Subject: File No. S7-03-06
From: Frank C Inman, MBA
Affiliation: Fmr. Professor of Economics and Finance

October 20, 2006

Ladies and Gentlemen:

Better disclosure of executive compensation is an important step for investors, but begs the question, "Now how can investors prevent CEO/Director abuses?"

If investors believe that their director representatives are paying themselves and/or the top executives too much, investors usually have only weak or negative choices: complain, sell or sue.

Positive choices are needed for stockholders, including the ability to replace directors and cap top executive pay. Stockholder resolutions earning a majority of share votes cast must be binding. Today, resolutions are most often only advisory. Also, corporate bylaws may have to be improved.

Directors in theory work for the stockholders, but only the nominating committee of the board usually has the power to replace them. Thus, staying in good graces with fellow board members often trumps acting in the best interests of the majority of stockholders.

Capping top executive pay is becoming more important as leading executives and directors are taking an ever larger share of corporate profits for themselves. While the five best paid officers of publicly held companies took 4.8 percent of profits from 1993 to 1995, these five in each firm raked in 10 percent from 2000 to 2003.

These increases cannot continue or American capitalism will decline as investors seek greener pastures. This has already begun. In the last two years, foreign equities have attracted a much higher percentage of American investment than ever before.

Stockholder ownership needs stockholder control on strategic issues. My comments of Feb. 7, 2006 provide some background. Andrew H. Dral's comments of Sep. 17, 2006 provide outstanding detail.


Frank Coleman (Cole) Inman
Corporate Governance Adviser and Former Business Professor
600 Cherry Drive #3
Eugene, Oregon 97401-6644
(541) 484-5982