Association of California School Administrators
June 13, 2003
Mr. Jonathan Katz
Dear Secretary Katz:
This letter is sent on behalf of the Association of California School Administrators (ACSA), whose 16,500 members are members of the California State Teachers' Retirement System (CalSTRS). ACSA supports the Commission's decision to conduct a comprehensive review of the rules under Section 14 of the Securities and Exchange Act of 1934 with an eye towards detailing the process that will permit shareholder-nominated director candidates to appear in the corporate proxy statement and as a ballot choice on the corporate proxy card. As you are aware, CalSTRS is a public pension fund of 687,000 participants, established for the benefit of California's public school educators over 90 years ago with assets of approximately $100 billion. The long-term nature of CalSTRS' liabilities has made us keenly interested in efforts to restore investor confidence in the capital markets.
ACSA believes that the enactment of the Sarbanes-Oxley Act of 2002 was an important milestone for investors, but we also recognize that there remains a great deal of work to do in the area of corporate governance and that the solutions lie not only in this legislation, but in the rules that govern shareholder access to the proxy process as well. This process dictates who will serve on the boards of directors of the companies that CalSTRS holds in its portfolio. Unless shareholders are prepared to conduct expensive campaigns outside of the corporate proxy process, they have no meaningful way to participate in the nomination and election of directors to the boards of companies owned by them.
CalSTRS has participated in several securities litigation cases as a result of the tremendous losses in its portfolio. ACSA has come to believe that shareholders need an effective process that allows them to participate in the director nomination process without taking on a contest for control. We are talking about a process that would allow shareholders holding a meaningful percentage of the outstanding shares, the right to representation on the Board. A director nominee and the nominating shareholder should provide all of the disclosure that is required of the board of directors' nominees under the Commission's proxy rules. The nominating shareholder and the director candidate should comply with all of the Commission's rules regarding communication with shareholders if they decide to contact shareholders by any means other than the corporation's proxy statement.
ACSA believes that it is time for both the Commission and corporations to pursue a more inclusive approach to shareholders' involvement in the governance practices that may affect the value of their holdings. We realize that such a process must be carefully considered. However, the refusal to even include the issue on proxy statements and ballots for consideration by shareholders is not a review, it is a barrier. Allowing the one director candidate nominated by shareholders to be included on the corporation's materials does not mean that the candidate will be elected. Over the last few years, many shareholders have come to realize that votes cast for and against directors are their most important votes in the proxy process. In order for shareholders to fulfill this responsibility, shareholders must have the right to both, nominate and elect directors. ACSA urges the Commission to use its current review of the rules governing director nominations and elections to grant shareholders meaningful access to the proxy process.