December 30, 1997 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Request for Comments on Amendments to Rules on Shareholder Proposals, Securities Exchange Act Release No. 39093 (September 18, 1997), File No. S7-25-97 Dear Mr. Katz: On behalf of BellSouth Corporation ("BellSouth" or the "Company"), we hereby submit comments on the proposed amendments to Rule 14a-8 and related rules governing the process by which shareholders can submit proposals to be included in a company's proxy materials. As a preliminary matter, we would state that we applaud the Commission's efforts to find the correct balance between the desire of shareholders to have unrestricted access to a company's proxy materials, and the desire of corporations to tightly control access to those materials in order to control administrative burdens and costs. We believe that the Commission must ensure that the shareholder proposal rules prevent what we perceive to be an increasing use of Rule 14a- 8 to advance issues that are of little interest to the overwhelming majority of a company's shareholders, or to pressure a company's management to respond to personal or hidden agendas. The ever-increasing number of shareholder proposals received by BellSouth leads us to believe that, although the Commission's rules should not be designed to eliminate all proposals entirely, the rules should enable registrants to screen out proposals that are inappropriate or irrelevant to the vast majority of their shareholders. Resubmission Thresholds. BellSouth strongly supports the proposal to raise the threshold for resubmission of a shareholder proposal to 6%, 15% and 30% for the first, second and third resubmissions, respectively. If a proposal is rejected by an overwhelming majority of shareholders year after year, it becomes a waste of the corporation's (and its shareholders') time and money to continue to include the proposal in its proxy materials. If more than 70% of a company's shareholders are not swayed after considering the proposal three times, it seems highly unlikely that a majority would be swayed in the fourth year. We therefore believe that the proposed resubmission thresholds are appropriate and should be adopted. In our view, the proposed rules as a whole weigh significantly in favor of shareholder proponents and will result in the submission of an increased number of proposals for inclusion in our proxy materials. We therefore believe that the increase in the resubmission levels is critical to achieving at least some balance in the proposed rules. Rule 14a-8(c)(5) -- the "Relevance Exclusion". We agree that the "relevance" exclusion should be made into a straightforward test of economic significance by dropping the "otherwise significantly related" test. The "significantly related" test added great uncertainty to application of the rule, even in cases in which the issue addressed by the proposal clearly had very little impact on a company's financial performance. However, we strongly disagree with using a threshold of $10 million to determine economic significance. To a company such as BellSouth or any of its peers, $10 million is clearly insignificant and should not be used as a justification for including a shareholder proposal. Indeed, if the $10 million threshold is retained, it is difficult to see how any proposal would be excludable based on this rule. In BellSouth's case, $10 million represents .00052% of our 1996 gross revenues -- surely an insignificant amount by any standard. We would support the use of a percentage test for all companies, but suggest that the test should be not the 5% currently in place, or the proposed 3%, but rather 10% of gross revenues -- an amount that would be material to a corporation, and therefore an appropriate threshold for determining economic significance. "Override" Mechanism. BellSouth strongly opposes the creation of an override mechanism with respect to the relevance and ordinary business exclusions. We believe that allowing such an override could open the process to abuse and puts too much control in the hands of possibly a single shareholder who holds a relatively small number of shares. Major institutional investors, who typically hold small percentages of the stock of many issuers, would have the ability to virtually control the shareholder proposal process at numerous companies. Moreover, the implementation of the override mechanism, rather than simplifying and expediting the shareholder proposal process, would make it much more complex and expensive for registrants. It would, in essence, convert what is today one battle (the underlying (c)(5) or (c)(7) dispute) into two (the underlying dispute and the override effort), clearly an undesirable and costly result. At the very least, if the override mechanism is retained, we would make the following suggestions: 1. We strongly urge the Commission to raise the percentage requirement to 6% rather than 3%. Sections 13(d) and 14(a) of the Exchange Act use 5% as a significant threshold, and 10% is deemed significant for purposes of Section 16 of the Exchange Act. We believe that 3% is far too low a level of ownership to allow one or a small group of proponents to have unfettered access to the Company's proxy solicitation materials. The percentage should not change dependent upon the size of the issuer. 2. The override mechanism should only be available with respect to proposals that only recommend action by the company, and not to those proposals that purport to compel any corporate action. 3. Shareholders should be allowed to sponsor or endorse only one proposal per company each year. This limitation is consistent with the current limitation in Rule 14a-8(a)(4) which allows sponsorship of only one proposal per year. Deadline for Submission of Issuer's Position. We believe that the proposed change in the time in which an issuer is required to submit its position on a shareholder proposal -- from 80 days prior to the date proxy materials are mailed to 40 days after receipt of the proposal -- would substantially increase the burden shareholder proposals place on the issuer, as well as the burden on the staff of the Division of Corporation Finance. In many cases, the issues raised by shareholder proposals are resolved through discussion and negotiation between the issuer and the shareholder. This process often takes a substantial amount of time. By limiting the time in which an issuer must submit its argument to the Commission, the proposed rules would greatly reduce the possibility of an agreement being reached with the proponent. A greater number of proposals would therefore require Staff intervention, and the burden on the Staff to respond to the proposals would increase as a result. Cracker Barrel Reversal. We believe that the reversal of Cracker Barrel would be a serious error. The proxy statement is not an appropriate forum in which to debate social policy issues, and the reversal of Cracker Barrel would open the proxy statement to debate on all kinds of social issues. The Board of Directors of a corporation has the responsibility of determining what actions are in the best interests of the corporation and its shareholders. We do not believe that a small group of shareholders with a particular social agenda should be allowed to use the proxy statement to air its views if the Board of Directors does not agree that the issue is significant to its shareholders. BellSouth recognizes that the reversal of Cracker Barrel is proposed as one element of the overall package presented in the Release. We are concerned, however, that other elements of the package will be altered or eliminated and Cracker Barrel still reversed. Although we disagree with the reversal of Cracker Barrel under any circumstances, it certainly should not be reversed except as part of a balanced package which includes the proposed increase in resubmission thresholds. Eligibility Requirements. We agree with the proposal to increase the current $1,000 stock ownership requirement, but believe that the proposed requirement of a minimum of $2,000 stock ownership is still too low, particularly if a number of shareholders can aggregate their holdings to meet the eligibility requirement. For a company as large as BellSouth, $2,000 market value is an insignificant amount and should not be enough to allow the shareholder to air his or her views in the proxy statement. Finally, we support the proposed preservation of the requirement that in order to be eligible to submit a proposal, the shareholder must have held the securities for at least a year and must continue to hold those securities through the date of the meeting. Discretionary Voting Authority. If adopted, we believe that proposed Rule 14a-4(c) would encourage shareholders to by-pass the shareholder proposal process established by the Commission in Rule 14a-8. The proposed rule are vague as to what constitutes "notice" from a shareholder and do not define what sort of "discussion" an issuer must include in the proxy statement in order to pass the test for discretionary voting authority. We agree that providing some certainty to the definition of "reasonable time" under Rule 14a-4(c)(1) would be extremely constructive. However, we are concerned that 45 days prior to the date an issuer mailed its prior year's proxy statement might not be a long enough notice period, given the amount of time many companies take to analyze proposals and prepare and print their proxy materials generally. Although companies with advance notice provisions of longer duration would be in a better position to address proposals under Rule 14a-4, we suggest that the minimum period be extended from 45 days to at least 60 days so all companies would have a sufficient notice period. We also believe it is unnecessary and burdensome to require companies that have received adequate notice of a non-Rule 14a-8 proposal to "discuss" rather than simply disclose or advise of the nature of such proposal in their proxy materials, to file their proxies in preliminary form and to add proxy card boxes to withhold discretionary authority in situations where there is no burden on proponents to show they will actually solicit proxies. We appreciate having this opportunity to offer our comments and suggestions concerning the proposed amendments. Very truly yours, Marcy A. Bass General Attorney & Assistant Secretary