Date: 11/18/97 1:06 PM Subject: File No S7-26-97 / Intel Foundation Jonathan G. Katz Secretary US Securities and Exchange Commission 450 Fifth Street NW Washington DC 20549 Re: File No. S7-26-97 Comments on HR 944 and HR 945 Dear Mr. Katz, Thank you for the opportunity to comment on House Bills 944 and 945. As we consider these bills to be vague, unnecessary, and an unwarranted intrusion into the traditional and legitimate role of corporate management, we are pleased to provide details of our objections. 1. The legislation represents a radical and unprecedented change in the power of a shareholder to control ordinary business operations. Federal and state regulations governing corporate operations have consistently held that shareholders are entitled to disclosure and shareholder action only on matters material to the business, ordinarily defined by the financial impact of the activity on corporate earnings. For example, in the context of Securities Exchange Act Rule 14a-8, the SEC has traditionally and properly allowed for the exclusion of proposed shareholder proxy proposals on charitable contributions, ruling that charitable contributions are immaterial and incidental to business operations. The proposed legislation offers no standard for establishing the materiality of charitable contributions, yet arbitrarily determines that they are uniquely appropriate for shareholder action regardless of their actual size or impact on the corporation. With no discernible benefit to the corporation, this legislation provides unprecedented power to shareholders to directly interfere with the management of a business operation traditionally and properly deemed incidental to the core business and financial operations of the corporation. 2. There are already adequate protections to insure that decisions on contributions reflect the best interests of the corporation. In most corporations, decisions on charitable contributions are reviewed and approved by corporate management. Management is accountable to the corporate directors, who are elected as representatives of the shareholders. If shareholders disagree with the direction and results of the charitable contributions program, they have the remedy of electing new directors who will employ a management team with views more consistent with their own. The proposed legislation would offer instead the absurd remedy of allowing shareholders to vote directly on the details of an incidental corporate business operation. Corporations in the United States do not operate on the basis of a "stockholder referendum" model of governance. Under state law, a company is controlled by its directors, who in turn operate the company on a day-to-day basis through managers and other employees. Stockholders do not manage the daily operations of a company; they elect directors and they vote on broad proposals at stockholder meetings. 3. The legislation would be costly to implement, disproportionate to the value of the contributions subject to its coverage. For example, in 1996 Intel Corporation and the Intel Foundation donated a total of $55.6 million worldwide. Of that amount, approximately 98 percent arguably would have been exempted from disclosure and shareholder control under HR 944 and HR 945, qualifying as either gifts of tangible property, gifts to public or private nonprofit educational institutions, or gifts to local charities (for problems in defining the coverage of this exclusion, see #5 below). In fact, we estimate that less than two percent of our donations worldwide would have been subject to disclosure and shareholder control under these proposed laws. That amount represents approximately 1/20,000 of the company's revenues for 1996. In spite of this small amount of corporate revenues affected, HR 944 and HR 945 would require us to implement costly procedures costing hundreds of thousands of dollars to disseminate information to each of our 2 million shareholders about the detail of those grants, set up and implement a process that accommodates 2 million shareholders voting on the distribution of those amounts, and distribute donations according to the voting results (for problems related to shareholder designation of contributions, see #7 below). We can think of no benefit to shareholders that justifies spending hundreds of thousands of corporate dollars to set up a process that allows direct shareholders control over this incidental corporate activity, particularly when it has a negligible impact on corporate earnings and is out of proportion to other corporate activities. It is a misuse of federal securities laws to single out charitable contributions for shareholder micromanagement, and a waste of shareholder money. 4. Mandating disclosure of charitable contributions is unnecessary, as most corporations already make available information about significant portions of their corporate giving. Most corporations, including our own, currently publish a list of all significant charitable donations in the form of an annual report. Many companies also provide the information on their corporate web site. To insure the responsible expenditure of corporate dollars, and as reflected from experience, the annual reports are printed in relatively small quantities. However, they are readily available upon the request of any person, including shareholders. Legislation requiring that the corporation provide a complete list to all 2 million of our shareholders would be an unwarranted additional expense, with no clear benefit. 5. The legislation is inconsistent with the objective of strategic corporate giving. Most corporations, including our own, maintain policies and procedures that mandate that contributions be directed to organizations and programs consistent with the long-term strategic interests of the corporation, and/or the communities where we conduct business. This legislation would work against the corporate interest, by permitting shareholders to direct contributions to any nonprofit organizations of the shareholder's choice, subject to their personal interests or whims. There is no evidence that their designation of recipients would be aligned with the strategic corporate interest. While corporate managers are accountable to corporate directors for their decisions regarding the selection of recipients of charitable donations, shareholders would have no such accountability. Moreover, corporate assets are not owned by the shareholders; they are owned by the corporate entity. It is the directors and officers who are legally responsible for the stewardship of corporate assets, and for insuring they are employed in a way that furthers the strategic interests of the corporate entity. 6. The legislation would not change where corporations donate their money, only the mechanism for making the donation. The legislation only affects charitable donations made by the corporation. It does not cover business or political contributions. If corporate managers deem it to be in the strategic interests of the corporation to provide financial support to a particular nonprofit organization, they will be able to do so using funding mechanisms other than their charitable contributions budget. Similarly, the legislation does not apply to disbursements made by corporate foundations (separate legal entities, not covered by SEC regulations). It would be possible to avoid the burdensome requirements of this legislation by corporate managers ceding disbursement of all charitable donations, other than those that would be exempt, to the corporate foundation. 7. The legislation is vague, making compliance impossible. a. The legislation would permit the Commission to grant an exemption for gifts of tangible property, gifts to public or private nonprofit educational institutions, and gifts to local charities. However, there is no definition of "local charity". Does "local" include charities that operate only in the local community, and no other place in the world? If so, is "local community" confined to a specific geographic area? Is that the city, county, state, or a larger region? Does it include the local chapter or affiliate of a national organization (i.e., Boy Scouts, Girls Inc., American Heart Association), especially where the chapter or affiliate is separately incorporated as a nonprofit corporation under state law? What about a donation to a national organization that is specifically designated for use only in a limited geographic community? b. The legislation is unclear how we make information available to shareholders about their choices for designation of donations. Do we satisfy the legislation if management makes a few choices available to the shareholders, and we let them select among the limited options presented? Or, must we publish a list of all potential recipient organizations? If the latter, must we publish a list of all 600,00 nonprofit charitable organizations in the U.S.? To accommodate our shareholders worldwide, do we include the additional hundreds of thousands of nonprofit charitable organizations throughout the world? Of course, setting up a mechanism to inform all 2 million Intel shareholders of all these choices, to tabulate their votes, to verify the tax status of the selected recipients, and to process donations to comply with their designations would require an absurd amount of corporate resources. c. This legislation also is particularly silent on how to accommodate an international company. Intel Corporation has approximately 1.8 billion shares outstanding, owned by approximately 2 million shareholders. A portion of those shareholders are foreign institutions. Do foreign institutions participate in the designation of our charitable donations? Do these shareholders get to designate donations to organizations in other countries? d. The legislation is unclear as to whether the proportionate number of votes controls only decisions as to which organizations receive donations, or also directs a proportionate amount of dollars. If the latter, we conceivably face the possibility of processing checks, in amounts proportionate to shares, to literally hundreds of thousands of organizations throughout the world, at the whim of shareholders' personal interests. Administrative expense would overwhelm substantive activity, and produce nothing of value to the corporation. e. The legislation states that the provisions of HR 945 "shall not be construed to limit or otherwise affect the authority of the management...to designate additional recipients of such contributions". However, the legislation is silent, and makes it impossible to determine, the proportion of total charitable donations that must be directed by shareholders, and that which may be directed by management. f. The legislation is unclear as to the definition of a charitable contribution. Does it include only direct gifts designated by management, or also corporate gifts that match employee donations and cash donations that match hours of employee volunteerism? It is impossible for us to determine the nature of the problem that this legislation is designed to fix. It provides no discernible benefit to shareholders, represents an unnecessary intrusion of shareholders into the management of an incidental business operation, presents monumental challenges to compliance, and would be a waste of corporate resources. While this country has a number of significant issues that need to be addressed by our elected officials, micromanagement by shareholders of corporate charitable contributions is not one of them. We appreciate the opportunity to comment. Sincerely, Peter Broffman Manager, Corporate K-12 Donations, Intel Corporation and Executive Director, Intel Foundation