December 12, 1997
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: File No. S7-26-97
Dear Secretary Katz:
Pacific Century Financial Corporation would like to thank you for this opportunity to provide comments on the proposals to amend the Securities Exchange Act of 1934 (the "Act") as contained in House Bills H.R. 944 to require improved disclosure of corporate charitable contributions, and H.R. 945 to require corporations to obtain the views of shareholders concerning corporate charitable contributions. As stated in our comments below, our concerns are that the proposed amendments raise issues which will require clarification, and the enormous added costs associated with complying with these proposed amendments would far outweigh any benefits.
Clarification of the Amended Act
* The comments contained in this section apply to both H.R. 944 and H.R. 945.
The amended Act would now require an issuer of a security registered pursuant to section 12 of the Act to (1) disclose in a statement or document accompanying any proxy, consent, or authorization solicited by management, the issuer's charitable contributions during the preceding fiscal year, including the identity of and the amount provided to each recipient of such contributions; and (2) afford to its shareholders the opportunity, on a basis proportional to the number of shares owned or controlled by such shareholder, to participate through a proxy, consent, or authorization in the designation of recipients of the issuer's charitable contributions.
- The Act, as amended, places requirements on an issuer of a security registered pursuant to section 12 of the Act. Pacific Century Financial Corporation, Inc. ("Pacific Century") stock is a security registered pursuant to section 12 of the Act, It is a Bank Holding Company and the parent of numerous subsidiary financial institutions in both the United States and across the Pacific. As an "issuer," Pacific Century, itself does not make any charitable contributions, however, contributions are made separately by each subsidiary financial institution. The subsidiaries make their contributions either directly, or through their own incorporated charitable foundation. Therefore, since Pacific Century does not make charitable contributions, and since the shares of each subsidiary are not securities registered under section 12 of the Act, it appears that under the amended Act, charitable contributions made by Pacific Century subsidiaries would not have to be reported or voted on by Pacific Century shareholders. We feel that this needs to be clarified either in the Act or a rule issued by the Commission.
Effects of H.R. 944
- The proposed amendments to both sections provide the SEC the authority to grant exemptions from the requirements of this subsection for gifts of tangible personal property, gifts to public or private nonprofit educational institutions, and gifts to local charities, consistent with the public interest, the protection of investors, and the purposes of this subsection. The Bills themselves have not stated the "purpose of the subsection," thereby making it extremely difficult for the SEC to issue rules consistent with the purpose. Furthermore, the "public interest" and the "protection of investors" may vary based on the location and type of issuer involved. We therefore recommend that the phrase "consistent with the public interest, the protection of investors, and the purposes of this subsection." be eliminated from the amendment, thereby giving the SEC broader authority to provide for exemptions.
Effects of H.R. 945
- If a parent corporation such as Pacific Century which itself does not make any charitable contributions is required to disclose all contributions made by each subsidiary company, compliance with the Act will become much more costly. Not only will the annual proxy 7material become more voluminous, but also an increased amount of personnel at each subsidiary would have to be hired in order to determine which contributions need to be disclosed, and the proper method of disclosure.
Pacific Century believes that the proposed amendments need to be clarified before it can be effectively enacted. We hope that our comments will assist you in your analysis of the costs and benefits of imposing these requirements. Once again, thank you for the opportunity to express our views on the proposed amendments to the Securities Exchange Act of 1934.
- While the cost associated with meeting the disclosure requirements of H.R. 944 is great, the cost associated with the requirements of H.R. 945 would far exceed it. Providing a voting mechanism on the proxy would add to the cost of the proxy itself. In addition to this, all contribution plans would have to be made nearly a year in advance, thus making the planning process much more burdensome. Finally, there is also the additional cost of tabulating the proxy votes. The cost can, however, be controlled by clarifying the actual mechanism for voting on these contributions. It would of course be much more costly if the shareholder were permitted to "write-in" the suggested amounts and names of the charitable contributions, than if the shareholders were only allowed to vote on a preselected list of charities.
- Corporate Authority
- The Model Business Corporation Act provides that a business corporation has the power to make donations for the public welfare or for charitable, scientific, or educational purposes. Furthermore, it has also been recognized that business corporations may have the authority to make donations of money or property to enterprises calculated to further their general business interest, the decision of which usually rests within the discretion of management. Under this proposed amendment the decision of whether a charitable contribution will be made would rest in the hands of the shareholders, many of whom would not have done enough research to decide whether the contribution would actually further the general business interest of the issuer. If a voted contribution does not meet that requirement, it may not be within the power of such issuer to make the contribution. Furthermore, a majority of issuers would have to amend their by-laws to provide that charitable contributions must have shareholder approval.
- Effect on Charitable Organizations
- This amendment could also have a significant impact on the charitable organizations. It has been noted that some shareholders have stated at annual meetings that spare cash should be paid out as dividends rather than donated to charities. By requiring shareholder approval for contributions, the impact on the charities would be diminished amounts received in contributions, with shareholders favoring dividend distributions to themselves instead. Furthermore, any request made by a charitable organization would have to wait until the shareholder meeting the following year. Although H.R. 945 as proposed states that "this subsection shall not be construed to limit or otherwise affect the authority of the management of such issuer to designate additional recipients of such contributions," it is unclear how this would work, as shareholder approval would not have been obtained for these additional contributions.
Very truly yours,
Joseph T. Kiefer
Executive Vice President and General Counsel
Pacific Century Financial Corporation