggested a 3% - 5% minimum threshold.⁹⁵
Several commenters suggested a 5% minimum threshold.⁹⁶
One commenter suggested a 10% minimum threshold.⁹⁷
One commenter suggested a higher threshold, such as a 10% minimum threshold, for smaller companies.⁹⁸

Nearly all commenters would allow shareholders to aggregate their holdings to meet any minimum threshold requirements.⁹⁹

2. Minimum Holding Period

Commenters generally supported a requirement that nominating shareholders hold their shares for a specified period of time. This period ranged from one year or at least a year,¹⁰⁰ to in "excess of one year,"¹⁰¹ to "a period of years."¹⁰² Several commenters supported a holding period of three years.¹⁰³ One commenter disagreed with any holding period and stated, "property rights should attach to ownership."¹⁰⁴

One commenter noted that the average holding period of an institutional investor is 11 months.¹⁰⁵

3. Maximum Permissible Slate

Most commenters agreed that a shareholder access rule should not be used to replace an entire slate of directors.¹⁰⁶ Three commenters suggested that the Commission, at some point, examine going beyond a "short slate proposal" and "enhance shareholders' ability to replace all or a majority of the directors."¹⁰⁷ One commenter reasoned that the election of a new slate of directors can "ensure change when one is needed."¹⁰⁸

Commenters' views on the number of candidates that should be permitted under a shareholder access rule varied as follows:

Most commenters suggested that nominating shareholders be allowed to nominate candidates for less than a majority of the seats.¹⁰⁹ One commenter explained that one nominee less than a majority is proper because a meaningful number of shareholder-nominated directors must be present in order to be effective.¹¹⁰
One commenter suggested a minimum of three shareholder nominees.¹¹¹
Some commenters suggested that the number be limited to the greater of two directors or one-third of the board.¹¹²
Several commenters suggested nominees for up to 25% of the board.¹¹³
Two commenters sought at least one seat.¹¹⁴

4. Competing Nominating Shareholders

Where more than one nominating shareholder seeks to nominate candidates, most commenters suggested that the nominating shareholder group with the largest percentage of shares be allowed to include nominees in the proxy materials.¹¹⁵ Two commenters suggested instant run-off voting where there are three candidates for one seat.¹¹⁶ One commenter characterized instant run-off voting as a "complicated exercise[]."¹¹⁷ One commenter suggested allowing all nominees to run.¹¹⁸

Commenters noted that a potential problem with allowing the largest shareholder group to nominate board members is that that the board could "collud[e]" with management-friendly shareholder groups to put together a larger percentage of shareholder votes to nominate directors who are in effect board nominees.¹¹⁹ One commenter suggested safeguards against this, such as "strong language prohibiting such collusive activity" and allowing only incumbent directors who were originally elected by a shareholder nominee or who were being ousted by the incumbent board without adequate justification to shareholders to be eligible to be nominated by shareholders.¹²⁰

5. Disclosure

Comments varied on the type of disclosure concerning a shareholder nominee that would need to be provided in the proxy materials.

Most commenters recommended that shareholder nominees be able to include background disclosure similar to the information provided for board nominees.¹²¹
Commenters recommended that all nominees be provided "equal space" in company proxy materials with a reasonable word limit to provide background information, a supporting statement, relevant experience and material relationships to the company.¹²²
Commenters also recommended "equal space and equal treatment" of nominations presented by nominating shareholders in the proxy statement and/or related mailings.¹²³
One commenter recommended a "reasonable" statement of support for the shareholder nominee.¹²⁴ Several commenters suggested a limit of 500 words for such shareholder nominee disclosure.¹²⁵ Several commenters suggested 200 words.¹²⁶ One commenter stated that a 500-word limit would provide insufficient disclosure for decisions to add directors to the board.¹²⁷

Several commenters suggested that the shareholder nominee be clearly identified as such.¹²⁸ One commenter suggested disclosing the identity of the nominating shareholder or shareholder group including "`organized special interests.'"¹²⁹ Several commenters suggested that directors be listed alphabetically, rather than as a slate.¹³⁰

One commenter noted that disclosure standards under Exchange Act Rule 14a-9 should not be "undermined."¹³¹ Two commenters recommended that the Division review the nominating shareholder's materials to ensure that the disclosure does not violate the proxy rules, specifically Exchange Act Rule 14a-9.¹³² One commenter expressed concern about who would be responsible for the accuracy of the shareholder nominee information in the company proxy materials.¹³³

6. Exchange Act Regulation 13D

One commenter noted that the filing requirements under Exchange Act Rule 13d-1 deter some institutional investors from undertaking election contests.¹³⁴ Nearly all of the commenters who supported shareholder access recommended an "exemption" or "safe harbor" from Exchange Act Regulation 13D filing requirements for shareholders who collectively own over five percent of a company's shares and seek to nominate candidates in a non-control context.¹³⁵ One commenter noted the difficulty of distinguishing when a shareholder or shareholder group intends to influence control, because of the difficulty in separating an intent to improve board performance from an intent to influence control in more far-reaching ways.¹³⁶

The majority of commenters did not directly address whether nominating shareholders or shareholder groups would be required to file an Exchange Act Schedule 13G as a passive investor or whether they also sought an exemption from filing an Exchange Act Schedule 13G.¹³⁷ A few commenters specifically recommended that shareholder groups who collectively hold over five percent of a company's shares and who seek to nominate candidates for less than a majority of the board should not constitute the "formation of a group within the meaning of Section 13(d)(3)."¹³⁸ One commenter recommended that discussions or agreements related to shareholder nominations should not cause a loss of eligibility to report on Exchange Act Schedule 13G.¹³⁹

7. Broker Votes

Commenters noted the provision in NYSE Rule 452 that allows brokers to vote with regard to uncontested elections if the beneficial owner has not provided any voting instruction 10 days before a scheduled meeting. One commenter noted that these uninstructed broker votes are voted in favor of management's recommendations.¹⁴⁰ The majority of commenters recommended that these broker votes or uninstructed share votes be prohibited generally, and that they be prohibited specifically during contested and uncontested elections.¹⁴¹ One commenter stated that it failed to "perceive advantages to issuers or shareholders arising from the elimination of discretionary voting authority."¹⁴² One commenter expressed the view that a change to this "decades-old practice will likely lead to unintended disenfranchisement of a large group of shareholders" because most "`street name'" owners know that if they do not provide voting instruction, their votes will be voted in favor of management's recommendation.¹⁴³ One commenter recommended that if this requirement is changed, companies should be provided access to the beneficial owners' names.¹⁴⁴

8. Expenses and Fees

Two commenters suggested that nominating shareholders should be able to seek reimbursement for reasonable expenses regardless of the outcome of the election.¹⁴⁵ One commenter stated that it would be "entirely justifiable" for all soliciting expenses to be reimbursed.¹⁴⁶ Other commenters advocated reimbursement for "reasonable" expenses, but indicated that the reimbursement should not be mandated through rulemaking.¹⁴⁷

One commenter suggested some proportional access to company funds for advertising and solicitation if some "screens" (e.g., minimum ownership threshold and holding period) are passed.¹⁴⁸ One commenter suggested that, if a shareholder nominee has "sufficient initial support," the company distribute the shareholder's proxy statement and bear "reasonable" costs, such as legal fees, incurred in connection with the proxy process.¹⁴⁹

Two commenters suggested that nominating shareholders pay a reimbursable nomination fee of $2,000.¹⁵⁰ Another commenter suggested a $3,000 reimbursable nomination fee.¹⁵¹

9. Miscellaneous Guidelines

Commenters suggested several other guidelines and points to consider in formulating a shareholder access rule.

One commenter suggested that a shareholder holding less than 5% be permitted to make a nomination if that nomination is seconded by shareholders representing 5% or more of the shares.¹⁵²
One commenter sought an exemption from the proxy rules for solicitations in connection with shareholder access.¹⁵³ One commenter suggested that the nominating shareholder be required to comply with current proxy rules when communicating about directors.¹⁵⁴
One commenter suggested that the limitation on the number of directors that can be nominated be eliminated if a shareholder proposal that received a majority vote is repeatedly ignored.¹⁵⁵
One commenter suggested allowing "shareholder access to the director nomination process" only when the board "ignores" majority votes on shareholder proposals.¹⁵⁶
Two commenters suggested that a nominating shareholder be prevented from resubmitting a nominee the following year if that nominee does not receive a certain threshold of support.¹⁵⁷

C. Advantages and Disadvantages

Commenters noted several advantages and disadvantages of shareholder access to company proxy materials to nominate directors.

Efficacy - Two commenters who supported shareholder access stated that any shareholder nomination rule should be used sparingly, as most boards would not be improved by having shareholder-nominated directors on boards.¹⁵⁸ One commenter noted there is no evidence that shareholder access would lead to better managed companies or decrease the likelihood of problems associated with bad governance.¹⁵⁹ Another commenter stated that this alternative would have "dubious" benefits.¹⁶⁰ Three commenters noted that if there are adequate threshold requirements, the shareholder access rule would not be used very often, particularly with well-performing boards.¹⁶¹ Further, one commenter noted that giving shareholders replacing incumbent directors will likely be limited since boards can increase their size to accommodate additional nominees.¹⁶² One commenter noted that shareholder access would address only part of the director nomination and election process because state law and companies' governing instruments play a "dominant role in the process."¹⁶³
Accountability - The overall response by commenters who supported greater access by shareholders to company proxy materials was that it would increase board accountability and responsiveness.¹⁶⁴ Commenters also noted that shareholder access would be used more as a tool to promote positive director accountability and not necessarily to change boards.¹⁶⁵ One commenter cited to Chancellor William B. Chandler and Vice-Chancellor Leo Strine, Jr. of the Delaware Court of Chancery, who noted, "The very fact that an open access process is created would influence independent directors to be more responsive on an ongoing basis and to consult with key stockholder constituencies in shaping the management slate. Put differently, by facilitating fair contests, the new rules of the game will cut down on the need for them."¹⁶⁶
Boardroom Dynamics - Commenters who advocated a shareholder access rule believed that shareholder nominated directors would provide a fresh perspective¹⁶⁷ and improve board dynamics.¹⁶⁸ Commenters who did not support shareholder access contended that allowing shareholders to access company proxy materials to nominate directors would be disruptive to the board and to the corporate governance process¹⁶⁹ and would lead to polarized boards.¹⁷⁰ One commenter noted that boards have become so engaged in process that "there is less time to adequately engage in strategic and long-term thinking."¹⁷¹ Another commenter noted that, although shareholder access may be disruptive, it may be worth the cost if it increases accountability.¹⁷² This commenter explained that "[t]he better boards perform, the less they will have to be concerned about challenges and the easier it will be for them to defeat a challenge should it occur."¹⁷³ One commenter noted that, although shareholder access may polarize the board, the lack of cohesiveness may be helpful when a board is "paralyzed or severely dsyfunctional."¹⁷⁴ One commenter also suggested that shareholders would not elect directors who would adversely affect corporate governance.¹⁷⁵
Special Interest Directors - Several commenters expressed concern that shareholder access could be used by special interest groups who may have interests different from shareholders generally.¹⁷⁶ In particular, commenters expressed concern that shareholder nominees would have special interests because of their affiliation with the nominating shareholder.¹⁷⁷ One commenter suggested minimizing the number of "special interest" nominations where the "underlying motives or likely goals of the nominees do not relate to broad-gauged corporate performance."¹⁷⁸ Commenters suggested various factors that would limit special interest directors including:
1. "the election process itself" since shareholders must nominate a candidate who attracts favorable votes from a sufficient number of shareholders;¹⁷⁹
2. minimum ownership thresholds (e.g., large shareholders with significant long-term commitment);¹⁸⁰
3. disclosure of the identity of the nominating shareholder or shareholder group;¹⁸¹ and
4. application of the markets' proposed independence standards to shareholder nominees.¹⁸²
Qualified Board Members - Commenters expressed concern about ensuring that boards include members with a diversity of skills and backgrounds.¹⁸³ Several commenters also noted that shareholder access may discourage qualified candidates from serving in a time when it is becoming increasingly difficult to find qualified nominees.¹⁸⁴ At least three commenters also contended that shareholder nominees may not meet legal requirements under state and federal law.¹⁸⁵ One commenter noted that nominating committees must perform an "extensive amount of due diligence on both nominees and incumbent directors" to determine whether there are any relationships that may impact an individual's independence, and that members of the audit committee are subject to financial literacy requirements.¹⁸⁶ One commenter noted that the election of a director who is employed by a company's competitor could result in violation of the Clayton Act.¹⁸⁷
Cost - One commenter noted that, given the need to disclose conflicts of interest between the nominating shareholder and shareholder nominee, "lengthy additional disclosure would be required," which could increase mailing costs.¹⁸⁸ One commenter noted that a "free ride" on company proxy materials defrays only a small part of the expenses of conducting a "serious proxy challenge with a meaningful chance of success."¹⁸⁹ One commenter noted that the increased cost of shareholder access would be borne by "all shareholders."¹⁹⁰
Election Contests - Several commenters suggested that the number of election contests would increase if shareholder access is implemented, since including shareholder nominees on the company's proxy card will effectively constitute a contest.¹⁹¹
Quorums - Two commenters stated that a company may have difficulties meeting quorum requirements since brokers may not vote shares held in street name in an election contest without voting instructions from the beneficial owner.¹⁹² One commenter noted that 28% to 40% of all companies would not have a quorum if these "broker non-votes" were not counted.¹⁹³ Several commenters suggested allowing broker non-votes to be used for quorum purposes.¹⁹⁴
Other concerns - One commenter stated that the diversity that exists among the 14,000 publicly-owned companies must be considered.¹⁹⁵ One commenter also noted the burden on the Commission in reviewing soliciting materials.¹⁹⁶ Three commenters noted that shareholder access would result in fewer Exchange Act Rule 14a-8 proposals being submitted.¹⁹⁷ Four commenters suggested that having both board and shareholder nominees on one card would be confusing to shareholders.¹⁹⁸

D. Federal and State Authority

Commenters agreed that shareholders' power to nominate directors is granted under state law.¹⁹⁹ Some commenters also believed that the Commission should not regulate matters that are traditionally governed by state law.²⁰⁰

Two commenters suggested that shareholder access would violate state law because the board is vested with the power to manage the business affairs of the corporation and because shareholders of the same class would be treated disparately.²⁰¹ In responding to the issue of disparate treatment of shareholders, one commenter noted that "state corporate law has long permitted variation between the equity interest shares represent and the voting power accorded the shares" but also noted that to the extent that shareholder access gives "preference to the ability of a group of shareholders to nominate a director ... without providing equivalent access and capabilities to other members of the same class or series of shares, the alternative may implicate Delaware's equal treatment doctrine."²⁰²

Four commenters noted that the board, as opposed to nominating shareholders, has a fiduciary duty to act in the best interest of the company and shareholders,²⁰³ and one commenter suggested that only fiduciaries who manage the business of the company may use corporate funds.²⁰⁴ This commenter noted that shareholder access "may implicate" this principle.²⁰⁵

Commenters also expressed doubt about the Commission's authority to promulgate rules to allow shareholders to include nominees in the company proxy materials to nominate directors.²⁰⁶ Commenters stated that shareholder access would be substantive regulation rather than regulation based on disclosure or process.²⁰⁷ One commenter was of the view that a Congressional grant of authority would be required for the Commission to adopt a shareholder nomination rule.²⁰⁸

Other commenters believed that a shareholder access rule would merely require disclosure of existing rights. One commenter believed that shareholder access would only improve communication and disclosure of rights already existing under state law.²⁰⁹ One commenter expressed the view that shareholder access would only be disclosing matters that will be put forth at the annual meeting.²¹⁰ Commenters also contended that providing shareholder access is completely within the Commission's authority and analogized to the Commission's authority under Exchange Act Rule 14a-8.²¹¹ One commenter distinguished the Commission's authority under Exchange Act Rule 14a-8, on the basis that board elections go to the heart of corporate governance.²¹² One commenter stated that "the SEC undoubtedly has the authority to adopt appropriate rules regarding the solicitation of votes for the election of directors, as it has done with respect to contested elections of directors under Exchange Act Rule 14a-12."²¹³

VI. Other Alternatives to Increase Corporate Accountability

A. Variations of Shareholder Access

Commenters proposed several variations on shareholder access.

One commenter suggested that companies be required to adopt bylaws to establish procedures for nominating directors.²¹⁴
One commenter suggested that the board nominate more candidates than there are slots (e.g., 10 candidates for 6 seats).²¹⁵
One commenter recommended that shareholders who own over 10% for 3 years work with the nominating committee to nominate a director;²¹⁶ however, another commenter stated that this idea was "window dressing" since a 10% shareholder "has the means already to communicate with the nominating committee."²¹⁷
One commenter suggested that shareholders who hold 1% or more of a company's shares be allowed to make inquiries of the company in order to make the board more accountable. Under this model, this "oversight shareholder" would be provided a safe harbor from the insider trading rules, exempted from the proxy rules governing solicitations, and exempted from the Exchange Act Schedule 13D filing requirements.²¹⁸
One commenter suggested that one institutional or professional director be placed on each board.²¹⁹
One commenter suggested that certified board members who meet specific education and testing requirements be placed on boards.²²⁰
Two commenters suggested that shareholders be given the power to remove directors.²²¹
One commenter suggested that the Commission promulgate rules requiring that, when a shareholder with a certain percentage of shares seeks to nominate directors, the company pay for both the board and shareholder nominees' solicitations or not pay for either solicitation.²²²
One commenter stated that one way to expand shareholder involvement in the director selection process would be to require companies to mail a separate card for shareholder nominees, which would include a website address for the nominating shareholder. The website would include information about the shareholder nominees. This alternative contemplates that the nominating shareholder would meet minimum ownership threshold requirements and have a non-control intent.²²³
One commenter suggested that an alternative to expanded shareholder access would be to change the markets' listing standards to require that a certain number of board seats be selected by shareholders. Under this alternative, only shareholders who met a minimum ownership requirement would be able to nominate directors. Nominees would be submitted by a specified deadline and the nominating shareholder would provide the company with information about the candidate. The nominating committee would then perform due diligence on the candidate.²²⁴
One commenter advocated replication of the system in the United Kingdom where any shareholder who holds over 5% of a company's shares may introduce any resolution in company proxy materials and any shareholder who holds over 10% of a company's shares may call a special meeting. This system would include the ability to remove or nominate a director.²²⁵ Another commenter opposed an "absolute right" to have any proposal included in company proxy materials solely because a shareholder holds a "significant" number of shares.²²⁶
Two commenters suggested making election contests simpler by allowing shareholders who meet certain ownership thresholds to add an alternative slate of directors to the company's proxy card.²²⁷

B. Disclosure Regarding Nominating Committees

Commenters suggested that, in addition to, or in lieu of, shareholder access, the Commission require enhanced disclosure about the nominating process.²²⁸ Suggested disclosure includes:

all shareholder recommendations received by the company;²²⁹
for companies without separate nominating committees, whether the board will consider shareholder recommendations;²³⁰
a specific description of the procedures to be followed in submitting recommendations, including any substantive requirements for board nominees;²³¹
whether any shareholder recommended nominees are included in the current slate of directors;²³² and/or
for those companies with nominating committees, whether the board has adopted a written charter for the nominating committee and inclusion of the charter as an appendix to the proxy statement at least once every three years. ²³³

Three commenters recommended a nominating committee report.²³⁴ One commenter suggested that this report disclose "whether the committee received any shareholder nominations during the year; the procedure used by the committee to evaluate such nominees, and whether the committee recommended the inclusion of any shareholder nominees in the proxy statement."²³⁵ One commenter suggested that the report include the process used to evaluate qualified candidates and evaluate shareholder nominations.²³⁶ One commenter discouraged the requirement of a report since such detailed information may either provide only boilerplate disclosure or prove embarrassing to potential candidates who were rejected by the committee.²³⁷

One commenter stated that increased disclosure about the nominating committees in the past has not remedied board accountability issues.²³⁸ One commenter stated that many companies already disclose their criteria for selecting directors.²³⁹

One commenter suggested that an alternative to increasing shareholder involvement in the director selection process would be to change the markets' listing standards to require that the nominating committee "establish, disclose and administer" a process for considering candidates recommended by shareholders who meet minimum ownership requirements and have a non-control intent. The shareholder would need to include information about the candidate, including confirmation of his or her willingness to serve. The shareholder proponent also would provide disclosure related to the beneficial ownership of the proponent and candidate and their relationships with and intentions regarding the company. A reasonable deadline for submitting candidates would need to be provided. The nominating committee would conduct due diligence on the candidate and would issue a report.²⁴⁰

Two commenters also recommended that the Commission suggest that the markets change their listing standards to require nominating committees to consider shareholder nominees.²⁴¹ One commenter suggested that the Commission's ability to require the markets to change their listing standards may be limited under Exchange Act Section 19.²⁴² One commenter suggested that the Commission seek authority from Congress to mandate market listing standards.²⁴³

C. Communications with Independent Directors

One commenter recommended that shareholders be provided more meaningful ways to communicate with independent directors.²⁴⁴ One commenter sought "transparency in communications between investors, boards of directors, and management."²⁴⁵ One commenter recommended a mandatory process to allow shareholders to communicate with independent directors.²⁴⁶

D. Reform of Exchange Act Rule 14a-8

Many commenters suggested reforming Exchange Act Rule 14a-8 completely, eliminating some bases for exclusion under the rule, or revising some of the staff's interpretations of the rule, as discussed below.²⁴⁷ One commenter suggested that the Commission defer a review of Exchange Act Rule 14a-8 until all of the current corporate governance reforms have been implemented.²⁴⁸ Another commenter stated that "we are more cautious to suggest reform to the current rules pertaining to shareholder proposals for fear that it may result in a disruptive process; however, we believe that there may be room for reform, so that relevant proposals actually get presented for shareholder vote."²⁴⁹ This commenter suggested that the appropriate balance in deciding whether shareholder proposals should be included in the proxy materials is to consider whether the proposal directly, as opposed to indirectly, affects shareholders' wealth.²⁵⁰

One commenter suggested that an alternative to shareholder access would be to amend Exchange Act Rule 14a-8 to permit proposals that set up a process for shareholders to nominate directors.²⁵¹ Several commenters generally suggested revoking or amending Exchange Act Rule 14a-8(i)(8).²⁵² One commenter noted that shareholder proposals to set up a process to allow shareholders to nominate directors in company proxy materials would not sufficiently address accountability problems.²⁵³

Although some commenters addressed Exchange Act Rule 14a-8 specifically with regard to the election of directors, many more commenters sought a reform of Exchange Act Rule 14a-8 more generally.

One commenter recommended that companies be required to implement proposals that receive a majority of the vote.²⁵⁴ Other commenters suggested revising Exchange Act Rule 14a-8 to allow shareholders to make bylaw proposal amendments.²⁵⁵ Two commenters noted that making shareholder proposals binding could be beyond the Commission's authority and raise concerns under state law.²⁵⁶
Two commenters suggested that companies be required to consider shareholder resolutions that receive a majority of the vote and communicate with all shareholders on what actions the company implemented, if any.²⁵⁷
Two commenters suggested that shareholder proposals that receive a majority of the vote automatically be included in the proxy the following year.²⁵⁸
One commenter called for sanctions on companies that do not implement shareholder proposals that receive a majority of the vote.²⁵⁹
Several commenters sought to modify or eliminate the "ordinary business" exclusion under Exchange Act Rule 14a-8(i)(7).²⁶⁰
Four commenters sought to eliminate the requirement that shareholders attend the annual meeting in order to have their shareholder proposal presented in the proxy materials.²⁶¹
Two commenters sought to expand the word limitation for shareholder proposals.²⁶²
Two commenters suggested increasing the levels of approval necessary to resubmit a proposal by using the percentage of shares outstanding, rather than the percentage of shares voted, and increasing the percentages required to resubmit a proposal.²⁶³
One commenter suggested a mechanism where shareholders who own at least 5% of a company's shares would be able to override the exclusions in Exchange Act Rules 14a-8(i)(4), (i)(5) and (i)(7).²⁶⁴
Two commenters suggested higher eligibility thresholds to submit proposals.²⁶⁵
One commenter sought greater transparency in the Division's review of Exchange Act Rule 14a-8 no-action requests by "provid[ing] a consistent and detailed explanation of the determining factors so that shareholders can more fully understand the rationale and thus better prepare future submissions."²⁶⁶

E. Revise Exchange Act Regulation 13D

One commenter suggested that the Commission consider amendments to or interpretations of Exchange Act Regulation 13D that would permit shareholders who hold, in the aggregate, more than 5% of a security to communicate among themselves regarding the issuer without being required to file an Exchange Act Schedule 13D or an Exchange Act Schedule 13G.²⁶⁷ This commenter noted that institutional investors, including investment advisers, may wish to discuss "common concerns" such as "performance of management, evaluations of proposed corporate actions, or subjects of various proxy proposals."²⁶⁸ Another commenter suggested "providing, either through formal rulemaking or further interpretive guidance, an Exchange Act Schedule 13G safe harbor for large institutional investors making recommendations to nominating committees" which includes the following limitations:

available only to institutional investors qualified to report on Exchange Act Schedule 13G pursuant to Exchange Act Rule 13d-1(b);
limited to one nominee per investor; and
not available if the nominee is affiliated with the investor.²⁶⁹

Other commenters suggested a general reexamination of the current Exchange Act Regulation 13D framework so that activities that do not seek to change control, such as "vote no" campaigns or the use of any shareholder access rule, are not subject to Exchange Act Regulation 13D.²⁷⁰

F. Other Miscellaneous Alternatives and Comments

Commenters presented various alternatives to shareholder access and also provided their views on corporate governance generally.

1. Disclosure

One commenter suggested additional disclosure in the proxy statement that addresses "how the qualifications of each nominee or current director provides diversification to, and strengthens the Board."²⁷¹
Several commenters expressed concern over large executive compensation packages.²⁷² Commenters called for increased disclosure of executive and director compensation.²⁷³ One commenter requested shareholder approval of total executive compensation packages.²⁷⁴
Three commenters sought increased disclosure of proxy printing costs and the cost of the election process and the solicitation of votes to ensure that management does not use corporate funds excessively.²⁷⁵
Several commenters recommended disclosure in the proxy statement of material familial, professional and financial ties to the company and its executives.²⁷⁶
Several commenters suggested encouraging board attendance at annual meetings and disclosing when board members do not attend.²⁷⁷
One commenter suggested that the Commission "consider whether additional rulemaking or other initiatives should be undertaken to assure that electronic and telephonic voting instruction services are available to beneficial owners in contested election situations to the same extent as it is available to beneficial owners in uncontested elections."²⁷⁸
Three commenters suggested that the Commission require real-time disclosure of voting results.²⁷⁹
One commenter suggested disclosure of boardroom disagreements.²⁸⁰
One commenter suggested that each director disclose his evaluation of his own, his committee's, the chairman's, and the board's performance in the past fiscal year.²⁸¹

2. Proxy Regulations

One commenter suggested that the proxy statement be reorganized by topic.²⁸²
Three commenters suggested an examination of the takeover rules more generally.²⁸³
One commenter suggested eliminating the proxy statement and replacing it with an information circular and absentee ballot.²⁸⁴
One commenter sought to eliminate the SEC staff review of contested solicitations.²⁸⁵

3. Corporate Governance

Commenters also advocated other corporate governance initiatives, such as the annual election of directors,²⁸⁶ cumulative voting,²⁸⁷ allowing "for," "against" and "abstain" votes in the election of directors,²⁸⁸ and separating the position of Chairman and CEO.²⁸⁹
One commenter suggested requiring shareholder approval of major corporate matters, such as the adoption of a poison pill.²⁹⁰
One commenter sought a Shareholder Advisory Committee that would have the right to meet with the company, propose candidates for the board and publish its views annually in the proxy statement.²⁹¹

4. Other Recommendations

Three commenters recommended that the Commission evaluate the impact of, or provide more regulation of, proxy advisory services.²⁹² One commenter noted that institutional investors rely heavily on shareholder advisory services.²⁹³ One commenter noted that negative recommendations from Institutional Shareholder Services are associated with fewer votes cast favorable to management.²⁹⁴ One commenter stated that shareholder access would place too much power and influence in the hands of proxy advisory services.²⁹⁵ Two commenters suggested implementing a system to allow shareholders to follow the votes of third parties, such as institutional investors.²⁹⁶
Several commenters suggested the use of technology in the election of directors as well as in other areas. One commenter suggested that a way to simplify the election process would be to use technological advances to elect shareholders in non-control contests. Under this suggestion, shareholders would be provided greater flexibility in the use of the Internet to communicate with other shareholders and the nominating shareholder would be required to file with the SEC and post on a website disclosure mandated under the proxy rules. Further, all other solicitations would be posted on the website.²⁹⁷
Two commenters suggested the use of the Internet for disclosure and polling on significant issues.²⁹⁸ Several commenters suggested the use of the Internet for all proxy materials and voting.²⁹⁹ Commenters also suggested using the Internet as a polling tool for shareholder proposals (as a shareholder referendum).³⁰⁰ One commenter suggested generally the use of available technology.³⁰¹

____________________________

¹ See Release No. 34-47778 (May 1, 2003). In addition, the Division spoke with interested parties representing shareholders, the business community and the legal community, including members from AMBANK, ABA, ADP, AFL-CIO, AFSCME, ASCS, BRT, CalPERS, CCS, CorpGov.Net, CRPTF, Hermes, IBT, Laborer's International Union of North America and the UBCJA. Public comments can be viewed in the Commission's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, in File No. S7-10-03. Public comments submitted by electronic mail also are available on the Commission's website, www.sec.gov.
² The list of commenters does not reflect all 690 commenters because the local chapters from the Central States Pension Fund, the Central States Southeast and Southwest Areas Health and Welfare and Pension Fund, and the Western Conference of Teamsters Pension Fund submitted comments individually but identified themselves with the general fund.
³ Barnard; CRice; PRath; RRath; RWP; SOCFUNDS; Southwest; Shefa; SIF; Thompson.
⁴ See, e.g., Amirault; CWA; CWA/ITU; Englander; Form A; Georgeson; Harshbarger; Levin; Relational; Tavares.
⁵ See, e.g., Adler & Levine; Andreae; Auchincloss; Carian; Colling; DeLong; Fandrick; Foulon; Goins; Manrique; Moskalik; Petersen; RCohen; Williger.
⁶ See, e.g., Achen; Bakers; Ball; Baytops; CLPWAF; DCRB; Drapkin; Fanning; Form B; Form C; Granger; Harshbarger; NASRA; Tavares; Vogel; Zeugner.
⁷ See, e.g., Aiello; AMBANK; Eggers; MERS; Pandick; RETIREFUNDS.
⁸ Bethel.
⁹ AFL-CIO.
¹⁰ See e.g., AFL-CIO; AMBANK. Cf CalSTRS (as a long term investor, CalSTRS is "keenly interested" in restoring investor confidence).
¹¹ Sykes.
¹² See, e.g., AFSCME; CalPERS; CWA; DCRB; Naylor; Relational.
¹³ See, e.g., Bell; BIT; Crane; Foulan; Gach; PBarr.
¹⁴ See, e.g., Burgoyne; CCS; Levin; SOCFUNDS.
¹⁵ See, e.g., AFSCME; Bebchuk; CWA/ITU; Harvard.
¹⁶ See, e.g., AFL-CIO; AFSCME; AMBANK; Bebchuk; CalSTRS; CII; CWA; CWA/ITU; Hill; ISS; Form A; Form C; MERS; MCG; Pugh; RETIREFUNDS.
¹⁷ See, e.g., AFL-CIO; AMBANK; Calvert; CII; Form C; Harvard; MCG; Pugh; Randall.
¹⁸ Bebchuk; Tweedy.
¹⁹ CWA. See also Adler & Levine; AFSCME; Blau; Estes; Flick; Form C; Hevesi; LENS; McRitchie; RCohen.
²⁰ ASCS.
²¹ ABA.
²² See, e.g., AFSCME; LENS; MERS.
²³ See, e.g., BC; Form A; Form C; Garney; Granger; Handler; Perkins; Stockel.
²⁴ See, e.g., Carlson; LENS; Link; Matthews; Mester; Monks; Perritt. See also ABA (referred to CEO-domination of the nomination process as a principle viewpoint that has been raised).
²⁵ See, e.g., LENS; Monks. See also ABA (referred to the board's obligation to the CEO as a principle viewpoint that has been raised); Fanning ("the CEO runs the company as a personal fiefdom, populating the Board with yes-men and yes-women"); Nieman.
²⁶ See, e.g., AFL-CIO; AFSCME; LENS; Sykes.
²⁷ See, e.g., AFL-CIO; CWA; Davis; Form A.
²⁸ See, e.g., Adler & Levine; AFL-CIO; Auchincloss; Form A; Form C; Calvert; Chevedden; NAST.
²⁹ ABASS; Abbott; ABCNY; ACCA; Agilent; Alston & Bird; ASCS; Ashland; Boyle; BRT; CIEBA; CSX; ExxonMobil; GM; ICI; Intel; NYSBA; Sullivan; Viad. See also ABA (referred to current corporate governance reforms as an argument against shareholder access).
³⁰ ACCA.
³¹ ABCNY.
³² NYSBA.
³³ DF King.
³⁴ Alston & Bird.
³⁵ See, e.g., APERS; ACSA; CalPERS; CalSTRS; Cummings; Duberstein; MERS; RETIREFUNDS.
³⁶ AFL-CIO; CWA/ITU; ISS.
³⁷ AFSCME; RETIREFUNDS; Thompson.
³⁸ See, e.g., AFL-CIO; AMBANK; Auchincloss; Chevedden; CLPWAF; Herndon; Kornfeld.
³⁹ AFL-CIO.
⁴⁰ AFL-CIO; Barclays.
⁴¹ ASCS.
⁴² ABCNY.
⁴³ ABASS.
⁴⁴ ABCNY; Agilent; Alston & Bird; ASCS; Boyle; BRT; ExxonMobil; Intel; Saul; Wachtell.
⁴⁵ Alston & Bird.
⁴⁶ ASCS.
⁴⁷ BRT.
⁴⁸ ABCNY.
⁴⁹ BRT; ExxonMobil; NYSBA.
⁵⁰ ABCNY.
⁵¹ ABCNY; Wachtell.
⁵² See, e.g., AFL-CIO; AFSCME; AMBANK; Bebchuk; CalSTRS; CII; CWA; CWA/ITU; Duberstein; Hill; ISS; Form A; Form C; MERS; MCG; Pugh; RETIREFUNDS.
⁵³ AFSCME.
⁵⁴ AMBANK.
⁵⁵ See, e.g., AFSCME; CII; Duberstein; MERS; Providence.
⁵⁶ Bebchuk. See also Harvard (similar statement).
⁵⁷ Bebchuk.
⁵⁸ AFSCME. AFSCME estimated that there were an average of approximately 33 contests per year.
⁵⁹ Wachtell. Wachtell estimated that there were approximately 40 contests last year.
⁶⁰ ABCNY; Alston & Bird.
⁶¹ Abbott; Agilent; AutoZone; BRT; ConocoPhillips; GM; NACD; Viad.
⁶² Agilent; AutoZone; Boyle; BRT; Sullivan; Wachtell.
⁶³ Intel.
⁶⁴ Barnard; CRice; PRath; RRath; RWP; Shefa; SIF; SOCFUNDS; Southwest; Thompson.
⁶⁵ Barnard.
⁶⁶ Bebchuk.
⁶⁷ Intel.
⁶⁸ GM.
⁶⁹ AMBANK.
⁷⁰ Hevesi; LENS.
⁷¹ ACCA.
⁷² AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB.
⁷³ AMBANK; Davis; Hayes; Mathies.
⁷⁴ LENS.
⁷⁵ Relational.
⁷⁶ See, e.g., ABA; AFL-CIO.
⁷⁷ Barnard.
⁷⁸ Id.
⁷⁹ ACSA.
⁸⁰ RETIREFUNDS.
⁸¹ Bomer.
⁸² RETIREFUNDS.
⁸³ Harvard; Barnard (concurring with Harvard).
⁸⁴ Barnard.
⁸⁵ ECohen.
⁸⁶ CCS; Davis; Horizon.
⁸⁷ Parnassus.
⁸⁸ CRice; PRath; RRath; RWP; Southwest; Thompson.
⁸⁹ PIRC.
⁹⁰ RCohen.
⁹¹ Keon; Rockefeller; Trillium.
⁹² CBIS; CERES; Form C; Shefa; SIF.
⁹³ AFL-CIO; AFCSME; AMBANK; BC; Citizens; Domini; Duberstein; IBT; Kornfeld. See also AMBANK; Davis; Hayes; Mathies (supported AFL-CIO proposal).
⁹⁴ AMBANK.
⁹⁵ CWA/ITU; ISS.
⁹⁶ Barclays; CalPERS; CII; ISIS; Lawndale. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII proposal).
⁹⁷ Hagberg.
⁹⁸ ISS.
⁹⁹ See, e.g., AFL-CIO; AFSCME; CII; Citizens; Form C; ISS.
¹⁰⁰ AFSCME; AMBANK; CalPERS; CERES; CWA/ITU; Duberstein; Form C; ISS; Parnassus.
¹⁰¹ AFL-CIO; McRitchie. See also AMBANK; Davis; Hayes; Mathies (supported AFL-CIO proposal).
¹⁰² RETIREFUNDS.
¹⁰³ CII. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII proposal).
¹⁰⁴ Tweedy.
¹⁰⁵ Intel.
¹⁰⁶ ABA; ACSA; Barnard; CalSTRS; Calvert; CII; CWA/ITU; DCRB; MSRS; SOCFUNDS; Thompson; Vrakas. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII proposal).
¹⁰⁷ Bebchuk. Bebchuk recommends that shareholders with a sufficiently large ownership and holding period be allowed to add an alternative slate to the company's proxy card, and companies be required to distribute the shareholder's proxy statement. See also Georgeson; Lawndale.
¹⁰⁸ Bebchuk.
¹⁰⁹ See, e.g., AFSCME; AMBANK; CalPERS; CERES; Citizens; Form C; ISS; Lawndale; McRitchie; RETIREFUNDS.
¹¹⁰ Lawndale.
¹¹¹ Sykes.
¹¹² AFL-CIO. See also AMBANK; Davis; Hayes; Mathies (supported AFL-CIO proposal).
¹¹³ CRice; PRath; RRath; RWP; Southwest; Thompson.
¹¹⁴ HBarr; Okada.
¹¹⁵ See, e.g., AFL-CIO; AFSCME; AMBANK; Barnard (concurring with AFL-CIO); CCS; CERES; CWA/ITU; Form C; McRitchie.
¹¹⁶ McRitchie; Lawndale.
¹¹⁷ Barnard.
¹¹⁸ Duberstein.
¹¹⁹ AFL-CIO. See also AFSCME; AMBANK; Barnard (concurring with safeguards against "`gaming'" the system); Calvert; CERES; CWA/ITU; McRitchie; RETIREFUNDS; Shefa; SIF.
¹²⁰ AFL-CIO.
¹²¹ See, e.g., AFSCME; AMBANK; CalSTRS; Parnassus; RETIREFUNDS; SOCFUNDS.
¹²² Form C. See also BC; Bomer; Calvert; CBIS; Citizens; CWA/ITU; Keon; SOCFUNDS.
¹²³ CII. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII proposal). See also CERES; Citizens; Domini; ISIS; ISS; Rockefeller; Schacht; Shefa; SIF (similar language but did not appear to seek equal space and treatment for related mailings).
¹²⁴ SOCFUNDS. Cf. ABA (allowed to include a statement of support of some prescribed maximum length).
¹²⁵ AFL-CIO; McRitchie; RETIREFUNDS; SOCFUNDS. See also AMBANK; Davis; Hayes; Mathies (supported AFL-CIO proposal).
¹²⁶ PRath; RRath; RWP; Southwest; Thompson.
¹²⁷ Bebchuk.
¹²⁸ See, e.g., Barnard (concurring with clear disclosure that the nominee is shareholder-nominated); Bebchuk; Form C; Keon.
¹²⁹ Barnard.
¹³⁰ See, e.g., Barnard (concurring with alphabetically listing candidates); PRath; RRath; RWP; Southest; Thompson.
¹³¹ ABA.
¹³² AFSCME; RETIREFUNDS.
¹³³ NYSBA.
¹³⁴ AFSCME.
¹³⁵ See, e.g., AFL-CIO; AFSCME; AMBANK; CalPERS; Calvert; CERES; CII; CWA/ITU; Duberstein; IBT; Lawndale; MSRS; Moore; RETIREFUNDS; Shefa; SIF; SOCFUNDS; Trillium. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; Hayes; LACERS; Lake; Mathies; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII and/or AFL-CIO proposal).
¹³⁶ ABA.
¹³⁷ See, e.g., CII ("The Council urges the SEC to consider amending the rules to clarify that the 13D/G regulatory scheme is only intended to capture shareholders or groups of shareholders who intend to change or modify control"); AFL-CIO ("Communications among shareholders together holding more than 5% should be exempted from burdensome requirements under Regulation 13-D so long as that communication is limited to efforts to nominate director candidates"). See also CRPTF; CWA/ITU; IBT; NHRS; SBA; SERS.
¹³⁸ See, e.g., AFSCME; AMBANK; RETIREFUNDS; SWIB.
¹³⁹ Duberstein.
¹⁴⁰ Bethel and Gillan.
¹⁴¹ Barclays; BC; CERES; CII; Citizens; ECohen; Davis; Domini; Duberstein; eRaider; Form C; Hagberg; Hermes; Horizon; ISIS; ISS; Lawndale; MSRS; MCG; McRitchie; Moore; PIRC; Rockefeller; PRath; RRath; RWP; Southwest; Shefa; SIF; Thompson; Trillium; Vrakas; Walden. See also AMBANK; CLPWAF; CRPTF; Davis; Farmer; Feinstein; LACERS; Lake; Moore; MPRIM; NYSTRS; SBA; SDCERS; SERS; SRPSM; SWIB; TRST; WSIB; WVIMB (supported CII proposal).
¹⁴² DF King.
¹⁴³ ABA.
¹⁴⁴ Georgeson.
¹⁴⁵ Bebchuk; Lawndale.
¹⁴⁶ Duberstein.
¹⁴⁷ CalPERS; SOCFUNDS; RETIREFUNDS.
¹⁴⁸ Harvard.
¹⁴⁹ Bebchuk.
¹⁵⁰ Lawndale; Barnard (concurring with a $2,000 registration fee).
¹⁵¹ McRitchie.
¹⁵² Lawndale.
¹⁵³ Parnassus.
¹⁵⁴ ACSA.
¹⁵⁵ Lawndale.
¹⁵⁶ Barclays.
¹⁵⁷ Hagberg; Kornfeld.
¹⁵⁸ Bebchuk; Harvard.
¹⁵⁹ ABCNY. See also ABA (no evidence that shareholder access will have any effect, good or bad, on corporate governance).
¹⁶⁰ DF King.
¹⁶¹ AFL-CIO; Bebchuk; MERS.
¹⁶² AFL-CIO.
¹⁶³ ABA.
¹⁶⁴ See, e.g., AMBANK; AFL-CIO; AFSCME; CalPERS; CSEA; CWA; MERS; RETIREFUNDS.
¹⁶⁵ See, e.g., AFL-CIO; AFSCME; CalPERS; MCG; RETIREFUNDS.
¹⁶⁶ AFSCME.
¹⁶⁷ AFSCME; Chevedden.
¹⁶⁸ MERS; RETIREFUNDS.
¹⁶⁹ Abbott; ABCNY; Alston & Bird; Ashland; AutoZone; Boyle; BRT; ConocoPhillips; GM; NYSBA; Saul; Sullivan; Viad; Wachtell. See also ABA (referred to disruption to the board as an argument against shareholder access).
¹⁷⁰ ABASS; ABCNY; ConocoPhillips; CRPTF.
¹⁷¹ ASCS.
¹⁷² Bebchuk.
¹⁷³ Id.
¹⁷⁴ AFSCME.
¹⁷⁵ Bebchuk.
¹⁷⁶ See, e.g., ABASS; ABCNY; Agilent; Boyle; BRT; CIEBA; DF King; ExxonMobil; Harvard; NYSBA; Saul; Sullivan.
¹⁷⁷ Boyle; Harvard; NYSBA.
¹⁷⁸ Harvard.
¹⁷⁹ Harvard. See also Bebchuk (similar statement).
¹⁸⁰ Harvard.
¹⁸¹ Barnard.
¹⁸² Boyle.
¹⁸³ ASCS; CRPTF.
¹⁸⁴ See, e.g., Abbott; ABCNY; ASCS; Ashland; AutoZone; ConocoPhillips; GM. See also ABA (referred to qualified directors being discouraged from running as an argument against shareholder access).
¹⁸⁵ BRT; ExxonMobil; NYSBA.
¹⁸⁶ ACCA. See also ASCS (similar statement).
¹⁸⁷ BRT.
¹⁸⁸ ASCS. The ASCS provided an example, in which increasing the weight of a company's proxy materials by two ounces could increase the cost of mailing 100,000 packages from $86,175 to $395,000.
¹⁸⁹ ABCNY.
¹⁹⁰ NYSBA.
¹⁹¹ Abbott; Agilent; Ashland; Boyle; BRT; ConocoPhillips; Viad; Wachtell.
¹⁹² DF King; NYSBA.
¹⁹³ Hagberg.
¹⁹⁴ Form C.
¹⁹⁵ ABA.
¹⁹⁶ Sullivan.
¹⁹⁷ DF King; Harvard; NASRA.
¹⁹⁸ ABA; ABASS; ASCS; Sullivan.
¹⁹⁹ See, e.g., ABCNY; AFL-CIO; AFSCME; CWA/ITU; MERS; NYSBA; RETIREFUNDS; SOCFUNDS.
²⁰⁰ See, e.g., ABCNY; ACCA; Sullivan.
²⁰¹ BRT; NYSBA.
²⁰² ABA.
²⁰³ ABA; ABCNY; ASCS; BRT.
²⁰⁴ ABA.
²⁰⁵ Id.
²⁰⁶ See, e.g., ABCNY; Sullivan; NYSBA.
²⁰⁷ See, e.g., ABCNY; Boyle.
²⁰⁸ Boyle.
²⁰⁹ AFSCME.
²¹⁰ Hitchcock.
²¹¹ AFSCME; Hitchcock.
²¹² Wachtell.
²¹³ ABA.
²¹⁴ Goldstein.
²¹⁵ Wehling.
²¹⁶ Georgeson.
²¹⁷ Barnard.
²¹⁸ Fogel.
²¹⁹ Wakelin.
²²⁰ Biedenbender.
²²¹ CRI, PSS & CSS.
²²² Pugh.
²²³ ABA.
²²⁴ Id.
²²⁵ Hermes.
²²⁶ DF King.
²²⁷ Bebchuk; Lawndale.
²²⁸ ABCNY; ACCA; Alston & Bird; NACD; Rockefeller.
²²⁹ ABCNY; NYSBA.
²³⁰ Alston & Bird.
²³¹ Alston & Bird; CRPTF; NACD.
²³² ASCS.
²³³ Alston & Bird.
²³⁴ ACCA; ASCS; UBCJA.
²³⁵ ASCS.
²³⁶ ACCA.
²³⁷ Alston & Bird.
²³⁸ AFSCME.
²³⁹ Abbott.
²⁴⁰ ABA.
²⁴¹ NYSBA; Georgeson.
²⁴² ABA.
²⁴³ ISS.
²⁴⁴ CII.
²⁴⁵ NASRA.
²⁴⁶ CRPTF.
²⁴⁷ See, e.g., Harvard; MSRS; Moore.
²⁴⁸ ICI.
²⁴⁹ AIMR.
²⁵⁰ Id.
²⁵¹ ASCS.
²⁵² BC; CBIS; CERES; Citizens; CRice; Domini; Form C; ISIS; Keon; Monks; PIRC; Rockefeller; Shefa; SIF; Thompson; Trillium; Walden.
²⁵³ AFL-CIO.
²⁵⁴ CLPWAF.
²⁵⁵ Bomer; Cleveland; Masarek; Matthews; NHRS.
²⁵⁶ ACCA; AFL-CIO.
²⁵⁷ ACCA; CRPTF.
²⁵⁸ Lawndale; McRitchie.
²⁵⁹ MSRS.
²⁶⁰ See, e.g., Barnard (concurring with "liberalizing" the ordinary business exclusion); Calvert; CII; CRPTF; Cummings; Davis; Duberstein; Fritz; FSR; Hermes; Lawndale; MCG; McRitchie; Thompson.
²⁶¹ CII; Davis; Lawndale; McRitchie.
²⁶² FSR; Lawndale.
²⁶³ DF King; Georgeson.
²⁶⁴ Georgeson.
²⁶⁵ DF King; Saul.
²⁶⁶ AIMR.
²⁶⁷ ICAA.
²⁶⁸ Id.
²⁶⁹ Alston & Bird.
²⁷⁰ See, e.g., CII; ICAA; Georgeson; Lawndale.
²⁷¹ AIMR.
²⁷² See, e.g., AFSCME; Blickman; Haile; Levin.
²⁷³ Barrows; CII; Hermes; FCERA; ISS; LACERA; Levin; MSRS; Moore; Saul.
²⁷⁴ Corsaro.
²⁷⁵ CERES; Shefa; SIF.
²⁷⁶ Barclays; BC; CERES; Citizens; Domini; Form C; ISS; McRitchie; Rockefeller; Shefa; SIF.
²⁷⁷ BC; CERES; Citizens; Domini; Form C; Rockefeller; Shefa; SIF; Walden.
²⁷⁸ Alston & Bird.
²⁷⁹ Horizon; ISS; Schacht.
²⁸⁰ ISS.
²⁸¹ Asato.
²⁸² Saul.
²⁸³ Bebchuk; Georgeson; Lawndale.
²⁸⁴ Goldstein.
²⁸⁵ Id.
²⁸⁶ CERES; Davis; Form C; Horizon; Keon; McRitchie; PIRC; Rockefeller; Shefa; SIF.
²⁸⁷ CERES; Citizens; Davis; Form C; Horizon; Keon; Parnassus.
²⁸⁸ BC; Citizens; Domini; Form C; Lawndale; NACD; Shefa; SIF; Walden.
²⁸⁹ Barrows; Scheffler; Welch.
²⁹⁰ Davis.
²⁹¹ Monks.
²⁹² Alston & Bird; Intel; LPA.
²⁹³ LPA.
²⁹⁴ Bethel & Gillan.
²⁹⁵ ASCS.
²⁹⁶ Latham; McRitchie.
²⁹⁷ ABA.
²⁹⁸ BRT; Intel.
²⁹⁹ CRI; DF King; ECohen; Horizon; Nesfield.
³⁰⁰ Asato; Intel.
³⁰¹ ASCS.

http://www.sec.gov/news/studies/proxyrpt.htm

Staff Report: Review of the Proxy Process Regarding the Nomination and Election of Directors

Division of Corporation Finance July 15, 2003

I. INTRODUCTION

II. BACKGROUND

A. Prior Commission Action

B. Summary of Public Recommendations for Greater Shareholder Involvement in the Election of Directors

III. ALTERNATIVES

A. Alternative A - Require Companies to Include Shareholder Nominees in Company Proxy Materials

B. Alternative B - Require Companies to Deliver Nominating Shareholders' Proxy Cards with Company Proxy Materials

C. Alternative C - Nominating Committee Disclosure

D. Alternative D - Disclosure Regarding Shareholder Communications With the Board

IV. RECOMMENDATION

APPENDIX A

SUMMARY OF COMMENTS In Response to the Commission's Solicitation of Public Views Regarding Possible Changes to the Proxy Rules Exchange Act Release No. 34-47778 File No. S7-10-03

I.

List of Commenters

II. Overview

III. General Observations on the Need for Greater Corporate Accountability

A. Corporate Abuses and the Current Corporate Governance Environment

B. The Current State of Director Elections

IV. Efficacy of Existing Accountability Mechanisms

A. Sarbanes-Oxley and the Markets' Listing Standards

B. Exchange Act Rule 14a-8

C. Contested Elections

D. Shareholder Recommendations to the Nominating Committee

E. Dialogue with the Company

V. Shareholder Access to Company Proxy Materials

A. Specific Proposals

B. Specific Guidelines for Shareholder Access

VI. Other Alternatives to Increase Corporate Accountability

A. Variations of Shareholder Access

B. Disclosure Regarding Nominating Committees

C. Communications with Independent Directors

D. Reform of Exchange Act Rule 14a-8

E. Revise Exchange Act Regulation 13D

F. Other Miscellaneous Alternatives and Comments

Modified: 07/16/2003

Division of Corporation Finance
July 15, 2003

SUMMARY OF COMMENTS
In Response to the Commission's
Solicitation of Public Views Regarding
Possible Changes to the Proxy Rules
Exchange Act Release No. 34-47778
File No. S7-10-03