Leggett & Platt, Incorporated
September 12, 2003
Jonathan G. Katz, Secretary
RE: Your File No.: S7-14-03
Proposed Rule: Disclosure Regarding Nominating Committee Functions and Communication Between Security Holders and Boards of Directors
Our File No.: 2-70-80(27)
Dear Mr. Katz:
I am the Vice President, General Counsel and Secretary of Leggett & Platt, Incorporated, a Fortune 500 and NYSE company. This letter contains my comments on the SEC's proposed rules regarding disclosure of nominating committee functions.
You have proposed that companies be required to name the "source" of each director nominee, other than executive officers and directors standing for re-election. I believe this requirement should be eliminated from the final rules. The identification of the source will likely bias shareholders either for or against a candidate for reasons totally apart from the candidate's qualifications or independence. Moreover, a single clear-cut source is not always readily determinable. A particular candidate may be known to and recommended by a number of sources.
To illustrate the difficulty of naming a single source, assume the Chairman of the Board, an inside director, and the Chairman of the Nominating Committee, an independent director, informally discuss several potential directors known to both of them. Other directors may have been present during the discussion, a fact which neither person recalls. Some months or even years later, the Committee Chairman recommends one of the director candidates to the Committee. Does the "source" of the nominee depend on who first mentions the candidate's name, who first contacts the candidate, who recommends the candidate to the Committee, or some other criteria? How important is it to attempt to reconstruct the initial brief discussion?
The term "source" is ambiguous and impractical. If the SEC believes it is important to tie a candidate to a particular individual, I believe the person named should be the person who recommends or sponsors a candidate to the Committee. An approach that may require tracking informal discussions over long periods of time is not practical.
The proposal relating to disclosure of the committee's rejection of a candidate submitted by a greater than 3% shareholder is problematic on several fronts. First, the criteria and screening process established by the nominating committee will necessarily include subjective elements. A company citing rejection on the basis of subjective elements may well be inviting a lawsuit.
Secondly, if the committee finds a candidate unacceptable for several reasons, must the company include a laundry list of the candidate's shortcomings? And what of the privacy concerns of the individual subjected to such disclosure? (Even though a rejected candidate's name need not be disclosed, his or her identity can sometimes be determined by facts and circumstances.)
Finally, if the SEC cannot be persuaded to eliminate this proposal, it should at least increase the threshold to 5%, consistent with the ownership threshold deemed significant under Rule 13D and 13G. These sections already contain mechanisms to verify ownership, holding periods and, perhaps most important, the shareholder's intent regarding an attempt to acquire control.
Thank you for your consideration.