As a director of WFrom: Jim Slavik [JSlavik@markiv.com]
Sent: Tuesday, December 16, 2003 6:23 PM
To: rule-comments@sec.gov
Subject: Security Holder Director Nominations (File No. S7-19-03)

December 16, 2003 

 

 

Mr. Jonathan G. Katz, Secretary 
United States Securities and 
   Exchange Commission 
450 Fifth Street, NW 
Washington, DC 20549-0609 

Re:      Security Holder Director Nominations (File No. S7-19-03)

Dear Mr. Katz:

As a director of W.W. Grainger, Inc., a New York Stock Exchange-listed company, 
I appreciate the opportunity to comment on the proposal of the Securities and 
Exchange Commission to provide shareholders direct access to company proxy 
soliciting material to nominate directors under certain circumstances.

Widely known corporate failures have demonstrated that sound corporate governance 
practices are not universally followed, and recent legislation, Commission action, 
and regulatory standards have addressed these concerns.  Therefore, I am opposed 
to the proposal for the following reasons:

1.         The Sarbanes-Oxley Act and implementing SEC regulations, the now-final 
enhanced corporate governance standards of the New York Stock Exchange and other 
of the regulated securities markets and the increased corporate governance demands 
of the capital markets already require significant changes in corporate governance 
practices.  These changes not only require enhanced independence and accountability 
for board and nominating committees but also provide for enhanced methods for 
shareholder communication to the directors.  The effectiveness of these many 
reforms should be demonstrated before overlaying a complex director nomination 
process of uncertain consequence.

2.         State law already imposes on directors the fiduciary duty of acting in 
the best interests of all of the shareholders.  The board’s nomination of director-
candidates is consistent with this duty.  It is based on the understanding that the 
board is best positioned to assess the qualifications of nominees.  Through this 
process, the board can take into account many factors in addition to the independence 
and other requirements imposed by the new legislation and regulations, such as the 
need to have various strengths and expertise that will result in a well-rounded board 
as a whole.  While boards may consider and are strongly encouraged to consider 
shareholder nominees, the ultimate responsibility for selecting the right mix of 
nominees rests with the board.

3.         In contrast, it is possible that shareholders may act on the basis of 
self-interest, not the interest of all shareholders.  They have no fiduciary duties 
to the company or other shareholders in connection with director nominations.  They 
may nominate director candidates for any number of purposes, regardless of whether 
those purposes are designed to promote other agendas.  Direct shareholder access to 
company proxy soliciting material could undercut the role of the board and its 
independent nominating committee and ultimately diminish board accountability to 
shareholders.

4.         There is a real question whether contested elections represent the best 
approach for enlisting the services of the most able, qualified and independent 
directors with the needed skills and experiences critically needed by the company 
for the benefit of all shareholders.  For this role, the newly required independent 
nominating committee, not direct shareholder nominations, is naturally suited.

It may be that facilitating these contests and accepting the other consequences, 
both as outlined above and others yet unknown, are necessary to encourage the 
corporate governance processes that we all recognize as critical.  At this point, 
however, we just do not know that to be the case.  The new corporate governance 
reality may achieve this laudable goal.  We should find out.

Sincerely,

 
James D. Slavik