Subject: File No. S7-25-97 (Comments of Lambda Legal Defense & Educat Date: 11/20/97 5:15 PM Lambda Legal Defense and Education Fund, Inc. National Headquarters 120 Wall Street, Suite 1500 New York, New York 10005-3904 (212) 809-8585 November 20, 1997 By Overnight and Electronic Mail Secretary Jonathan G. Katz U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Proposed revisions to SEC Rule 14a-8, File No. S7-25-97 Dear Secretary Katz: Lambda Legal Defense and Education Fund hereby comments on the Securities and Exchange Commission's proposed revisions to Rule 14a-8, as described in the SEC's September 18, 1997, Report on Shareholder Proposals Under Section 510(b) of the National Securities Markets Improvement Act of 1996 ("Report"). Lambda is a national organization committed to achieving equal rights and equal societal respect for lesbians, gay men, and people with HIV/AIDS through impact litigation, education, and public policy work. In 1992, Lambda participated in the representation of several Cracker Barrel Old Country Store Inc. shareholders who sought a temporary restraining order to prevent their exclusion from Cracker Barrel's annual meeting, where they planned to present a shareholder resolution for consideration. We limit our comments to two provisions of proposed new Rule 14a-8 that may have a specific and negative effect on shareholder proposals seeking equal treatment of lesbians and gay men within and by a company to advance the significant social goal of eradicating invidious anti- gay discrimination -- the very issue that led to the Commission's 1992 Cracker Barrel no-action letter and, eventually, to the proposed new rules. First, we are concerned that the proposed management function exclusion is overbroad and fails to provide sufficient guidance to the companies and Commission staff charged with applying it. This provision, proposed Rule 14-8(i)(7) (Question 9), states that a corporation may exclude a proposal from its proxy "[i]f the proposal relates to specific business decisions normally left to the discretion of management." Lambda commends the proposed move away from the Cracker Barrel "bright line" approach of allowing companies automatically to exclude all employment-related proposals that focused on significant social policy issues. Report at 30. However, we believe the proposed rule will continue to be interpreted to bar exactly those sorts of proposals because it fails to provide clear standards for determining whether a given proposal falls within the management function exclusion. For example, the proposal does not provide sufficient guidance for assessment of proposals to prohibit discrimination based upon, inter alia, sexual orientation or proposals to equalize benefits to employees through "domestic partner" coverage as a means of remedying anti-gay discrimination. In particular, we are concerned that the blanket exclusion of matters such as "the wages a company pays its non-executive employees," identified in the Note to paragraph (i)(7), may lead to exclusion of proposals regarding wages that implicate significant social policy issues. For example, proposals that a company offer equal health and other benefits to married and unmarried employees may be construed as involving "wages to non-executive employees." However, such proposals are fundamentally concerned with equal treatment of all employees in the workplace and in society as a whole, and should not be excluded despite their concern with compensation. To protect against flawed applications of the rule and to guide the Commission's new case-by-case analysis, we recommend the proposed rule state explicitly that employment and other matters involving significant social policy issues are not "specific business decisions normally left to the discretion of management." Although Lambda is not positioned to offer a complete definition of "significant social policy issues," we recommend that any definition of that term encompass proposals related to the non-discriminatory treatment of employees, including with regard to sexual orientation. In addition, to provide further guidance, the Note to paragraph (i)(7) that illustrates the scope of issues covered by the "management functions" exclusion, should be supplemented with examples of proposals that would fall outside the exclusion, such as proposals for company adoption of anti-discrimination policies and related measures. Second, Lambda is concerned that the proposed rule regarding personal grievances and special interests may be misconstrued. The proposed Rule 14a-8(i) (Question 9) states that a company may exclude a shareholder proposal for the following reason: (4) Personal grievance, special interest: If the proposal relates to the redress of a personal claim or grievance against the company, or any other person, or if it is designed to result in a benefit to you, or to further a personal interest, which benefit or interest is not shared by the other shareholders at large[.] While sympathetic to the Commission's goal of screening out proposals unlikely to further the interests of the shareholders at large, as described in the Commission's Report at 19, Lambda believes the proposed rule needs further qualification to protect against exclusion of legitimate shareholder proposals. In particular, Lambda is concerned that shareholder proposals barring a company from discriminating based on sexual orientation or other grounds, requiring a company to offer non-discriminatory employment benefits, or otherwise mandating equal treatment of lesbians and gay men may be deemed by companies to reflect a "special interest" or even a personal grievance, especially if pursued by a gay person or any other person who would be protected by the proposed policy. In fact, such policies further the interests of shareholders at large in increasing company productivity and earnings by prohibiting divisive and economically harmful practices. However, opponents of such proposals frequently argue that the measures simply reflect the goals of a "special interest" group. For example, in defending an amendment that would have foreclosed laws and policies prohibiting sexual orientation discrimination, the State of Colorado argued that the amendment was necessary to "prevent[] government from supporting the political objectives of a special interest group." Evans v. Romer, 882 P.2d 1335, 1348 (Colo. 1994), aff'd, Romer v. Evans, 116 S.Ct. 1620 (1996) (emphasis added). In addition, on numerous occasions involving public referenda related to sexual orientation antidiscrimination laws, opponents have decried the measures as providing "special rights" or as giving effect to the "agenda" of "special interest" groups. The Commission's discussion of the proposed rule, Report at 19-21, indicates that constructions of the proposed rule leading to the exclusion of anti-discrimination proposals would violate the new rule's intent. Therefore, we recommend that the Commission more carefully define the terms "personal grievance" and "personal interest" in proposed Rule 14a- 8(i)(4) to prevent against misinterpretations that would lead to the exclusion of legitimate proposals. The phrase "special interest" is vague and unnecessary, and should be dropped altogether. The Commission should also consider offering a non-exclusive set of examples of the type of proposals that would be reached by this provision, as well as examples of proposals that would not be excludable, such as those embodying or relating to anti-discrimination provisions. Please do not hesitate to contact us if you would like to discuss these concerns. Thank you for your attention. Very truly yours, (signed) Suzanne B. Goldberg Staff Attorney