From: Terence Boyle [tboyle@boylepartners.com] Sent: Friday, June 13, 2003 2:40 PM To: rule-comments@sec.gov June 13, 2003 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street NW Washington, DC 20549 RE: Release No. 34-47778 Dear Mr. Katz: This letter is in response to the request of the Division of Corporation Finance for public views on the topics listed in Release No. 34-47778 regarding possible changes to the proxy rules. Our comments are on the topic concerning corporate director nominations. Division Should Approach Change with Extreme Caution Direct access to the company’s proxy statement for shareholder nominations of directors has been considered and rejected by the Commission and the Congress time after time over the years. Any such change requires congressional approval. Rules requiring direct special interest access to a company’s proxy statement is a substantive requirement, not a procedural proxy rule, and would exceed the SEC’s authority under the Securities Exchange Act of 1934. See Business Roundtable vs. SEC, 905 Fed.2nd 406 (D.C. Cir. 1990) (one-share one-vote, although intended to ensure fair suffrage, regulated matters of internal corporate governance and Commission exceeded its authority, which is limited to disclosure and procedural matters). The current proxy rules require separate solicitation materials for competing slates of directors, and are adequate for the purposes of the election of directors. The proxy rules enhance disclosure from contesting parties, ensuring a vigorous debate and accountability of all participants. Significant corporate governance changes have occurred with the implementation of the reforms under the Sarbanes-Oxley Act. A radical alteration of the historical voting structure in an attempt at corporate governance reform is ill advised, especially when there has not been time to evaluate the reforms of the Sarbanes-Oxley Act. New stock exchange rules requiring complete independence for nominating committee members have changed the nominating process. These changes provide constructive avenues for shareholders to have meaningful input into the nominating process so that significant changes in the proxy rules are not warranted. The new Stock Exchange rules also substantially revised the definition of independence. If the Commission undertakes a review of whether substantial shareholders should have direct access to a public company’s proxy process, the Commission should also review the application of independence definitions to such substantial shareholders. Such shareholders may well have special and/or personal interests which make them just as non-independent as other directors with financial dealings with the public company. Proxy Rules Allowing Special Interests Direct Access to a Company’s Proxy Statement are Ill-Advised The current debate on corporate director nominations arises out of proposals to permit shareholders with substantial ownership to nominate director candidates and require the company to include the nominees in the company’s proxy statement. Permitting the use of the company’s proxy statement in this manner will facilitate the nomination and election of directors representing the special interests of such substantial shareholders. Such persons may have conflicts of interest, create competitive concerns, fiduciary concerns, or confidentiality concerns, all which would otherwise be vetted through the nominating committee process. In addition, directors nominated by institutional investors (or directors representing investment portfolios) present potential problems as the director moves from one investment to another, which in turn creates another level of confidentiality, conflict of interest, competitive and insider trading issues. The election of special interest directors is not beneficial to companies or other shareholders, nor does it necessarily follow that they will instill trust in the public markets. As special and/or personal interests compete for board seats, the number of election contests will likely increase. Companies and shareholders are at risk of being harmed by the disruption and distraction of hundreds of election contests each year. This creates the potential for a significant increase in the number of boards rendered dysfunctional by factions on boards representing special and/or personal interests. Boards and nominating committees are subject to fiduciary duties to act in good faith. On the other hand, shareholders with special interests may nominate candidates for self-serving reasons. The existing nominating process, as enhanced by the new stock exchange rules, provides the best mechanism to ensure that nominations by the board and shareholders are well-qualified candidates who can serve a broad base of shareholders. Providing access to the company’s proxy statement by shareholders with special interests effectively creates different classes of shareholders, subject to disparate treatment. We believe a change in the proxy rules to allow shareholders to place director nominees directly in the company’s proxy statement will unnecessarily politicize the board of directors for the benefit of special interests. Disclosure and accountability in an election contest will suffer. Current proxy rules provide a mechanism to avoid the difficulties and confusion that would result from shared proxy materials. The proxy rules permit proponents to conduct an election contest, through the use of separate proxy materials. These rules do not preclude shareholders from nominating their director candidates. We appreciate the opportunity to express our views on the corporate director nomination process. Please contact the undersigned if you would care to discuss these comments in further detail. Sincerely, Terence P. Boyle Boyle Partnership, P.C. Boyle Partnership, P.C. 1775 Sherman Street, Suite 1375 Denver, Colorado 80203 Tel. 303.863.8900 Fax. 303.832.6401