Date: 11/21/97 1:47 PM Subject: S7-26-97 / The Charles Schwab Corporation November 12, 1997 Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington D.C. 20549 Re: SEC Invitation for Comments: Charitable Giving by Public Companies Dear Mr. Katz: The Charles Schwab Corporation ("Schwab") submits this comment letter in response to two related proposals contained in H.R. 944 and H.R. 945 (the "Proposals"). Schwab is a public company traded on the New York Stock Exchange ("NYSE"). Because of its large capitalization and wide shareholder base, Schwab is a component of the S&P 500 index. Schwab's largest subsidiary, Charles Schwab & Co., Inc. ("CS & Co."), is the fourth largest broker-dealer in the United States in terms of customer assets, and the largest in some important market segments such as electronic brokerage and mutual fund supermarkets. Among other Schwab's subsidiaries are a major Nasdaq market-maker, the investment adviser to one of the country's largest mutual fund complexes, and the largest discount broker-dealer in the United Kingdom. H.R. 944 would require public companies to disclose in their proxy statement charities to which they made contributions and the amount of each contribution. H.R. 945 would require public companies to let their shareholders decide, each year, which charities should receive contributions and the total amount of charitable contributions. Each shareholder would vote on how their proportional share of the total charitable amount would be distributed. Management could make additional charitable contributions if disclosed under the requirements of H.R. 944. Schwab does not support the Proposals. The firm takes very seriously its obligations to be accountable for shareholder assets and to support charities that benefit the communities in which we do business. Schwab's charitable contribution program benefits the shareholders by building good will with existing and potential customers as well as policy-makers in the places in which we do business. As explained below, the program is an important part of Schwab's effort to recruit and retain highly talented employees at all levels of the company. Schwab believes that these goals are properly left to the company's business judgment under well-established and long-settled principles of state law, and there is no need for federal government to intervene in this area of private-sector corporate governance. To understand our position, it might be useful to describe Schwab's charitable contribution programs. Schwab makes charitable contributions through The Charles Schwab Corporation Foundation ("Foundation") as well as through CS & Co. The Foundation is a non-profit charitable organization established for the purpose of making grants to public charities, and educational and other institutions. Its programs include the Employee Matching Gift Program, the Regional & Field Donations Program, the Annual Community Service Award, the Annual Community Drive and various other public benefit programs recommended by the employees and board members of Schwab and its subsidiaries. The anticipated charitable contributions of 1997 Foundation and CS & Co. are about $2.6 million and $400,000, respectively. The Foundation relies on four corporate staff of CS & Co., and utilizes other CS & Co. personnel for accounting and investment services. Approximately fifty percent of the Foundation's contributions are made through the Employee Matching Gift Program, which either double or single matches employee contributions. To be eligible for the matching program, an employee contribution must be a personal contribution which is paid in cash or securities to a United States-based recipient recognized as a Section 501 ( c ) (3) public non-profit tax-exempt organization. Contributions to organizations operated for religious, political or athletic purposes are not eligible for matching funds. Employee applications for matching funds are reviewed by the Foundation for compliance with these standards. The Foundation also matches employee contributions to designated charities as part of the annual Community Drive. Under the Regional & Field Donations Program, service centers and operations groups outside of the San Francisco area (where Schwab has its corporate headquarters) may apply for funds to contribute to local charities. The Foundation also contributes $5,000 to a charity designated by the Annual Community Service Award winner. Other Foundation funds are contributed to organizations based on recommendations from employees and management. Before contributing funds, the Foundation researches recipients through correspondence, telephone conversations and site visits. Recommended contributions above $2,000 must be approved by at least one member of the Foundation's Board of Directors. Schwab's charitable programs emphasize employee-directed contributions to local charities that benefit the communities in which its employees live and work. These contributions provide a vital connection among Schwab, the employee, the charity and Schwab's customers, and therefore provide a valuable business benefit to the corporation. The firm believes the Proposals could disrupt this connection. Specifically, Schwab has a national shareholder base and shareholder approval of charitable donations would redistribute contributions to nationally recognized charities. Adopting the Proposals likely would shift the Foundation's contributions to national charities to the detriment of the connection Schwab seeks to build with its employees and community. Although the Proposals contemplate an exemption for local charities, it is doubtful that the Foundation could operate all of its programs under the exemption. Also, what constitutes a "local" charity for a national company such as Schwab is unclear. For example, would a contribution to a national charity for support of a local project be exempt? The Proposals would encourage litigation over questions such as these, and would require companies to add additional staff and pay legal and accounting fees that otherwise could be used for charitable purposes. The Proposals would also make it difficult to make time-sensitive contributions, for instance (as is sometimes relevant in California) for disaster relief. Making ordinary business decisions such as these in the way that maximizes shareholder value is why shareholders form corporations and elect officers to conduct the affairs of those corporations. Schwab already makes extensive information about its charitable contributions to any shareholders who desire it. Interested parties may, at any time, request charitable contribution information directly from the Foundation. In fact, the Foundation's staff frequently fields questions from both shareholders and accountholders on charitable programs, specific contributions and donation policies. Access to Foundation staff provides shareholders and other interested persons with the more detailed information necessary to understand the programs and contributions. Imposing an additional disclosure requirement would be duplicative of available information and would not be a good use of shareholder assets. Conducting shareholder votes on charitable contributions would be a very expensive and time-consuming process. Moreover, requiring that corporations include this information in proxy statements is contrary to the Commission's goal of eliminating requirements that companies disclose information that does not affect the value of their shareholders' investments. For the reasons discussed above, Schwab does not support the Proposals, and urges that the Commission recommend against their adoption. We appreciate the opportunity to comment on these important issues. If it would be useful to you, we would be happy to discuss these issues with the Commission in greater detail. Sincerely, James G. Losi Senior Vice President - Employee Communications and Community Relations