From: Nell Minow [nminow@thecorporatelibrary.com] Sent: Friday, June 13, 2003 9:46 AM To: rule-comments@sec.gov Subject: File No. S7-10-03, Release No. 34-47778 By Electronic Delivery June 13 2003 Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re. File No. S7-10-03, Release No. 34-47778 Solicitation of Public Views Regarding Possible Changes to the Proxy Rules To the Commission: The Securities and Exchange Commission has instructed the Division of Corporation Finance to “examine current proxy regulations and develop possible changes to those regulations to improve corporate democracy.” I want to express my strong support for this effort. There have been dramatic changes in the culture of the corporate and investor communities, in our understanding of corporate governance as a crucial factor in assessing and managing risk, and in the technology that connects investors and the managers and directors of portfolio companies, and all of these changes need to be reflected in the Commission’s rules. The issues I believe need to be addressed are as follows: 1. Shareholder nomination of directors. Edward J. Epstein famously said that shareholder elections "are procedurally much more akin to the elections held by the Communist party of North Korea than those held in Western democracies." Management nominates the candidates, no one runs against them, and management counts the votes. We have had the most compelling evidence imaginable over the past 18 months that this system does not provide adequate oversight or accountability. While there has been a lot of focus on “independent” directors in the Sarbanes-Oxley legislation and the proposed listing standards, there really can be no meaningful independence as long as the nomination process is a self-perpetuating closed loop. The Commission should develop a procedure along the lines of that announced by Apria Healthcare this week to permit shareholders to submit candidates to be included on the proxy circulated to all of the shareholders by management. 2. Broker votes. The rules permitting brokers to cast votes without instruction from shareholders may have made sense in an era in which communication was cumbersome and time-consuming, making it difficult to ensure a quorum. But that is no longer the case. And it is no longer the case that matters such as election of directors can be considered “routine.” Brokers vote almost universally with management, which makes the whole notion of a legitimate “quorum” suspect. The result of this system is inadequate oversight that enables management entrenchment. It is time to get rid of this rule and put the votes in the hands of the people who are affected by the results, the owners of the issuer companies. 3. Shareholder proposals. I was very pleased to hear that the Commission is willing to consider the rules governing shareholder proposals. In particular, I hope that the Commission will narrow or eliminate the “ordinary business” exclusion to permit a wider range of shareholder resolutions on corporate governance matters and, most important, that the Commission will permit binding resolutions, particularly at those companies that have ignored majority votes. I support the SEC’s interest in raising corporate governance standards in the United States. It is clear that corporate governance issues are essential for establishing the credibility of our corporations and our markets. I would be pleased to discuss these matters with the Commission and the staff or present testimony at any hearings. Respectfully submitted, Nell Minow Editor The Corporate Library 45 Exchange Street Portland ME 04104