From: olson@lafn.org
Sent: Wednesday, June 18, 2003 6:11 PM
To: rule-comments@sec.gov
Cc: olson@lafn.org
Subject: File S7-10-03 Corporate Governance

Carl Olson
Chairman
Fund for Stockowners Rights

National Headquarters
P.O. Box 65563
Washington, D.C. 29935
703-241-3700

West Coast Office
P.O. Box 6102
Woodland Hills, Calif. 91365
818-223-8080

Dear Sirs:

	Fund for Stockowners Rights is a nonprofit group that promotes the 
interests of stockowners, including the encouragement of stockowners to 
sponsor proposals for votes.  The following suggested improvements are 
based upon my observations from the past 25 years involving proposals 
before numerous corporations.

	Corporate governance consists of methods for the owners of a 
corporation to track the performance and behavior of their corporations and 
then to make informed and meaningful decisions by voting on directors and 
other items of business.  Unfortunately, too much of this entire process has 
been kept in the exclusive control of corporate boards and managements.  
This control has resulted in routine disregard of the interests of the 
stockowners at large, and in many cases financial fraud and ruin.

	The S.E.C. can make the process more efficient for stockowner control 
of corporate governance through its rules on proxy statements and proxy 
solicitations.  This would not unfairly tip the results of any particular 
proposal or elections, but rather would make the results more likely to 
represent a better reflection of the true desires of the stockowners and to 
promote more efficient social use of the resources of the country.

	The proxy statement (accompanied by the notice of the meeting) 
should be thought of as a sample ballot booklet in political elections to 
present neutral and thorough information about items of business to be 
voted on.  The proxy statement is not the board's or management's 
statement (i.e., the proxy statement of the registrant), but rather is the 
proxy statement of the stockowners--which is implemented by the board 
and management.  It should not be a matter of "us" versus "them".

	There are at least five pillars of corporate governance:  financial 
reporting, voting on directors and other items (including conduct of 
stockowner meetings), authorization of issuance and reaquisition of shares, 
fiduciary duties of directors and officers, and rights of inspection of minutes 
and accounting books and records.  None of these relationships between 
the stockowners and their corporations are part of the business operations 
of the firm.

	The following improvements are recommended:

	1.  The "business judgment rule" that gives the board and 
mangagement exclusive prerogatives in running the business operations 
cannot and must not be applied to corporate governance.  The reflection of 
the "business judgment rule" in the S.E.C. proxy rules about excluding 
proposals dealing with "ordinary business operations" should not be applied 
to corporate governance areas.

	2.  Financial statement reporting must be open to revision by the 
stockowners.  In some states the corporation codes allow the stockowners 
to amend the bylaws to direct the contents of financial statements.  
Generally-accepted accounting principles do not prohibit more thorough 
reporting than GAAP or SEC minimal rules.  There should be no aspect of 
the financial reporting that is beyond the stockowners to improve upon.

	2A.  Unfortunately, in recent years, the S.E.C. has issued "no action" 
letters that have removed the financial statements as a subject open to 
stockowner proposals.  In particular, a March 4, 1999, "no action" letter to 
The Chase Manhattan Corporation (on a stockowner proposal to require 
reporting on the composition and total of taxes on the corporation) stated, 
"...as relating to Chase Manhattan's ordinary business operations (i.e., 
disclosure in financial reports)."  The financial statements are not part of 
the "ordinary business operations", but rather are part of corporate 
governance.  This should be reflected in the proxy rules.

	3.  Audited financial statements are valuable only inasmuch as the 
auditors are willing to back them up with their own financial guarantees.  
The stockowners should be informed as to the financial wherewithal of 
auditing firms to back up their audit opinions in case of negligence, 
malpractice, or fraud.  This surety coverage has major implication for the 
risk of investing in any particular corporation.  It should be noted that since 
the early 1990s, most auditing firms have re-organized from general 
partnerships to limited liability partnerships.  This means that, instead of all 
partners being personally liable for all the misdeeds of all the other partners 
as a general partnership requires, only the partners working on the audit 
are personally liable in LLPs.  For a firm of, say, 5000 partners with a 
(conservative) personal net worths of $1 million each, this means that $5 
billion has been withdrawn as security behind the audit opinions due to the 
switch to LLP.

	3A.  Unfortunately, the subject of auditor qualifications and selection 
have been placed off limits to the stockowners by S.E.C. rulings.  In 
particular, a November 25, 1998, "no action" letter to LTV Corporation (on a 
stockowner proposal to require reporting in the proxy statement the 
financial ability of the auditors to back up their opinion) stated, "In this 
regard, we note that the proposal is directed at matters relating to the 
conduct of the Company's ordinary business operations."  The relationship 
of the stockowners to the auditors is not "ordinary business operations", 
but rather corporate governance.  Indeed the audit opinion is addressed to 
both the stockowners and the board of directors, because the auditors 
report to both.  This should be reflected in proxy rules.

	3B.  The S.E.C. should not allow any auditing firm which is organized 
as a limited liability partnership to audit any publicly-traded company.  
Auditors should each "put their own money where their mouths are."  That 
concept is the best way to keep auditing firms to police themselves.

	4.  Another area of corporate governance is the issuance and buyback 
of shares of stock.  Oftentimes it takes a vote of the stockowners to decide 
upon authorizing (or issuing) shares of stock.  The amount of shares 
outstanding and the sources/use of funds between the corporation and its 
stockowners needs to be under the purview of the stockowners.

	4A.  Unfortunately, the subject of stock buybacks has been denied to 
stockowners by S.E.C. rulings.  In a March 26, 1999, "no action" letter to 
Ford Motor Company (on a stockowner proposal to stop most stock 
buybacks) stated, "...as relating to its ordinary business operations (i.e. 
repurchases of Ford common stock in connection with its stock buyback 
programs)."  The stockowners need to have effective power to decide on 
stock buybacks, which typically do not benefit all stockowners, but rather 
funnel billions of dollars out of corporate treasuries for the benefit of the few 
stockowners who tender their shares.

	5.  The current proxy rules allow only one proposal per "subject" and 
allows the omission if a proposal on the same "subject" did not receive a 
requisite vote in prior years.  This restriction is unfair and counterproductive. 
There is no reason to limit the stockowners from considering (even at the 
same time) more than one approach to various aspects of a single 
"subject".  It's very possible that proposals call for substantially different 
perspectives and actions, even contradictory to each other.  The 
presumption about excluding proposals on similar "subjects" that received 
less than a required vote means that the stockowners could not consider 
proposals that better reflect their attitudes, that is, ones that are 
substantially different than the ones with the low vote totals.  The provisions 
about excluding same "subject" proposals should be repealed.  The 
previous proxy rule about "substantially similar" proposals should be 
reinstated.  Of course, "substantially similar" would mean similar in what is 
being requested but not similar in "subject".

	6.  The requirement for a stockowner to own shares for a year prior to 
submitting a proposal results in an unfair disqualification.  This is in the 
case of a merger in which one corporation dissolves and its stockowners 
receive shares in the surviving corporation.  The stockowners from the 
corporation which is dissolved in a merger lose their rights to submit 
proposals because they did not own the shares of the surviving corporation 
for a year.  The proxy rules should be revised to recognize that the 
ownership interest of stockowners in a merger should survive the change of 
stock ownership.  That is, the date of acquisition of stock for purposes of 
submitting a proposal should be the date of acquisition of the stock in the 
corporation that was dissolved.

	7.  The requirement for a stockowner to hold $2000 of stock in order to 
submit a proposal should be revised to reflect stock price downturns that 
are obviously not the fault of the stockowner.  As is obvious, a stockowner 
with over $2000 of stock can easily be disqualified if the corporation's stock 
price declines.  It's at times of corporate downturns that the efforts of all 
stockowners to make proposals should be encouraged.  The proxy rules 
should be revised to reflect that the $2000 requirement can be reflected in 
the original acquisition price.

	8.  Proxy statements are too vague about the effects of stockowner 
votes.  The proxy statement should be the place where simple and 
thorough explanations are provided as to the significance and 
consequences of the votes.  At minimum, for each item on the agenda of a 
stockowner meeting, the proxy statement should explain:

	A.  the percentage of the vote required for approval.
	B.  the legal effect of the approval.  This would include stating if an 
effect automatically occurs or if some other specified action(s) would be 
required to be taken in order to be implemented.  If any other specified 
action(s) would be required, an intended timetable of these actions would 
be presented.
	C.  if an item of business is approved, how a stockowner can be 
informed as to what action the board or management has taken to 
implement it.  This would include whether the board or management will 
make a report that is distributed to all the stockowners, or whether the 
stockowners would need to make a request for this information (along with 
details of how the request would be made).
	D.  if an item of business is approved which requests that the board or 
management take (or refrain from taking) some action, and if the board or 
management fails to take (or refrain from taking) such action, the rights of 
stockowners to enforced the approved item of business (a) by a process 
within the corporation, and (b) by court action.

	It should be noted that in response to my stockowner proposal at 
Occidental Petroleum Corporation in April 2003 on these points, the 
management incorporated about 3/4 of them into the 2003 proxy statement.

	9.  The word limits on stockowner proposals are unfair vis-a-vis the 
board's lack of limits.

	9A.  A stockowner is limited to 500 words for the proposal and 
supporting statement.  However, an opposing statement by the board has 
no limit, and oftentimes is longer than 500 words.  This makes the 
erroneous presumption that the board's words are more important that the 
stockowners.  The proxy rules should limit the board's statement to no 
more than the stockowner has.  In this regard, the word limit on 
stockowners should be increased.

	9B.  A stockowner is limited to 500 words for a proposal and 
supporting statement, but the board is not limited for its proposals and 
supporting statements.   Oftentimes the proposals and supporting 
statements of the board go on for pages and pages.  This makes the 
erroneous presumption that a board's proposals are somehow more 
important (requiring more words) than a stockowner's proposals.  The proxy 
rules should give the same word limit to stockowner proposals as to board 
proposals.

	10.  Information on candidates for director is sorely lacking in proxy 
statements.  Under current practices, virtually never does a candidate for 
director ever present his or her views on anything about the corporation so 
that the stockowners can make an intelligent and informed vote.  The proxy 
rules should be revised (a) to make space (perhaps 500 words) explicitly 
available for every candidate for director, and (b) to mention any candidate 
who fails to submit such a candidate statement.  In the eventuality that 
candidates other than those nominated by the board are included in a 
corporation's proxy statement (and form of proxy), the space for candidate 
statements should be extended to all candidates.

	11.  Dividends are vital stockowner policies that need to be under the   
purview of stockowners.  The current ban on proposals that even mention 
any amount of dividends prevents the stockowner from expressing any 
opinions.  Even a proposal that urges dividends higher than the current 
amount is considered to relate to a specific amount of dividends.  We all 
know that current law does not allow the stockowners to declare any 
dividends.  The proxy rules should be revised to allow stockowner advisory 
proposals regarding amounts, timing, and forms of dividends.

	12.  Sometimes proxy statements include management 
representations about activities at stockowner meetings which are not 
fulfilled at the meeting.  One particular failing is the representation that a 
representative of the auditing firm will be available at the meeting to answer 
questions (during the business part of the meeting).  Often the 
representative of the auditing firm is not introduced by the Chairman to the 
stockowners; no questions are allowed to be directed to the representative 
of the auditing firm during the meeting; no questions are allowed to be 
directed to the representative of the auditing firm even during a vote on 
ratifying the selection of the auditing firm; and no questions are allowed to 
be directed to the representative of the auditing firm prior to a vote on the 
directors (for the purpose of evaluating the financial performance of the 
board and nominees).  These failures make the proxy statement "false and 
misleading".  The proxy rules should be revised so that such failings to 
allow stockowners to examine the representative of the auditing firm during 
the business portion of the meeting be considered a "false and misleading" 
proxy statement; and that there be a regular complaint process for 
stockowners to seek relief and penalties via the S.E.C.

	13.  For elections of directors at the meetings, oftentimes the 
Chairman refuses to allow any questioning of any directors or speeches for 
or against any candidate.  This is not an open election process.  Without 
the ability to engage in discussion on the directors (and other items of 
business), the stockowners are being stifled from reaching intelligent and 
informed decisions.  The proxy rules should require that the rules of the 
debate and/or discussion period for election of directors (and other items of 
business) be specified in the proxy statement, including any prohibitions or 
other limitations on debate.  Moreover, if these procedures are not followed 
by the Chairman at the meeting, the proxy statement should be considered 
to be "false and misleading", and there should be a regular complaint 
process for stockowners to seek relief and penalties via the S.E.C.

	14.  The exact proceedings of a stockowner meeting are important 
records for the stockowners.  Sometimes the board and management 
prohibit stockowners from recording or photographing anything at a 
meeting.  This is not an open meeting process.  There is no conceivable 
reason to prevent a stockowner from recording the proceedings.  The proxy 
statement should need to include any prohibitions on recording or 
photgraphing the meeting by the stockowners; and that if any prohibition is 
enacted, then the availablity of a transcript and video of the meeting should 
be detailed.

	15.  In the broadest terms about the concept of the Securities and 
Exchange Commission to protect the interests of stockowners (and other 
security owners), it is now time that stockowners and other security 
owners have legal standing with the S.E.C.  Currently, only the registrants 
have standing, and the stockowners and other security owners are 
considered some sort of "third party beneficiaries".  The organizational 
concept of the S.E.C. should be revised so as to make it the actual agent 
for the benefit of the investing public.

	It has been unfortunate that in the past the relationship between the 
board and the stockowners has had to proceed in an adversary manner 
because the board has had such arbitrary power over the corporate 
governance.  In such a situation, "When the cat's away, the mice will play." 
 In our American economy, this means that hundreds of billions of dollars 
are subject to play by the insider "mice" without sufficient accountability to 
the stockowners.  Revision of the proxy rules to allow for more complete 
and regular interaction between the stockowners and board will result in 
truly great dividends.

Sincerely,

Carl Olson