From: Terri Smith [TSmith@uniteunion.org] Sent: Thursday, June 12, 2003 3:13 PM To: rule-comments@sec.gov Subject: File #S7-10-03 June 12, 2003 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: Reform of Proxy Access Rules, Rule # S7-10-03 Dear Mr. Katz: On behalf of the benefit funds serving UNITE members, I am writing to urge the Securities and Exchange Commission to adopt rules allowing shareholder nominees to appear in the corporate proxy statement. The Union of Needletrades, Industrial and Textile Employees (UNITE), is responsible through our affiliated employee benefit funds for over $4 billion in funds, much of which is invested in U.S. corporations. Investors like us have just come through an extraordinary market failure. Over the past two years, accounting scandals at companies like Enron, WorldCom, AOL Time Warner and HealthSouth have exposed widespread conflicts of interest and a shocking lack of corporate accountability to shareholders. The SEC has responded with an unprecedented series of regulatory reforms to address the conflicts, but no amount of government regulation can adequately ensure that boards of directors are accountable to shareholders. Shareholders have a unique role in demanding director accountability and, in theory, we have the right to both nominate and elect directors. Unfortunately, under the existing corporate election process, shareholders have no meaningful way to hold directors accountable regardless of how poorly a company performs, how much they overpay the CEO, or how conflicted the auditors are that they retain. Practically speaking, shareholders can do little more than rubberstamp candidates nominated by the directors themselves given the tremendous costs required to run a proxy fight. Moreover, there is currently a severe imbalance in resources. Companies faced with proxy contests, even outside of change-in-control situations, have unlimited access to the corporate treasury to fund their own campaign, as well as ready access to shareholders to make their pitch. As a result, the deck is stacked against long-term institutional investors who may be dissatisfied with a company's practices, but have very little practical means to effectuate change at a meaningful level by electing directors who are open to doing things differently. A fresh look at this issue is clearly in order. The limited experience with proxy contests in the corporate sphere suggests that contested elections can be beneficial to shareholders, regardless of who ultimately prevails. A good recent illustration is the 2002 contest regarding the proposed Hewlett-Packard/Compaq merger, where a well-funded, well-organized opposition campaign was waged by Walter Hewlett against the proposed merger. Although the opposition did not prevail, the media coverage suggests that the contest was beneficial to Hewlett-Packard management (and ultimately, one hopes, HP shareholders) by forcing management to address questions of strategy and implementation that would not have been addressed in as much detail without such a contest. The UNITE funds would thus disagree with those who argue that contested director elections are something to be avoided at all costs. We understand that under the current rules contested elections usually involve contests for control of the board and thus the company. Indeed, the cost of waging a contested campaign are so high that one can understand why this is so. We submit, however, that there is a large middle ground between simply ratifying the management slate and a proxy contest for control of a company * namely, contests for individual board seats that do not implicate a change of control situation, yet that could benefit shareholders by forcing a debate about the future direction of a company. The Commission has the ability to restore genuine accountability to the boardroom by establishing authentic corporate elections. Specifically, granting equal access to the proxy will not only allow shareholders to nominate directors who we trust to independently represent our interests, but it will also encourage incumbent directors to be more responsive to our concerns. Therefore, I urge the Commission to use its current review of the rules governing director nominations and elections to give shareholders access to the proxy for our director nominees. Sincerely, Bruce Raynor President UNITE 1710 Broadway New York, NY 10019