Date:    06/03/2000  12:42 PM

Subject: Proposed Regulation FD: File No. S7-31-99
 
I am writing in support of proposed Regulation FD.
     
Selective disclosure undermines corporate governance by allowing a 
company's management to buy votes from shareowners.
     
Like political democracy, corporate democracy is fragile because of the 
collective-action or free-rider problem.  The economic incentive to vote 
for the good of the group is weak, and can easily be undermined by side 
payments.  So buying and selling of votes is quite rightly prohibited. 
But selective disclosure provides a way to buy votes without making 
illegal cash payments.
     
When it looks like a majority of shareowners may vote against 
management's recommendations, it is common practice for management to 
contact institutional investors to influence their votes.  Even with no 
explicit payment, management can reward such voters by giving them early 
access to information that will help them trade the company's stock 
profitably.  SEC rules against such selective disclosure can help 
prevent this.
     
Stockbrokers have a similar conflict of interest, since they often vote 
stock held by their customers -- a practice that should probably be 
stopped anyway.
     
Other types of side payments are also possible, including fees for 
future fund management business.  Therefore the additional protection of 
confidential ballotting (standard practice in government elections) can 
further reduce the problem.
     
The harm of vote-selling is mirrored in the benefit of vote-buying. 
Voting control of the board of directors (and thus of the CEO) could 
enable the controlling group to authorize, for example, a payment of $1 
million of company funds to an outside entity that gives nothing in 
return.  But that would be illegal.  However, overpaying the CEO by $1 
million has the same effect, and the law is powerless to prevent it, 
since it's too difficult to detect.  Legal intrusion into such business 
decisions is an expensive and inefficient remedy.  Effective use of 
shareowner voting can help control CEO pay and reduce the need for 
shareowner lawsuits.
     
Speaking of lawsuits, I support the SEC plan not to impose civil 
liability under proposed Regulation FD, so as to avoid wastefully 
expensive litigation.
-- 
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Mark Latham, Founder                     
The Corporate Monitoring Project           
10 Miller Place #1701                    
San Francisco, CA 94108, USA