United Brotherhood of Carpenters and Joiners of America
September 15, 2003
Jonathan G. Katz
Re: File No. S7-14-03
Dear Secretary Katz:
The United Brotherhood of Carpenters and Joiners of America ("UBC") would like to voice its support for the U.S. Securities and Exchange Commission's ("Commission") rulemaking proposal to expand required proxy statement disclosure on important aspects of the director nomination and election processes. We commend the Commission for initiating this timely review of board of director nomination and security holder-board communication processes. We support the proposed disclosure and urge consideration of additional disclosure requirements that we believe will advance the Commission's objective to enhance the transparency of the policies and practices of corporate boards and their key committees.
The UBC represents over 560,000 working men and women in the United States and Canada in the construction, wood products, and related industries. Our members' retirement interests are held in 100 Taft-Hartley pension trusts with cumulative assets of approximately $38 billion. Over the past two decades, UBC funds have been leading shareholder activists working to improve corporate governance and enhance long-term corporate and pension fund value. We appreciate this opportunity to voice our positions on the important issues raised in the proposed rulemaking.
Our comment first addresses the specific new proxy statement disclosure proposed in the rulemaking and then it outlines additional disclosure requirements that we believe go directly to the heart of the issue of enhancing director accountability to security holders. As proposed, the new director nomination and shareholder-director communication disclosure requirements will provide security holders with a better understanding of the nomination and election processes, the qualities and capabilities of the board, while facilitating constructive communication between security holders and directors.
Nominating Committee and Nominating Process Disclosure
We strongly support the proposed disclosure concerning a company's nominating committee and its board of directors nominating process. Disclosure of information concerning a company's director nominating process, security holders' board candidate nomination rights, board nominee qualifications, nominee selection and evaluation processes, and rejected security holder-nominated candidates would be highly valuable to security holders. The proposed proxy material disclosure would be a highly effective means to increase security holder understanding of general corporate governance policies and director nominating processes, and enhance board accountability and responsiveness. Further, this information will enable security holders to constructively participate in the director nomination process.
We have the following comments with regard to the proposed proxy material disclosure and the questions raised concerning specific disclosure items:
Disclosure Regarding the Ability of Security Holders to Communicate with the Board of Directors
We believe that the proposed disclosure of the availability of a process for shareholders to communicate to members of the board of directors advances the goals of improving the transparency of board operations, as well as security holder understanding of the companies in which they invest. Increased security holder-director communication process disclosure would improve board accountability, board responsiveness and corporate governance policies. It is most important that there be proxy material disclosure as to whether or not a company has established a process for security holders to communicate with board members or some subset of the entire board. Further, the communication process should be described in general terms in the proxy materials and specific details of the communication process should be posted on the company's website. Website disclosure could provide a level of detail, such as director e-mail addresses, that might not be appropriate for proxy materials. Website disclosure would be the appropriate place to describe the volume and nature of security holder communications and any actions taken by the board or its committees in response to positions conveyed by security holders to directors.
On the issue of the nature of the communication processes established by companies for security holders to communicate with directors, board committees, and the full board, we note the ongoing work of a joint task force formed by the Council of Institutional Investors and the National Association of Corporate Directors to study the issue. The task force's forthcoming recommendations could be very constructive in providing guidance for companies and the Commission in the exercise of its rulemaking authority. Also, the work of the New Foundations Working Group entitled "Improving Communications Between Corporations and Shareholders" which was issued by the Center for Business and Government at Harvard University's Kennedy School of Government in 1994 provides a good overview of communication mechanisms and the substantive areas of communications that should be considered in a security holder-board communication process.
Additional Proxy Material Disclosure that the Commission Should Consider
We recommend Commission consideration of two additional areas of proxy material disclosure that we strongly believe would advance the goals articulated by the Commission for its rulemaking proposal. Proposed disclosure concerning security holder board nomination participation rights and mechanisms by which security holders can communicate with boards of directors and individual directors are prompted in part by security holder desires for greater insight into the workings of corporate boards at a time when investor confidence in the market has been severely shaken. Proxy material disclosure that provides shareholders concise information concerning important board actions and duties could help address many of the concerns of investors today.
Security holder anger and frustration has been created by companies that refuse to act on majority vote shareholder proposals or even to provide security holders with a board's rationale for not implementing the actions called for by the proposal. A board may have legitimate reasons for not taking the action called for by a majority vote of the security holders, but the board has an obligation to security holders to explain its actions or failure to act. The failure of corporations to implement majority vote proposals has heightened tensions between investors and boards and has fueled the call for proxy access and enhanced board accountability. Clear disclosure by a board of its responsive actions or inaction in response to a majority shareholder proposal vote would be a constructive step in ensuring a greater level of management accountability and fostering better security holder understanding of a board's position on an important governance issue.
Current proxy disclosure requirements provide security holders a range of useful information on important duties performed by the board of directors in the area of executive compensation and the retention and supervision of a company's independent audit firm. But little or no disclosure is required on the critically important board roles in the setting and monitoring of corporate strategy and succession planning for senior executives. Proxy material disclosure on these important board duties would help address investor concerns that have prompted the call for an enhanced role in director elections. Just as directors monitor management, security holders have the right and duty to monitor directors. In addition to detailed information concerning the process for nominating directors, security holders also need information about the directors' substantive performance. Most importantly, security holders would be better able to be effectively monitor corporate and board performance in these crucial areas. Disclosure on these matters would serve to both elevate and temper the discourse between investors and corporate boards. We urge that consideration be given to combining this disclosure with the disclosure called for in the rulemaking into a new Board Nominating Committee Report or a Board Nominating and Governance Committee Report requirement.
The proposed rulemaking on director nomination procedures and the security holder-board communication process is an important step that will advance the interests of both investors and corporations. Better disclosure in both of these areas and those additional areas addressed above will help promote a long-term patient investment perspective among investors that is critically important to creating a management environment in which long-term corporate value growth can be pursued. Thank you for this opportunity to comment on these matters of critical importance to our members.