NACD

March 9, 2004

Re: File Number S7-19-03

Mr. Jonathan Katz
Secretary
U. S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Dear Mr. Katz:

On behalf of the membership and board of the National Association of Corporate Directors (NACD), we commend the Securities and Exchange Commission and its staff for your ongoing efforts to defend the rights of shareholders and to protect the value of their investments. As the Commission and staff have often noted, achievement of these worthy goals requires independent and effective boards of directors. At NACD, we understand the importance of such boards. With more than 16,000 members and customers built up over nearly 30 years of existence, NACD is the only recognized nonprofit membership organization in the United States exclusively devoted to the education of corporate directors and the improvement of corporate governance.

With this letter, we would like to follow up on our earlier comments on the proposed rule on "Security Holder Director Nominations" (34-48626). As we stated in our letter of December 22, 2003, corporate boards of directors are now faced with a significantly changed corporate governance landscape. New legislation, regulations, and listing rules will have a profound impact on the governance of American corporations. In our letter, we recommended that the investing public be given additional time to evaluate the impact of new reforms prior to the launch of yet another regulatory initiative that could dramatically alter the composition and leadership of boards.

In the past three months, we have seen strong evidence that reforms are working, making the proposed dramatic changes to the proxy process even more undesirable. We note the following positive changes:

• Some companies have made great strides in communicating with their shareholders and giving them increased access. For example, Apria Healthcare has created its own mechanism to ensure a shareholder voice in director elections.
   
• An increasing number of companies over the past decade have formed independent nominating committees to nominate directors. Ten years ago, only one out of four companies had such committees. That number has doubled, according to the NACD survey report for 2003-2004. Furthermore, three out of every four boards today have a majority of independent outside directors-up from all previous years.
   
• Furthermore, the 2003-2004 survey suggests that most of these committees (nearly half of all boards) are using executive search firms to find their directors--yet another indication of independence.
   
• The latest NACD survey also shows that in recruiting candidates, boards look for a variety of qualifications, including (in order of importance) integrity, intelligence, expertise, and time and commitment.
   
• As for time, the survey shows an increase in the number of hours spent on board and committee meetings, which now averages 156 hours per year. Committee service averages 66 hours per year, a rise from past years.
   
• To help boards develop best practices in communications with shareholders, NACD joined with the Council of Institutional Investors to form a Joint Task Force on Board-Shareowner Communications, co-chaired by Peter M. Gilbert, Chief Investment Officer, Pennsylvania State Employees' Retirement System, and Warren L. Batts, retired CEO and Chairman, Premark, and corporate director. On March 1, 2004, the Task Force published its report, which included recommended five best practices as follows:
1. The starting point for board-shareowner communications is an ongoing communications program that includes regular, comprehensive, and publicly available disclosures about important topics, including performance and governance issues.
    
2. Boards should provide detailed contact information for the corporate secretary and/or other management representative and for at least one independent director.
    
3. To facilitate the communications process, boards should detail which issues are appropriate for them to address and which are appropriate for management.
    
4. Boards should develop and disclose communications policies covering all forms of communication, including in-person meetings, telephone calls, e-mail, and other written communications.
    
5. Boards should take an active role in developing and adhering to communications policies, and ensure that communication efforts and policies are up to date and effective.

As an attachment to this letter, we enclose a copy of the full Task Force report. We believe that voluntary initiatives like these will ensure accomplishment of the Commission's worthy governance goals.

NACD has been an important part of the positive evolution of corporate governance in recent years and months. We have seen improvement in the nomination of directors, and we believe that it will continue. New stock market listing rules and SEC regulations ensure this positive evolution. A revolutionary approach to director nominations could be counterproductive at this time.

NACD has been an important part of the positive evolution of corporate governance in recent years and months. We have seen improvement in the nomination of directors, and we believe that it will continue. New stock market listing rules and SEC regulations ensure this positive evolution. A revolutionary approach to director nominations could be counterproductive at this time.

Attachment/Enclosure:
Report of the Council of Institutional Investors-National Association of Corporate Directors Task Force on Board-Shareowner Communications