June 13, 2003
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Re: S7-10-03 and SEC Release #34-47778
Dear Secretary Katz:
I am writing in response to the Securities and Exchange Commission's solicitation of views concerning shareholder proxy access and the election of corporate directors (File Number S7-10-03). Citizens Funds is a family of socially responsible mutual funds with over 68,000 shareholder accounts and approximately $1 billion in assets for institutional and individual investors. Our mission is to generate superior returns for our clients by investing in companies that are fundamentally strong and socially responsible.
We feel an overhaul of existing rules concerning the election of directors is long overdue, and we applaud the Commission's leadership in addressing this important issue. Reform of the proxy process is critical and an essential part of the Commission's ongoing efforts to improve corporate responsibility.
We believe it is essential that the process of electing directors be changed. Directors must believe they are, and in fact be, elected by shareholders. Directors need to be at meaningful risk of being voted out as well. This type of direct personal accountability to shareholders cannot help but improve board deliberations on corporate governance, executive compensation rules and other matters. In addition to this general comment we offer some specific suggestions.
- The Commission should eliminate section (i)(8) of Rule 240.14a-8, which allows a company to exclude a proposal that relates to the election of board of directors. Allowing this rule to remain in effect makes a mockery of the shareholder participation.
- We support the concept that an investor or group of investors must own a minimum 3% of shares (in aggregate) in the company, for at least one year, in order to nominate candidates to the board. Requiring shares be held for a period of at least one year is also intended to reduce the likelihood an interested party (typically short-term investors) would use this shareholder access as a takeover strategy. We believe the rules should allow the means for investors to band together to attain this 3% threshold. A provision of this nature will facilitate participation by smaller investors in the nomination process. Without such a provision smaller investor will lack a voice in the companies they own.
- Investors, singly or cumulatively, must nominate less than half of available positions for the Board. If shareholders put more than half of the nominees forward, those candidates with the largest aggregate share of support behind them should make it to the ballot.
- We believe that uninstructed share voting by Brokers or others should be banned. We believe that only actual shareholder votes should be counted towards a determination on a shareholder proposal. However, we do support broker votes counting for a quorum, so that the business of the meeting may occur.
- Cumulative voting, where a shareholder or shareholder group, can vote all of their shares for a single director has the potential to be a significant reform. For example, with cumulative voting shareholders could place a single "for" or "against" vote for each of nine openings on a board or chose to vote all of their nine votes for a single director. This reform would provide shareholder groups one of the strongest means available to ensure board representation.
- All nominees should be required to disclose familial, professional, and financial relationships to the company and its executives in the nominee statement on the proxy. Inaccurate reporting or omission of this information should carry a meaningful penalty.
- The "for" and "withhold" options on the proxy card should be eliminated, and replaced with standard proxy voting options like those for resolutions: "for," "against," and "abstain."
- All nominees should be provided equal space and equal number of words to provide background information, a supporting statement, relevant experience, and material relationships to the company. A picture should also be included. The company must present candidates -- management's and shareholders' -- in the same consistent manner, length, font, style, etc. Management should not segregate its list of nominees from that of investor nominees, but should list nominees alphabetically.
- A two-thirds majority of corporate directors should attend the annual shareholders' meeting. Without this requisite percentage of directors, the meeting should not be allowed to open for business.
- Board and committee meeting attendance should be reported to the shareholders in the proxy for all board members. Failure to attend meetings should be a basis for disqualification for future board service.
Investors are looking to the Commission to bring fairness and balance to director representation. This is an opportunity for the SEC to put meaning back into the term "board independence."
Citizens Funds appreciates the opportunity to comment. Please contact me or Joanne Dowdell, our director of corporate responsibility, at (603) 436-1513, if you care to discuss these comments further.