Date: 11/21/97 2:12 PM Subject: S7-26-97 / National Society of Fund Raising Executives November 12, 1997 Jonathan G. Katz, Secretary U.S. Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: File No. S7-26-97 Dear Secretary Katz: On behalf of the more than 18,000 members of the National Society of Fund Raising Executives (NSFRE), I am writing to express our comments on H.R. 944 and H.R. 945. These bills concern the disclosure of corporate contributions to charitable organizations and the implementation of processes to allow stockholder participation in the selection of those organizations. In general, NSFRE supports the concept of disclosure embodied in the language of H.R. 944, but has serious concerns with the designation process envisioned in H.R. 945. H.R. 944 requires the disclosure to shareholders of all recipients and amounts of charitable contributions by the corporation. NSFRE has long promoted disclosure in the not-for-profit sector as a means to increase public confidence in charitable organizations. It recently supported provisions in the Taxpayer Bill of Rights II legislation that provides for increased public disclosure of a not-for-profit's Form 990 and its tax returns. If disclosure is beneficial for the not-for-profit sector, its donors and the general public, then even this sort of limited disclosure under H.R. 944 should also prove helpful to shareholders and other interested parties. However, disclosure under H.R. 944 should be complete disclosure with as few exemptions as possible. Every charitable act contributes to the common good, and stockholders should be made aware of all charitable contributions, no matter how small, made by the corporation. Exemptions for gifts of tangible personal property, gifts to public or private not-for-profit education institutions, gifts to local charities, and others contradict the whole purpose of H.R. 944. If these exemptions are granted, corporations may begin to exclusively use those types of gifts so as to avoid the disclosure requirements. Such a situation seems hardly beneficial to anyone, particularly the shareholders and the general public. While H.R. 944 is good policy and can be easily implemented, H.R. 945 is problematic and raises a host of troubling issues. The feasibility, costs, and benefits associated with allowing shareholders a vote in the designation of charitable recipients seem questionable at best. The legislation also clashes with the very concept of philanthropy in this country. Disclosure under H.R. 944 might only require several additional pages in a corporation's annual report; the designation process under H.R. 945 is an entirely different and very complex process. For example, take a company that has prepared its list of charitable recipients for the year, as usual, but now must get shareholder approval under H.R. 945. In addition to the regular list, the corporation has prepared information on each recipient's programs that are funded by its contributions so that shareholders will be able to adequately judge the merits of each. Questions immediately begin to arise. Are shareholders voting on the whole list as a slate, or do they need to approve each one? If it is as a slate, shareholders may wonder how the slate was determined and why other groups were not included, or they may not feel knowledgeable enough about certain organizations to know if they should be designated or not. If shareholders merely rubber-stamp a slate determined by company staff, how much public (shareholder) input has gone into the decision-making process? If shareholders are voting upon each recipient and the amount it receives, what happens if a designee is not approved? Does that money not get contributed, or is another organization chosen? If so, how does that organization get chosen? What if shareholders approve of an organization, but cannot agree on a certain amount? These questions could create logistical and paperwork nightmares for corporations. NSFRE is concerned with three other aspects of the bill. First, there is no guarantee that the objective of giving individual shareholders a greater say in the process will be achieved. Most shareholders that vote, or who possess clout in voting, are institutional -- mutual fund and pension fund managers -- and not individuals. Their views on charitable giving may not be indicative of the opinion of the majority of individual shareholders. Second, under the current language of H.R. 945, the shareholder designation process is not even binding upon the corporation. Management could still designate charitable recipients of which the shareholders did not approve. In addition, the exemptions for gifts of tangible properties and others mean that many gifts will never be considered by shareholders. Again, companies may take advantage of these exemptions by making their charitable gifts fall under one of the categories and effectively defeating the whole purpose of the legislation. Finally, the concept of the bill runs counter to the practice of philanthropy in the United States. Charitable giving should be a voluntary action free of pressures and restraints. A citizen is free to examine several organizations and then make a decision based on his or her own desires and motivations. In much the same way, a company makes its contribution decisions based on its own desires and motivations, and what is best for it. Allowing shareholders, even if they have the company's best interest at heart, to get involved can paralyze the process and lead to contributions that may not best represent the company and its interests. For example, imagine a corporation involved with some aspect of health care delivery and research. Fifteen years ago, if H.R. 945 had been law, a proposed contribution to an organization that worked on AIDS research would almost certainly have been voted down. It may be in a corporation's best interest to support an unpopular, controversial or little-known cause. H.R. 945 will prevent many of these causes from ever getting the support they need to get started. If a shareholder does not approve of a company's contributions, the best option (and the one that is currently available) is to not associate with the company. While the goal of H.R. 945 may be laudable, putting such a proposal into practice would prove difficult, if not impossible. More importantly, the benefit to shareholders and the general public would be slight, and the bill would dramatically change the entire notion of corporate philanthropy. Having to obtain approval for charitable contributions would only increase costs and frustrate efforts to help not-for-profits which work on important issues throughout the country. The result would be either decreased corporate philanthropy or, through the use of exemptions, contributions that are never disclosed to the general public. Neither situation is desirable for corporations, the not-for-profit sector, shareholders and the general public. I hope that you find these comments on H.R. 944 and H.R. 945 to be useful. NSFRE is a professional association for executives who raise funds for not-for-profit, charitable organizations, and as such, is particularly interested in these bills. I appreciate the opportunity to comment on this legislation. Sincerely, (Signed) Patricia F. Lewis, ACFRE President & CEO << File: HR944945.COM >> Attached please find the official comments for the National Society of Fund Raising Executives on H.R. 944 and H.R. 945, regarding corporate contributions, in reference to File No. S7-26-97. If you have any problems with the e-mail, please contact Michael Nilsen, Public Affairs Coordinator, at (703) 519 - 8481, or at mnilsen@nsfre.org. Thank you for your consideration, Michael Nilsen Coordinator, Public Affairs National Society of Fund Raising Executives 1101 King Street, # 700 Alexandria, VA 22314 (703) 519 - 8481 Fax: (703) 684 - 0540 E-mail: mnilsen@nsfre.org