September 12, 2003

Mr. Patrick A. Jorstad
6300 Stevenson Avenue, #413
Alexandria, VA 22304
(703) 370-5837

Mr. Jonathan G. Katz
United States Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549

Re: File S7-14-03 (Proposed Rule Regarding Director Nominations and Communications)

Dear Mr. Katz:

I am writing with regard to the proposed rule referenced above. I appreciate the chance to comment on this matter. Throughout this letter, I make reference to the comment letter that the Commission received from Mr. David A. Smith, dated September 3, 2003, which is archived on my website1 Last week, I received a courtesy copy of Mr. Smith's comment letter, which seems to have caused something of a stir in both reformist and corporatist circles. Mr. Smith's letter is referenced at CorpGov.net2("one of the more interesting comment letters"), CorpLawBlog.com3("an eloquent argument"), and Blog4("provacative" [sic]).


In 1999, I submitted a Rule 14a-8 proposal to State Street Corporation (NYSE: STT) for consideration at the 2000 Annual Meeting5 Long before Enron imploded, my proposal sought to improve corporate governance practices at the company. The Corporation sought to exclude this proposal from its proxy materials6 After the SEC considered both sides' position statements and rebuttals7 it issued a no-action letter that declined to concur with the Corporation's position8

I attended the 2000 Annual Meeting in person, in order to present my proposal, as required by 17 CFR §240.14a-8(h), which states: "Either you, or your representative who is qualified under state law to present the proposal on your behalf, must attend the meeting to present the proposal." To comply with the SEC's rule, I took time off from work to attend the meeting, incurred travel and lodging expenses, and prepared a brief statement in support of my proposal, but I was not allowed to address those in attendance at the meeting. While his corporate lawyers at Ropes & Gray looked on, the Chairman and CEO of State Street, Mr. Marshall N. Carter, refused to yield the floor to me to present my proposal.

Five other proposals were submitted to the Corporation for consideration at the 2000 Annual Meeting9 pursuant to Article I, §7 of the Corporation's By-laws10 Among these five other proposals were two seeking to enact mandatory amendments to the By-laws11 Shareholder action to amend the By-laws is proper under the Massachusetts General Laws, Chapter 156B, §§17, 41, and 54, and under Article VI ("Amendments") of the Corporation's By-laws:

The power to make, amend or repeal by-laws shall be in the stockholders ... any by-law adopted by the directors may be amended or repealed by the stockholders. [Section 17]

Stockholders may vote in person or by proxy. [Section 41]

The directors may exercise all the powers of the corporation, except such as by law, by the articles of organization or by the by-laws of the corporation are conferred upon or reserved to the stockholders. [Section 54]

These five other proposals were briefly referenced in the "Other Matters" section of the Corporation's 2000 Proxy Statement, but were not included in the form of proxy12 Thus, with no checkboxes to indicate our votes on the form of proxy, the Corporation's other shareholders and I were effectively disenfranchised with respect to these five proposals. Not only were the shareholders effectively dispossessed of our inherent property rights to vote by proxy on these five matters, but - with respect to the two proposed mandatory By-law amendments - we were also effectively dispossessed of our inherent property rights to make, amend, or repeal By-laws. Southgate & Glazer, Massachusetts Corporation Law and Practice, a treatise authored by more than forty Ropes & Gray attorneys, appears to support my point at §7.10:

See Mass. G.L. ch. 266, §30 (larceny includes embezzlement, which was defined at common law to include retaining property or rights of another); see also Commonwealth v. Salerno, 356 Mass. 642, 648, 255 N.E. 2d 318, 321 (1970) (definition of larceny).

The shareholders' disenfranchisement becomes clear when looking at the Form 10-Q that State Street filed on May 15, 200013 Under the section heading "Submission of Matters to a Vote of Security Holders", the Corporation reports an unnaturally lopsided vote on these five matters. Zero votes are reported in favor of any of these five matters, which is obviously a direct result of their omission from the form of proxy14

As Mr. Smith described in his letter, at the 2000 Annual Meeting the Chairman, Mr. Carter, barred him from speaking in favor of these five proposals, including the proposal to end the self-dealing relationship with Ropes & Gray15 Also at that meeting, the Corporation distributed unprecedented new Meeting Guidelines16 Mr. Carter selectively enforced these Guidelines with respect to Mr. Smith and me. No such Guidelines were distributed at either the 1998 or 1999 Annual Meetings, which I also attended17 When another shareholder, Mr. Todd M. Wesche, challenged the fairness of the Chairman's refusal to let Mr. Smith speak at the 2000 Annual Meeting, Mr. Carter fumbled his response badly, to put it charitably.

The 2000 Annual Meeting was videotaped. State Street's attorneys have repeatedly refused my demands to inspect the videotape, which serves as a record of the Chairman's inequitable conduct, and of the Directors' inaction when their Chairman refused to yield the floor to either Mr. Smith or me. Mr. Carter unexpectedly resigned one month after his actions at the meeting18 I urge the SEC to subpoena the videotape. I also urge the members of Congress and state regulators who receive a copy of this letter to subpoena the videotape. As I see it, reasonable fact finders would be justified in drawing the inference that the Corporation's refusal to produce the videotape for inspection amounts to an admission of wrongdoing (on the parts of the Corporation, Mr. Carter, and the Directors then in office).

The same week that Mr. Carter unexpectedly resigned, Mr. William L. Patton, Esquire, a partner at Ropes & Gray, contacted Mr. Smith and me to propose settlement discussions arising, in part, out of Mr. Carter's conduct at the 2000 Annual Meeting. Leading up to these discussions, Mr. Patton requested that both Mr. Smith and I refrain from filing suit against his client, State Street Corporation, or any executives, directors, or officers thereof. Leading up to - and during - these discussions, Mr. Patton repeatedly stated that if terms could be reached, his client was willing to "pay a premium" for Mr. Smith's and my stock, and he spoke of mechanisms by which the Corporation could do so discreetly and quietly.19I attended these settlement talks, held in Washington, DC, in the hopes that some of my ideas for improving the Corporation's governance practices would be implemented. I went prepared with a written list of specific measures I would like to see the Board of Directors adopt. From my perspective, the talks broke down because neither the Corporation nor its self-dealing attorneys at Ropes & Gray were willing to concede that any changes were necessary where the company's corporate governance practices were concerned.

I re-submitted my Rule 14a-8 proposal for consideration at the 2001 Annual Meeting with minor modifications20 Drawing upon my observations of the outrageous conduct at the 2000 Annual Meeting, I also co-sponsored a proposal, pursuant to Article I, §7 and Article VI of the Corporation's By-laws, seeking to enact a mandatory By-law amendment that incorporated shareholder-friendly rules for conducting the Corporation's shareholder meetings21 CalPERS supported both proposals22 and both proposals performed respectably, in my opinion23

At the 2001 Annual Meeting (and since), the new Chairman and CEO, Mr. David A. Spina, employed a slightly more genteel set of tactics to control debate than his predecessor, Mr. Carter. Although permitting Mr. Smith and me to speak at these meetings, Mr. Spina has placed us under a two-minute clock, and has abruptly cut off discussion whenever uncomfortable questions or comments have been raised from the floor24

For consideration at the 2002 Annual Meeting, I submitted a different Rule 14a-8 proposal, seeking to repeal State Street's staggered board, and to permit shareholders to remove directors with or without cause25 I also co-sponsored a proposal, pursuant to Article I, §7 and Article VI of the Corporation's By-laws, seeking to enact a mandatory By-law amendment that addressed director independence and auditor independence at the Corporation26 Amalgamated Bank submitted a Rule 14a-8 proposal, seeking to redeem the Corporation's "poison pill"27

My Rule 14a-8 proposal to repeal State Street's staggered board debuted strongly, garnering 85,747,069 votes28 My co-sponsored proposal to enact a mandatory By-law amendment to address director and auditor independence debuted respectably, with 18,498,724 votes29 CalPERS supported both proposals30 Amalgamated Bank, well known for its corporate governance activism on behalf of America's labor unions, saw its proposal to redeem the poison pill pass with 124,585,393 votes 31 The Board of Directors refused to implement Amalgamated's proposal; instead, they explained away their decision not to act in accordance with the shareholders' majority vote in a letter to the Council of Institutional Investors32

For the 2003 Annual Meeting, I re-submitted my Rule 14a-8 proposal to de-classify State Street's Board of Directors, and to permit shareholders to remove directors with or without cause, with minor modifications33 Pursuant to Article I, §7 and Article VI of the Corporation's By-laws, I also re-submitted the proposal to enact a mandatory By-law amendment to address director and auditor independence34 with a slight relaxation of the look-back period on director interlocks (in response to feedback I received regarding the proposal in 2002).

My Rule 14a-8 proposal to repeal the staggered board did even better in 2003 than 2002, garnering 108,121,108 votes35 Propelled by higher voter turnout and fewer abstentions, the proposal enjoyed a 26% surge of support, while the Board of Directors saw a 7.5% decay in support for its position36 I intend to re-submit this proposal for consideration at the 2004 Annual Meeting, with slight modifications to the supporting statement. For a list of respected institutional investors known to have supported this proposal in 2002 and/or 2003, please see

In 2003, State Street excluded the proposed mandatory By-law amendment regarding director and auditor independence from its form of proxy. As a result, this proposed mandatory By-law amendment, which institutions like CalPERS supported in 2002, only garnered 170 votes in 200337(cf. 18,498,724 votes in 2002). The SEC is urged to pay particular attention to this matter, for the following reasons:

First, the 170 votes shown voted "for" this mandatory By-law amendment are those of my two co-sponsors, who voted in person or through a personal representative at the 2003 Annual Meeting. In order to give effect to his vote "for" our proposed amendment, each had to obtain a paper ballot at the meeting. No other means of voting "for" the amendment was afforded.

Second, I was barred from obtaining such a paper ballot at the meeting. The 219 shares that I owned, as of the 2003 record date, were all held through the Corporation's Salary Savings Program ("SSP")38 State Street Bank & Trust Company, as Trustee for the SSP, voted my shares against my own co-sponsored proposal. The voting instruction form I received from the Trustee prior to the meeting: (1) specifically barred me from providing my voting instruction at the meeting itself; and (2) provided no checkboxes for me to give my advance directive on how to vote my shares with respect to the proposed mandatory By-law amendment. As such, it is my view that the Trustee's voting instruction form is a contract of adhesion.

Furthermore, I fail to see how this does not constitute the tort of conversion of private property and/or larceny. It is a well-established principle of law that the voting rights of shares, as inherent property rights of those shares, are "assets"39 I am the beneficial owner of the underlying shares. At any point in time, I have the right to demand that the Corporation tender to me the shares allocated to my account. Why then, are my inherent property rights to: (1) vote in person or by proxy; and (2) to vote on proposed By-law amendments, usurped? Why then, are these same inherent property rights usurped where other shareholders are concerned?

The Corporation's management and its attorneys seem to be gambling on the prospect that Rule 14a-4 ("Requirements as to Proxy") excuses the exclusion of proposed mandatory by-law amendments from the form of proxy, applicable state law notwithstanding (see Massachusetts General Laws, Chapter 156B, §§17, 41, and 54). I urge the SEC to amend Rule 14a-4 to include an instruction that registrants may not rely upon its exemptions to omit matters - such as proposed mandatory by-law amendments or shareholder-initiated director nominations - that are proper to consider at shareholders' meetings under the registrant's by-laws and/or state law.

Since 1999, I have sought the Corporation's stockholder list information in the hopes of conducting timely, cost-effective solicitations in favor of my proposals, and in the hopes of communicating with other shareholders about matters of mutual concern regarding the Corporation's management. Since then, the Corporation - acting through its internal legal department and through its attorneys at Ropes & Gray - has deployed every defense mechanism imaginable to thwart my attempts to obtain these lists. Battle by battle, year by year, the Corporation has slowly and grudgingly ceded ground, turned over more information, and repeatedly adopted new fallback positions. To date, however, the Corporation's Directors and attorneys still refuse to turn over the list of participants in the SSP, even though such participants can direct the voting of their shares with respect to my Rule 14a-8 proposal, even though the SSP accounts for millions of shares/votes40 and even though courts in multiple jurisdictions have ruled against registrants that have refused to produce such a list for an insurgent's use41

According to the Corporation's 2003 Proxy Statement: "Each member of State Street's Executive Committee, Executive Compensation Committee and Examining and Audit Committee is also a member of the corresponding committee of [State Street Bank & Trust Company, the Trustee of the SSP], and members customarily hold joint meetings of both committees." Mr. Truman S. Casner, Esquire, of Ropes & Gray, is thus jointly Chairman of the Executive Committees of both State Street Corporation and State Street Bank & Trust Company (the Trustee of the SSP). In light of these facts, I have no confidence whatsoever that the Trustee acts independently or impartially in deciding how to vote the proxies of the shares held by the SSP42 A review of the "Master Trust Agreement" between State Street Corporation and State Street Bank & Trust Company only deepens my misgivings on this point43

On March 11, 2002, Mr. Smith filed suit in the Massachusetts Supreme Judicial Court (the "SJC" is the state's highest court) seeking to obtain shareholder list data that the Corporation refused to obtain and provide. On March 19, 2002, the Corporation's directors and attorneys fell all over themselves, like Keystone Cops, to reverse course and to provide both of us with some, but not all, of the disputed shareholder list data44 Their attempt to moot out the legal issues came too late for either of us to make practical use of the data, since management had already begun distributing its proxy materials for the 2002 Annual Meeting on March 11, 200245

On March 14, 2002, the Massachusetts SJC transferred Mr. Smith's lawsuit to the Suffolk Superior Court in Boston. On March 21, 2002, Ropes & Gray filed an "Emergency Motion" to have the case transferred to the experimental Business Litigation Session ("BLS") of the Suffolk Superior Court. Obligingly, the Honorable Alan van Gestel46 presiding judge of the new BLS, granted Ropes & Gray's "Emergency Motion", and ordered the case transferred to his court.

On April 1, 2002, Ropes & Gray served a "Motion for More Definite Statement". Obligingly, Judge van Gestel scheduled the hearing on this motion for the afternoon after the 2002 Annual Meeting was set to take place (April 16, 2002), instead of rejecting the motion out of hand. Then, the day after the 2002 Annual Meeting and the motion hearing took place, Judge van Gestel issued an order denying the Corporation's motion47 Remarkably, Mr. Smith prevailed on the motion pro se48 His brief opposing the motion contained citations to: (1) a bar journal article authored by the judge himself; (2) an on-point SJC precedent that had been decided against the very Ropes & Gray attorney who filed the motion; and (3) caselaw from numerous jurisdictions that supported his rights to inspect and make use of the shareholder list data in question49

Had the Corporation not stonewalled my own requests for the shareholder list data until the last minute, and had I been able to undertake timely, cost-effective solicitation of other shareholders, I believe that my shareholder proposals would have fared even better than they did in 2002 and 2003. As it stands, I am proud that my proposals received significant support on their own merits50 even without supporting solicitation efforts, and in spite of the Directors' and attorneys' every defensive maneuver.

The picture that emerges, for me at least, is that those currently in control of State Street will stop at nothing to perpetuate their control, and they will stop at nothing to inhibit intra-corporate communication. Concerned about the ongoing self-dealing relationship with Ropes & Gray and other corporate governance issues at State Street, I have recently sought the shareholder list data again to attempt to call a special meeting of stockholders, pursuant to Article I, §2 of the Corporation's By-laws and Massachusetts General Laws Chapter 156B, §3451

One of Mr. Casner's colleagues at Ropes & Gray (indeed, the very same Ropes & Gray partner who filed the "Motion for More Definite Statement" as a delay tactic in Mr. Smith's lawsuit) responded to my latest request with a self-serving reply, refusing to provide the shareholder list data, and stating that my direct written communications with Board members to seek changes in corporate governance practices at State Street constitutes "harassment"52

The attorneys at Ropes & Gray are just protecting one of their own, as far I am concerned, and camouflaging their actions with the help of 17 CFR §229.404(b)(4). That they are able to defend one of their own, and charge the Corporation's shareholders undisclosed fees for doing so, adds insult to injury, from my perspective.

Little matter; through private investigation, I have recently obtained the contact information for about 1,000 of the largest State Street shareholders, and intend to communicate directly with them about my beliefs that State Street is being mismanaged by its Board of Directors. To a large degree, this approach will allow me to circumvent the shareholder list disputes of the past, and to take my information directly to my fellow owners (within the parameters of the proxy rules, where and as applicable, of course). When State Street's governance eventually improves, I hope to leverage the lessons learned, and to expand my website's scope to include other registrants53

The SEC's Proposed Rule

In The Federalist Papers, James Madison observed: "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."

He also wrote: "No man is allowed to be a judge in his own cause, because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity. With equal, nay with greater reason, a body of men are unfit to be both judges and parties at the same time ... It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole."

When Hamilton, Jay, and Madison penned The Federalist Papers' essays, they embraced pluralism, and they championed the system of checks and balances that became a pillar of American constitutional principles. Recognizing that the weaker Articles of Confederation had failed to create a viable system of governance, the Founders went back to the drawing board, and the United States Constitution was the harvest of their handiwork.

I urge the Commission to seriously consider whether its current rulemaking more closely resembles the defunct Articles of Confederation or the robust United States Constitution. For my part, and from where I sit, the proposed rules look a little toothless and scrawny, and I think a trip back to the drawing board is in order for the SEC. Here are ten suggestions for a re-draft, designed to rebalance the current system of checks and balances more in favor of investors:

1. Have faith in investors; don't fear them. Investors are at least as smart as the general voting public. The current paternalistic system for choosing directors is condescending, and it insults investors' intelligence. Giving shareholders access to the proxy materials to nominate their own candidates will not lead to the downfall of civilization or any of the other alarmist predictions that are emanating from corporate boardrooms and corporate law firms. Investors are capable of sorting out their own best interests, if given the opportunity to evaluate all sides of an issue or candidacy. Not all candidates or all ballot issues will be judged worthy by investors, but all candidates and all ballot issues should have equal opportunity to contend in the free marketplace of ideas. Today's "fringe" issue or candidate, allowed to compete and communicate, may become tomorrow's norm. Just imagine the state of our nation today if the "fringe" issues of yesteryear - e.g., women's suffrage or civil rights - had not been allowed to fight to gain acceptance.

2. Revise Rule 14a-4 ("Requirements as to Proxy"). Any matter that is a proper subject for shareholder action under the registrant's state law and/or by-laws belongs on the form of proxy - with checkboxes - to empower the registrant's shareholders to act on that item. It is inappropriate to allow the registrant's directors to exercise discretionary authority over such matters (e.g., mandatory amendments to the by-laws or articles of organization). In other words, management's form of proxy should not be permitted to be a contract of adhesion. Indeed, to the extent that this federal regulation robs shareholders of a property right accorded to them under state law and/or common law (voting rights are inherent property rights), it may in fact raise eminent domain issues. Rule 14a-4 should be revised to make clear that registrants cannot rely upon its terms to avoid putting matters that are proper under state law on the form of proxy, with checkboxes provided. This rule should also advise registrants that voting rights are property rights, and that improper use of Rule 14a-4's exemptions may create claims in tort and/or constitute criminal conduct under state law.

3. Revise Rule 14a-7 ("Obligations of Registrants to Provide a List of, or Mail Soliciting Material to, Security Holders"). Almost invariably, registrants elect to mail an insurgent's materials, rather than obtain and turn over the shareholder list data referenced in this rule. This increases the insurgent's solicitation costs, often prohibitively so. To balance Rule 14a-7 more fairly, I suggest that the SEC revise it to require every registrant that has reported a vote surpassing the thresholds set forth under Rule 14a-8(i)(12), ("Resubmissions"), to: (1) obtain the shareholder list data referenced in Rule 14a-7; and (2) make this data available to any proponent whose Rule 14a-8 proposal attained the requisite number of votes. My reasoning is that any proponent who has attained the voting thresholds set forth under Rule 14a-8(i)(12) has demonstrated a minimum level of seriousness that warrants access to this shareholder list data (i.e., "non-objecting beneficial owner lists/NOBO lists" or "consenting beneficial owner lists/COBO lists"). I also argue that the body of shareholders, as a whole, benefits from the activities of serious insurgents, and it is therefore appropriate for the registrant, as the representation of that body of shareholders, to bear the cost of obtaining the list information from ADP under these circumstances. I also urge the Commission to add a clear instruction to Rule 14a-7, stating that compliance with its terms does not obviate the registrant's duty to also comply with applicable state laws governing a shareholder's rights to inspect and make use of shareholder lists.

4. Revise Rule 14a-8 ("Shareholder Proposals"). If the Commission is serious about giving shareholders access to registrants' proxy materials to advance their own director nominees, then it is time to repeal Rule 14a-8(i)(8). As I see it, as long as shareholders are banned from using the shareholder proposal process to place nominees on the registrant's proxy materials, the SEC is tinkering with its own version of the Articles of Confederation.

5. If the SEC will not repeal Rule 14a-8(i)(8), then revise Item 7(d)(2)(ii)(L). My strong preference is for the SEC to repeal Rule 14a-8(i)(8). Otherwise, I urge the Commission to revise Item 7(d)(2)(ii)(L) to also require a registrant to disclose when it has rejected a director nominee from any proponent whose proposal has received a simple majority of the "yes-no vote" at the prior shareholders' meeting (excluding abstentions and "broker non-votes" from the calculation). My reasoning is that any insurgent whose proposal has received a simple majority of the "yes-no vote" has demonstrated a level of commitment, seriousness, and broad-based support that warrants the right to the proposed benefits of (ii)(L). I also believe that shareholders have a right to know if a registrant has rejected candidates from such a serious insurgent.

6. Publicly announce that the SEC will be sending staff attorneys to registrants' meetings, in tandem with state regulators. If the Commission and its staff wants to engage in real reform that has value and meaning in the real world, use the next annual meeting season as an opportunity to get out there and observe, firsthand, the tactics that are being employed to squelch shareholders54 Don't give any prior hint as to which registrants' meetings will be visited. Announce that staff attorneys who attend registrants' annual meetings will be empowered to recommend appropriate enforcement action in those instances in which registrants violate state or federal laws or regulations, especially Rule 14a-9 ("False or Misleading Statements"). Make this a cooperative state-federal initiative with regulators such as New York Attorney General Eliot Spitzer. Watch the number of post-meeting complaints from insurgents go down after the next meeting cycle, as corporate CEOs all across the land put their very best foot forward.

7. Give "shareholders' meetings" back to the shareholders. Annual shareholders' meetings are the one guaranteed opportunity that the owners of a company have to hold management to account. These meetings should not be scripted shams or choreographed charades55 They are called shareholders' meetings - not management's meetings - for a reason. It is unacceptable that supposedly "independent" directors sit idly by when CEOs muzzle insurgents at these meetings. "Principles of equity and fairness serve as the standards by which the actions of those presiding over the meeting are judged.56 This treatise quotes Chancellor William T. Allen of the Delaware Chancery Court: "We assume that at such [shareholders'] meetings something said may matter." The treatise continues: "Indeed, the Delaware Supreme Court indicated that a stockholder's inability to ask questions might give rise to a claim of `disenfranchisement'.57 Allowing real shareholder input into the nomination process will breathe new life into the concept of "shareholders' meetings", in my opinion. To that end, I urge the SEC to: (1) repeal Rule 14a-8(i)(8) - see suggestion #4 above; (2) revise Rule 14a-8 to grant proponents a minimum of five minutes' time to speak from the podium in favor of their proposals and/or candidates ("something said may matter"); and (3) add new regulatory language to create a formal SEC process for investors to complain about inequitable or oppressive conduct at registrants' shareholder meetings (e.g., preventing shareholders from asking salient questions).

8. End the SEC's special treatment of the corporate bar. I concur with Mr. Smith's letter on this topic. Regulations such as 17 CFR §229.404(b)(4) and 17 CFR §205 do nothing to restore investor confidence in the markets, and they invite investor cynicism. It is time for the Commission to get tough with the corporate law firms and corporate lawyers that appear before it. These law firms are supposed to work for the owners of the company (i.e., the shareholders), not management. When a corporate attorney is permitted to serve as a director of a registrant that his law firm represents, it does not take a James Madison to see that "his interest would certainly bias his judgment, and, not improbably, corrupt his integrity."

9. Exclude "broker non-votes", and base regulatory thresholds on simple "yes-no" voting. I applaud the recent steps taken by the SEC and the self-regulatory organizations to prohibit broker non-votes on equity compensation plans. I urge the SEC to prohibit registrants from counting such broker non-votes - which often have the same effect as a "no" vote when deciding the outcome of shareholder proposals - for any purpose, including director elections. In a democratic society, we do not give the effect of a "no" vote to the registered voters who stay at home and don't bother going to the polls to vote on a ballot initiative. Nor do we award these "stay at home" votes to the incumbents then in office. Yet that is precisely what happens in corporate America, because the current regulatory system allows it. In America, the voters who bother going to the polls are the ones who decide the issues and elect the officials, and "no shows" don't count on Election Day. This bedrock American concept should apply at American corporations. If the SEC recognizes that broker non-votes are a bad idea for approving equity compensation plans, it follows that they're a bad idea for deciding other corporate issues as well. Besides ending broker non-votes, I urge the SEC to base its own regulatory thresholds - e.g., Rule 14a-8(i)(12) - on simple "yes-no" voting.

10. Concede that the regulatory system has a hand in the current state of affairs. Today's regulatory system is the product of incremental "mission creep" over time, in my opinion. William O. Douglas, an early SEC Chairman and later a Supreme Court Justice, coined the SEC's motto: "We are the investor's advocate." It is easy to wonder where our advocate has been, looking at the regulatory barriers to shareholder action that have been enacted over the years - at the behest of the corporate bar. Lately though, I read something almost every day that leads me to believe that the SEC has newly reawakened to its duties to investors, and is approaching these duties with renewed vigor. Scrapping the anti-investor, pro-corporate Articles of Confederation that pass for rulemaking these days would be a good start58

I appreciated many of the remarks that Chairman Donaldson made in his speech to the Senate Committee on Banking, Housing and Urban Affairs on September 9, 200359 and I look forward to reviewing and commenting upon the SEC's forthcoming proposed rules on shareholder access to the proxy materials later this fall. In the meanwhile, I am and remain

Respectfully yours,


Mr. Patrick A. Jorstad60

4 (September 4, 2003)
7 Please see, 01/28/00 through 02/14/00.
11 Southgate & Glazer, Massachusetts Corporation Law and Practice ("a Ropes & Gray product"), analyzes mandatory by-law amendments: "In 1999 the Supreme Court of Oklahoma found a mandatory by-law valid under the Oklahoma General Corporation Act. International Brotherhood of Teamsters Gen. Fund v. Fleming Cos., 975 P.2d 907 (Okla. 1999) ... Whether the Massachusetts courts would follow [Oklahoma] is, at best, an open question in light of the unusually expansive role in corporate governance Massachusetts grants stockholders in Chapter 156B. Consistent with the write-your-own-ticket philosophy of its drafters (see Chapter 1 of this book), Chapter 156B permits a corporation in its by-laws to confer upon or reserve for the stockholders powers of the corporation that otherwise would be exercised by the directors. Mass. G.L. ch. 156B, §54. In addition, Chapter 156B permits stockholders, without prior director action, to amend the articles (§§70, 71) and to approve mergers (§78), and reserves for stockholders the right to amend by-laws and to issue stock unless the by-laws (and the articles in the case of by-law amendments) otherwise provide (§§17, 69). The validity of a mandatory by-law may arise in discussions with the staff of the SEC over whether Exchange Act Rule 14a-8(i)(l) requires that a proposal for adoption of such a by-law be included in management's proxy statement. The SEC staff's position (as of July 1999) is that stockholder proposals to adopt mandatory by-laws are excludable only if, under the applicable state corporation law, stockholders are not authorized to initiate by-law amendments or the particular by-law proposed would conflict with state law or the corporation's charter. See General DataComm Industries, SEC Interp. Letter (Dec. 9, 1998); Shiva Corp., SEC Staff Interp. Letter (March 10, 1998) ..." [§8.1, footnote 4a, 2000 Supplement]
12 Please see The two proposed By-law amendments were also briefly referenced in the "Notice of 2000 Annual Meeting of Stockholders".
14 Also see this tabulation provided by CitiStreet: This tally shows that 4.2 million shares (8.4 million shares following the 2-for-1 stock split approved in 2001) held in the Corporation's Salary Savings Program ("SSP") were effectively disenfranchised with respect to these five proposals. The "voting instruction form" provided to SSP participants, stated that: "You may not provide your voting direction at the Annual Meeting; you must direct your vote in advance to the Trustee." With no checkboxes provided with respect to these five proposals, SSP participants could neither vote "in person" or "by proxy", the dictates of Massachusetts law notwithstanding (again, see Chapter 156B, §41 of the Massachusetts General Laws). I fail to see how this does not constitute a contract of adhesion. CitiStreet's formation was announced in late 1999 as part of a standstill agreement, in which Citigroup agreed not to initiate a hostile takeover bid for State Street Corporation for ten years ("Citigroup, State Street Corp. to Form Retirement Plan Joint Venture", John Hechinger, Wall Street Journal, citing Mr. Nicholas A. Lopardo of State Street and Mr. Thomas W. Jones of Citigroup). The bottom right-hand corner of the tabulation says that CitiStreet is "A State Street and Citigroup Company".
15 CalPERS withheld its 879,100 votes from Mr. Casner in 2000:, visited April 7, 2000. Citing his relationship with Ropes & Gray, "a law firm that provides legal services to the company", CalPERS stated its belief that such a relationship creates "inherent conflicts of interest that make directors less effective as guardians of the shareholders' interests". It is therefore not unreasonable to believe that CalPERS might have supported the proposal to end the self-dealing relationship with Ropes & Gray, had it been included on the same form of proxy as Mr. Casner's re-nomination.
16 Please see: In my opinion, these unprecedented Meeting Guidelines were adopted to defeat the purposes of Rule 14a-8(h), and, as applied by the Chairman, were an unlawful and inequitable abridgement of the rights of the Corporation's shareholders.
17 The Corporation's attorneys kept Mr. Smith out of the 1999 Annual Meeting on a technicality, because he showed up with a brokerage's voting instruction form, instead of a formal proxy. He was also refused entry as my guest.
18 Mr. Carter remains a director at Honeywell to this day. As recently as July 29, 2003, he has filed inside ownership disclosures, in his capacity as a Honeywell director, listing State Street's address as his address. Please see his most recent Form 4:, filed more than three years after his resignation from State Street. In light of his videotaped actions at the 2000 State Street Annual Meeting, I believe that the SEC should thoroughly investigate his sudden departure, and should make his exorbitant severance package the subject of a disgorgement proceeding. Whether Mr. Carter is suitable to serve as a director at Honeywell or any other publicly traded company is a judgment the SEC should make only after obtaining and viewing the videotape in question. The tape's contents are by no means flattering to Mr. Carter.
19 The same day that we met with Mr. Patton, a sizable stock options grant was transferred to the Corporation's Secretary and General Counsel, Ms. Maureen Scannell Bateman, Esquire, as reported to the Commission at: The SEC filing that disclosed this stock options grant included a footnote specifying that it was an award made through the Corporation's Equity Incentive Plan. Under the terms of the Equity Incentive Plan, the Board of Directors is permitted to grant options to Ms. Bateman (as corporate secretary) in a representative capacity, which she can subsequently transfer to third parties (for details of the Equity Incentive Plan's workings, please see State Street Corporation's 2000 Proxy Statement: The SEC may draw its own inferences as to whether or not the Corporation and its attorneys were offering "greenmail" in return for my agreement to cease my shareholder activism efforts. To the extent that the Corporation's management or its attorneys believed that money was my object, the talks were doomed to fail. Certainly, I have incurred monetary costs and damages (e.g., the expenses I incurred to present my proposal at the 2000 Annual Meeting, only to be censored by Mr. Carter). Certainly, I would like to recover those costs. But my principal focus remains reforming the Corporation's governance practices.
20 See In its 2000 debut, this proposal garnered more than triple the required votes to be eligible for re-submission in 2001 (see "Submission of Matters to a Vote of Security Holders", CalPERS supported the proposal in 2000 (Source:, visited April 7, 2000).
22 CalPERS' Proxy Voting Decisions:, visited April 18, 2001.
23 Please see, under "Submission of Matters to a Vote of Security Holders".
24 For example, Mr. Spina squelched discussion of the "destruction of evidence memo" referred to in Mr. Smith's letter: Mr. Spina has repeatedly cut off shareholder questions and comments concerning the interested transactions between the Corporation and the past or present Chairs of the Executive, Audit, and Nominating Committees, which are detailed in Mr. Smith's letter.
28 See, under "Submission of Matters to a Vote of Security Holders".
29 id.
30 CalPERS' Proxy Voting Decisions:, visited April 9, 2002.
31 See, under "Submission of Matters to a Vote of Security Holders".
35 See, under "Submission of Matters to a Vote of Security Holders".
37 See, under "Submission of Matters to a Vote of Security Holders".
38 I have since acquired 100 additional shares in an account over which State Street has no control.
39 Please see, e.g., Southgate & Glazer, Massachusetts Corporation Law and Practice, §7.12 ("Voting Rights Incident to Ownership of Shares").
40 Again, see, the tabulation provided by CitiStreet, the joint venture between State Street and Citigroup. This tally shows that the SSP accounted for approximately 4.2 million shares at the 2000 Annual Meeting (8.4 million shares following the 2-for-1 stock split in 2001).
41 See this order in Hoepner v. Wachovia: The Honorable Ben F. Tennille, Special Superior Court Judge for Complex Business Cases in North Carolina, issued this order, dated June 14, 2001. At §1(e)(3) of his order, Judge Tennille ordered Wachovia to turn over "all lists ... containing the name, address and number of shares of Common Stock attributable to any participant in any employee stock ownership plan, employee stock purchase plan, dividend reinvestment plan or other employee compensation or benefit plan of [Wachovia] in which the decision whether to vote shares of Common Stock held by such plan is made, directly or indirectly, individually or collectively, by the participants in the plan and the method(s) by which the undersigned or agents of the undersigned may communicate with each such participant". See also Weisman v. Plains Resources, Inc., 1989 Del. Ch. LEXIS 64. In this case the Delaware Chancery Court ordered the registrant to provide to the insurgent, inter alia, "a list or lists containing the name, address and number of shares attributable to any participant in any ... employee stock ownership or comparable plan in which the voting of such stock is controlled, directly or indirectly, individually or collectively by the participants in the plan." See also Shoen v. Amerco, 1994 U.S. Dist. LEXIS 21588. In Shoen, heard in the U.S. District Court for the District of Nevada, the court held that the defendant corporation had improperly solicited its employee stock ownership plan (ESOP) participants. The court ordered the removal of certain ESOP trustees and the appointment of new, neutral trustees. The court ordered that the new trustees send out curative soliciting materials to the ESOP participants, and enjoined the defendant's annual meeting from taking place for forty-five (45) days, "to allow sufficient time for resolicitation". The court ordered that all voting instructions received from ESOP participants thus far be voided. The court commanded the defendant to comply with all SEC filing requirements. The court enjoined all defendants and their "agents, servants, employees, attorneys, and everyone to whom knowledge of this Order shall come" from committing any further violations of the federal securities laws. The court ordered "that the solicitation and annual meeting process begin again, with the trustees playing a neutral role as supervisors of pass through voting".
42 See the U.S. Department of Labor's "Avon Letter" guidance at, and 29 CFR §2509.94-2 ("Interpretive Bulletin Relating to Written Statements of Investment Policy, Including Proxy Voting Policy or Guidelines"). See also Shoen v. Amerco, 1994 U.S. Dist. LEXIS 21588, supra.
45 When they finally capitulated, the Corporation's Board of Directors had Automated Data Processing ("ADP") supply the shareholder list data in question on an unwieldy (and damaged) magnetic tape the size of a medium pizza, in spite of receiving repeated requests that the data be supplied on a CD-ROM, formatted in MS Excel. This tactic added further delay. Access to a mainframe was required in order to read the damaged magnetic tape. ADP's website, personnel, and order form all make clear that the data can be supplied in the electronic format requested: see and
46 Judge van Gestel's official profile states that he worked at the law firm of Goodwin, Procter & Hoar from 1961 to 1996: Reportedly, he was a partner there for 26 of those years: According to SEC filings going back at least until 1995, Judge van Gestel's former law firm has served as legal counsel to the State Street Global Advisors Funds: Neither the judge nor defense counsel revealed these facts while Mr. Smith's case was pending. In an article titled "Judge Steps Down from Runway Case", the January 26, 2002 edition of The Boston Globe detailed another, nearly contemporaneous lawsuit in which Judge van Gestel's ties to his former law firm came into play: "Opponents of a new runway at [Boston] Logan International Airport celebrated yesterday after a superior court judge with ties to [the airport authority's] lawyers recused himself from ruling on whether the runway can proceed." Noting the judge's "anger and tone" when ruling on the recusal motion, the article goes on to say that "[r]unway opponents say they never accused van Gestel of impropriety, just with an appearance of impropriety."
47 "This matter comes before the Court on a motion by the defendant, State Street Corporation (`State Street'), pursuant to Mass. R. Civ. P. Rule 12(e) for a more definite statement in the complaint. Such a motion `is appropriate when a pleading is so impenetrable, so vague, ambiguous or muddled that a party cannot reasonably be expected to frame a response.' Smith and Zobel, Rules Practice, 6 M.P.S., sec. 12.19. That is not the case here ... the complaint can be answered. At the same time, the Court notes that much of what is sought seems now to be moot. The complaint seeks stockholder records - that the defendant claims to have produced - in anticipation of a stockholders meeting that began and ended before this motion was heard by the Court. ORDER: For the foregoing reasons, the defendant's motion for a more definite statement is DENIED. - Allan van Gestel, Justice of the Superior Court" While seeming to tacitly acknowledge that the defense motion was an inappropriate delay tactic, Judge van Gestel himself was at least as much to blame for the delay tactic's success as were the attorneys at Ropes & Gray, in my opinion. Judge van Gestel entirely sidestepped the issue of the Defendant's failure to turn over the (damaged) magnetic tape until after Mr. Smith filed suit in the Massachusetts Supreme Judicial Court, and he turned a blind eye to the Defendant's continued (and continuing) refusal to supply a list of the participants in the SSP.
48 I observed the motion hearing in person, since I was already in Boston for the 2002 Annual Meeting. Mr. Smith more than held his own, in my opinion.
49 Mr. Smith's brief is available on my website at: To see the Defendant's motion for a more definite statement:
51 Please see: I have articulated three purposes for seeking a special meeting of stockholders: (1) to seek to remove Mr. Casner and other directors, with cause; (2) to seek to enact certain mandatory amendments to the Corporation's Articles of Organization; and (3) to seek to enact certain mandatory amendments to the Corporation's By-laws.
52 Please see: This Ropes & Gray attorney states that "based upon the corporation's records, you do not have standing to make such a demand" for stockholder list data. The Corporation need only check the SSP's records to see the number of shares allocated to my account. He also states that I have "made representations before with respect to actions to be taken under Regulation 14A that have been false". Presumably, he means my attempts to obtain shareholder list data to communicate with other shareholders. This attorney has a lot of nerve accusing me of misrepresenting my previous attempts to act under Regulation 14A, given that it was his firm's stonewalling tactics and legal maneuvering that thwarted my intended timely actions under that regulation at every turn. Providing data to an insurgent at the eleventh hour, and then blaming that insurgent for not making use of the data in a timely fashion, is nothing short of Orwellian logic, in my view. Put another way, had I been provided the data in a timely manner, I would have undertaken the communications I envisioned. Ropes & Gray wants it both ways: (1) to run out time on the clock until it is no longer practical to make use of the shareholder list data in question, and then (2) to accuse me of misrepresenting my intended uses of that data because I failed to engage in a futile, last-minute solicitation effort for form's sake only.
53 As Supreme Court Justice Louis Brandeis said: "Sunshine is said to be the best of disinfectants." Or, as respected corporate governance activist Nell Minow says: "Boards of directors are like subatomic particles: They behave differently when being observed. And it never hurts to let them know they're being observed."
54 For example, at State Street's 2000 Annual Meeting, SEC staff could have seen, firsthand, how Mr. Carter refused to permit me to present my Rule 14a-8 proposal, the terms of Rule 14a-8(h) notwithstanding. Or, at the 2001 Annual Meeting, SEC staff could have seen, firsthand, how quickly Mr. Lopardo turned around in his seat when Mr. Smith mentioned the "destruction of evidence memo", or how Mr. Lopardo's face turned bright red before shareholders' eyes - whether from anger or embarrassment, or both, is anyone's guess - but chose to remain silent, rather than attempt to justify his handwritten memo. Or, at the 2001-2003 Annual Meetings, SEC staff could have seen, firsthand, how Mr. Spina cut off debate when the discussion turned to various directors' interested transactions.
55 For instance, at the 2003 Annual Meeting, the Chairman's "unofficial" PowerPoint presentation lasted longer than the entire "official" portion of the meeting (I timed it). In other words, Mr. Spina deemed his pre-canned PowerPoint presentation to be more important than shareholders' comments and questions - which he hastily cut off whenever the discussion turned to certain directors' interested transactions with the Corporation. Mr. Spina's PowerPoint presentation could have been webcast prior to the meeting, or the data could have been included in the annual report. In fact, his "unofficial" remarks - and only these sanitized remarks - were webcast after the meeting for public consumption (and gave a very misleading impression, indeed, to anyone who was unable to attend the "official" portion of the meeting in person). At one point in the "official" portion of the 2003 Annual Meeting, the Corporation's Secretary and General Counsel, Ms. Maureen Scannell Bateman, Esquire, literally missed her cue. The Chairman, pointing to his copy of the script at the podium, said something to the effect of "Maureen, I think you're supposed to say something." Seemingly embarrassed, she stood and read her lines. Although this incident had a touch of the comic to it, it is also a sad commentary on the degree to which the Commission has allowed these meetings to devolve into pro forma proceedings.
56 Meetings of Stockholders, Balotti & Finkelstein, Chapter 8 ("Conduct of Meeting").
57 Both Mr. Carter, and his successor, Mr. Spina, has acted to prevent State Street's stockholders from asking salient questions (and in the case of Mr. Carter, there is a videotape to prove it). It was proper for Mr. Smith to raise the issue of Mr. Lopardo's "destruction of evidence memo" at the 2001 Annual Meeting, in my opinion. That memo was a rightful matter of mutual concern for other owners of the company, and it bore directly upon the quality and integrity of the nominating processes that led to the decision to appoint Mr. Lopardo to the Board in the first place.
58 Put another way, with each proposed rule, the SEC should ask itself "What would Enron do" to skirt this rule? "What would Enron's attorneys do" to circumvent the intent of this rule? Or, the Commission might want to substitute "State Street Corporation" for "Enron". Please ask yourself those questions with respect to S7-14-03, and it will hopefully become clear to you that the SEC really does need to go back to the drawing board.
60 cc: Senator Robert C. Byrd, United States Senator
Senator John D. Rockefeller IV, United States Senator
Senator Paul S. Sarbanes, United States Senator
Senator Richard C. Shelby, United States Senator
Congressman Michael G. Oxley, United States Congressman

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

The Honorable Eliot Spitzer, Attorney General of New York

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