File No. S7-10-03From: Con Hitchcock [ConH@transact.org] Sent: Thursday, June 12, 2003 4:23 PM To: 'rule-comments@sec.gov' Subject: File No. S7-10-03 June 12, 2003 Mr. Jonathan G. Katz, Secretary Securities & Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: Reform of Proxy Access Rules, File No. S7-10-03 Dear Mr. Katz: This letter is being submitted on behalf of the Amalgamated Bank LongView Funds to urge the Commission to adopt a regulation permitting shareholders access to the proxy card and proxy materials prepared by publicly-traded corporations for the purpose of nominating candidates for the board of directors in accordance with the principles set forth in this letter. The LongView Funds are a family of index funds offered to pension fund investors interested in investing in indexed products as part of their portfolios. The first of these funds was established in 1992. The LongView Funds include equity funds that seek to replicate the performance of the S&P 500, S&P MidCap 400, S&P SmallCap, and S&P 1500 Total Market indices. As index funds, the LongView Funds make a long-term investment in the companies comprising these portfolios, since the Funds cannot sell its stake in an individual company and still maintain replication of the target index. The LongView Funds also undertake a corporate governance program that, to our knowledge, is unique among index funds. Specifically, the LongView Funds each year identify25 or so companies that pose issues involving corporate governance practices. The Funds typically submit shareholder proposals to these companies as part of a conversation about practices that may have an effect on long-term shareholder value. Where possible, the LongView Funds negotiate changes in corporate practices that will enhance performance. When it is not possible to negotiate such changes, the LongView Funds present those resolutions at annual meetings to be voted on by the shareholders. The LongView Funds have had considerable success over the past decade in the work of engaging companies in dialogue to effect changes in company practices. In addition, the Funds have sponsored a number of resolutions that have received a majority of the vote when put to shareholders. Finally, the LongView Funds are responsible for voting proxies for the 1500 or so companies in our portfolios. We take very seriously our responsibility in this area as fiduciaries for the pension fund investors - and ultimately the working people who count on these investments for their retirements. We make these points because we believe, based on more than a decade's worth of experience, that a vital reform in this area is direct access to a company's proxy materials by shareholders who, if they can meet certain qualifications set out below, should be able to place those candidates on the company-prepared proxy materials without the need to conduct an independent solicitation. The LongView Funds support the views expressed separately by the Council of Institutional Investors and the AFL-CIO in filings on this subject. We applaud the Commission's initiative in undertaking the current exploration of issues surrounding shareholder access to the proxy and strongly urge the Commission to undertake a rulemaking to make access a reality. The classic model of corporate governance posits that shareholders elect directors who in turn select the management. In reality, it often does not turn out that way. Directors are often nominated by a board committee and stand for election without opposition. Unless a shareholder or group of shareholders is fed up enough to fund and run a dissident slate, there is no way that directors will fail to be elected, no matter how poorly the company may be performing. Absent a proxy contest, shareholders who are dissatisfied with a company's performance have little choice but to withhold support for directors, essentially a symbolic form of protest. At the moment, and as a practical matter, the Commission's rules do not permit effective contests to occur. The cost of running an independent proxy campaign is significant, running easily into the millions of dollars. For long-term institutional investors, this is not a realistic option. Many institutional investors, including the LongView Funds, are widely diversified and in no position to undertake such expenditures on their own at specific portfolio companies. The costs are simply prohibitive. Even if one could hypothesize that a change of three directors at company X would likely raise the stock price by 20% (itself an extremely speculative hypothesis), it is unlikely that many institutions would have enough of a position in that company to make a multi-million dollar proxy campaign cost-efficient. For the past 60 years, the Commission has accepted the premise that certain issues are so important to shareholders as a class that those issues should be placed in a company's proxy statement at the company's expense, rather than be left to the vagaries of independent solicitations. The Commission's Rule 14a-8 rests on a belief that if shareholders who have held a certain level of stock for a prescribed period intend to present a matter for consideration of the shareholders at the upcoming annual meeting, and if the subject of that resolution is of sufficient importance to warrant consideration by all shareholders, then a registrant should be required to place that resolution in the company's proxy materials and give all shareholders an opportunity to vote on the matter, rather than simply soliciting discretionary proxies to oppose the item. After 60 years no one would seriously challenge the notion that some matters are of sufficient importance to warrant inclusion in a company's proxy materials. The alternative is an unfairly one-sided contest in which management and the board can avail themselves of the corporate treasury to solicit proxies against proposals from individual shareholders that might benefit the company and that a majority of shareholders might well support if given the chance. Although the proxy material prepared by management is sometimes referred to as the "management card" or the "company card," it is in reality the "shareholders' card," because the contents (and the costs of answering any election contest) are ultimately paid for by the shareholders. It is thus entirely appropriate, if certain threshold criteria are met, for a company to include on management-prepared cards and proxy materials the contents of proposals that will be presented at the meeting, along with a statement from the board opposing the proposal if that is what the board deems appropriate. The time has come for the same principle to apply to nominations to the board of directors within the confines described below. Nominations to the board of directors are at least as important to shareholders as shareholder resolutions. It is an appropriate use of resources to require companies to shoulder the burden of printing and mailing proxy materials with opposition candidates if enough threshold support is established and other criteria are met. Rule 14a-8 provides a template for opening the management-prepared proxy to independent board candidates. We urge the Commission to adopt the following elements of an access rule: -- Minimum holding requirements. Rule 14a-8 presently requires that shareholders must have held at least $2000 worth of common stock for at least one year before submitting a shareholder proposal. This requirement is designed to ensure that the proponent has more than a casual stake in the success of the company. The LongView Funds submit that a similar principle should apply in the proxy access area and would recommend that any shareholder or group of shareholders who holds at least three percent of the outstanding shares should be eligible to submit nominees who are willing to serve and who would therefore be eligible for inclusion in the company-prepared proxy materials. We suggest a three percent threshold for three reasons. First, that is the current level of support that is required for resubmission of a shareholder proposal in a subsequent year. Second, it is the figure that the Commission itself proposed five years ago in the rulemaking proposal that resulted in the current version of Rule 14a-8, when the Commission proposed (but did not adopt) a proposal to give shareholders the right to override the exclusions in Rule 14a-8(i) if at least three percent of the shareholders supported a particular resolution. We note in this regard that a one-year holding period is in line with current requirements and makes it more likely that any shareholder proponents are long-term holders. Third, and to be practical about it, a three percent threshold will be a significant barrier at many publicly-traded companies. As a result, it is likely that nominees put forth by a group of shareholders holding that large a percentage of outstanding shares will reflect a level of dissatisfaction that warrants inclusion of the candidates in the company-prepared proxy materials. -- Limits on takeover possibilities. The Commission could and should adopt limits designed to assure that proxy access rules are only for candidate or short slate nominations seeking less than a majority of the board. Just as the Commission has adopted rules that limit identical or similar proposals (Rule 14a-8(i)(11)), so too the Commission could specify that in the event there is more than one "slate" of candidates in a given year, a tie-breaker rule will apply. We recommend that the slate with the highest level of support should be the one included in the company's proxy materials. -- Proxy card access. Candidates who are nominated in this process should have the right to have their biographical and similar information included to the same extent as board-backed candidates and the right to include a statement of reasonable length (for instance, 500 words, the current limit under Rule 14a-8) explaining why shareholders should vote for this nominee. -- Full compliance with other Commission regulations otherwise. To the extent that the sponsoring shareholders want to solicit support independently of the company- prepared proxy statement, they would be required to comply with Rule 14a-9 and the substantive disclosure requirements of other Commission regulations governing the circulation of soliciting materials. -- Rule 13D compliance. This rule, governing solicitations by "groups" of shareholders, should be clarified to make explicit that it does not apply to shareholders who are not seeking control of a corporation, but only nominating a single candidate or short slate in accordance with the principles discussed here. Even if it should happen that the holdings of the shareholders supporting an opposition candidate or slate should exceed five percent (the current Rule 13D threshold), that alliance should not be viewed as a "group" within the meaning of section 13(d) of the Securities Exchange Act and applicable regulations. In conclusion, the LongView Funds appreciate this opportunity to comment on the need for a proxy access rule along the lines outlined here. We respectfully urge the Commission to initiate a rulemaking to implement these recommendations in the near future. Thank you for your consideration of these comments. Please do not hesitate to contact us if the Funds can provide further information. Very truly yours, Gabriel P. Caprio Chief Executive Officer Amalgamated Bank 15 Union Square West New York, NY 10003 *************************************************************************** This message contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail or its attachments. Please notify the sender immediately by e-mail if you have received this e-mail by mistake and delete this e-mail from your system. 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