American Federation of Labor and Congress of Industrial Organizations

September 12, 2003

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: File No. S7-14-03

Dear Mr. Katz:

On behalf of the American Federation of Labor and Congress of Industrial Organizations (the "AFL-CIO"), I am writing in support of Securities and Exchange Commission (the "Commission") proposal, S7-14-03, requiring enhanced disclosure regarding the operation of board of director nominating committees and of the means by which shareholders may communicate with corporate directors.

The AFL-CIO is the federation of America's labor unions, representing 65 national and international unions and their membership of more than 13 million working women and men. Union members participate in the capital markets as individual investors and through a variety of benefit plans. Union members' benefit plans have over $5 trillion in assets. Union-sponsored pension plans account for over $400 billion of that amount.

As you know, the AFL-CIO welcomed the Commission's decision to review the proxy rules and regulations governing director nominations and elections, and took the opportunity to file a rulemaking petition seeking new rules granting long-term shareholders access to the proxy to nominate directors. We subsequently met with Commission staff, and were encouraged by our thoughtful discussion and the thorough manner in which they were approaching their review. We commend the staff for ultimately preparing a comprehensive report that both reflects their diligence and recommends much needed reforms to the director nomination and election process.

In announcing the proposed disclosure rules, Chairman Donaldson called them the "first steps in addressing the recommendations in the staff's July 15 report", and indicated that the Commission intends to continue its "work to improve the proxy process this fall by considering additional proposals regarding enhanced shareholder access to the proxy process for nomination of directors." We are heartened by the Commission's commitment to moving forward with these meaningful reforms, and welcome the opportunity to comment on the proposed rules. We also look forward to the Commission's expected proxy access rules, which we believe are essential to restore genuine accountability to corporate boards.

Regarding the proposed rules to require enhanced disclosure of board operations, we believe they are straightforward and will provide investors with useful information at little cost to the corporation and its shareholders. We especially welcome the enhanced disclosure of nominating committee processes given our skepticism with respect to these processes and the ostensibly independent directors they yield. In addition, the proposed rules would provide a useful complement to the proxy access rules expected this fall.

We generally support the disclosure rules as proposed, and offer a few specific comments below:

  1. Consistent with the Commission's proposed approach, we favor disclosure rules that require specific, detailed information rather than a broader standard that could allow companies to comply with the rules without necessarily providing shareholders with useful information. We recommend, however, that the Commission complement its specific disclosure requirements with one broader requirement, and that is a discussion of conflicts of interest with respect to both the director nomination process and individual directors. This would provide shareholders with important information that might otherwise go undisclosed.

  2. The specific disclosures called for in the proposal would provide the nominating committee information we believe would be most useful to shareholders. In particular, we would welcome required disclosure of (a) committee processes for identifying and evaluating candidates, the source of individual candidates and the involvement of third parties in the director search process; (b) policies for considering shareholder candidates and the procedures for submitting such candidates; and (c) disclosure regarding candidates recommended by long-term shareholders with significant ownership.

  3. Regarding the thresholds required to trigger additional disclosure with respect to candidates recommended by long-term shareholders with significant ownership, we believe they should be no higher than the Commission's proposed minimum 3% ownership and one-year holding period. A 3% threshold is more than sufficient to prevent corporate proxies from becoming cluttered with details of myriad candidates submitted by various shareholders. In practice, we believe shareholders would only undertake to organize such a large ownership block for the purposes of recommending director candidates on a limited basis, most notably at companies with clear board failures or performance problems.  It is for this reason that our May 15th rulemaking petition seeking shareholder access to the proxy recommends these same thresholds for qualifying eligible shareholders.

  4. With respect to candidates recommended by long-term shareholders with significant ownership, we believe the nominating shareholders should be named in the proxy. We believe that companies should also include the name of the shareholders' director nominee(s), subject to the consent of both the nominating shareholders and the individual director nominee(s).

  5. Companies should be required to disclose during the year any changes to the procedures for shareholders to submit director candidates.

  6. We strongly support the Commission's proposal to extend these disclosure rules to investment companies, and urge the Commission to extend the expected rules granting shareholder access to the proxy to investment companies as well. We have long been concerned by the cozy relationships between investment companies and their advisors, and welcome the Commission's efforts to enhance the transparency and independence of investment company boards. Mutual funds, however, generally have highly fragmented investor bases consisting overwhelmingly of individuals rather than institutions. We therefore encourage the Commission to consider significantly lower ownership thresholds to trigger both additional disclosure and any future proxy access rights at investment companies. Even a 1/2% threshold could prove insurmountable for an industry that boasts 95 million investors.

We thank you for this opportunity to comment on this proposal, which represents a welcome first step in the Commission's effort to improve the proxy process for the nomination and election of directors.


Richard L. Trumka

cc: William H. Donaldson, Chairman
Paul S. Atkins, Commissioner
Roel C. Campos, Commissioner
Cynthia A. Glassman, Commissioner
Harvey J. Goldschmid, Commissioner
Alan L. Beller, Director, Division of Corporation Finance
Martin Dunn, Deputy Director, Division of Corporation Finance