December 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary
Re: Amendments to Shareholder Proposal Rules (File No. S7-25-97)
Ladies and Gentlemen:
We appreciate the opportunity to provide you with our comments on the proposed amendments to the shareholder proposal rules as propounded in Release No. 34-39093. Hewlett-Packard Company("HP") designs, manufactures and services products and systems for measurement, computation and communications. We have approximately 100,000 shareholders of record and 550,000 beneficial shareholders. While, on average, we receive one or two shareholder proposals per year, it is not unusual for us to have several years with no proposals.
We recognize that the whole area concerning shareholder proposals is fraught with controversy with many of the shareholder proponents viewing this arena as an important public forum to discuss issues of concern to them. From our perspective, however, most of the issues raised using this process rarely receive more than four or five percent of the shares voted. This means that 95% or more of the shareholders voting on any given issue usually oppose the proposal or abstain. Accordingly, it seems to us that in order to truly reform the process, we should look for ways to make certain that the issues being proposed are issues which are truly relevant to the company's business and of general concern to a larger percentage of the shareholders.
We think that the rules as proposed represent a fair compromise package, but do not go quite far enough in their efforts to increase the resubmission thresholds and make certain that the proposal topics are truly relevant to the issuer's business. While we endorse the general approach taken by the release, we must emphasize that we do view the proposal as a compromise package and accordingly would strongly object to changes which adopted portions of the changes in a piecemeal fashion.
We feel that the proposed increases in the resbmission thresholds represent a significant improvement over the current system. Democratic principles would suggest that a majority vote should be dispositive of the issue. The ability of shareholder proponents to continuously resubmit proposals after receiving only a small percentage of the votes is a source of annoyance to issuers and many shareholders alike. Raising the resubmission thresholds will at least help to mitigate this problem.
We believe that the proxy statement should not be used to debate matters that are of little or no economic relevance to a particular company. Accordingly we support those provisions of the proposed amendments which reinforce this fundamental principle. We do, however, think that the $10,000,000 threshold is still too low for large companies. This level would represent only 0.03% of HP's current revenues which is hardly a material amount. A threshold which is based on a percentage of revenue would result in a fairer test of relevance. Since a 5% test is used in many other areas of the securities laws as a materiality threshold, we would suggest using a 5% test for establishing relevance under 14a-8(c)(5) as well.
While we can support this provision as part of a compromise package, we are concerned that the threshold is too low. Basic principles of corporate governance would suggest that a small minority of shareholders should not be permitted to micro-manage the day to day affaires of the company. The consent of at least 5% of the outstanding shares should be required before any kind of override is permitted to overturn the normal shareholder proposal process. An override should be treated as an exceptional event and accordingly should not have a trigger which is too easily achieved. Because of the opportunity for disruption by a large disgruntled shareholder, any proposal submitted using this override should also be precatory only and should not require company action.
We support the proposed new approach to handing personal grievance proposals. Given the threat of litigation, we do not think that issuers are likely to abuse this process and will omit proposals only where they are very confident that they can demonstrate that the proposal was submitted in furtherance of a personal grievance.
Reversal of Cracker Barrel
While we have appreciated having the bright line test provided by the Cracker Barrel decision, we recognize that its reversal is being sought by the proponent community as a condition of accepting this compromise package. On that basis we can support its reversal, but would like to see the decision preserved if the other elements of the Release are not adopted as part of the reform package.
Discretionary Voting of Proxies
We are very concerned that the 14a-4 end-run used by many shareholder proponents has created a dual track for shareholder proposals which vitiates the 14a-8 process. The "fix" proposed in the release does not go far enough to fix this problem. In fact, it seems to validate the process by merely pushing back the required notice period.
Other Proposed Modifications
We strongly support the use of the question and answer format for the rule. Since this is a rule which is likely to be referred to by many shareholders, it should be written in a plain English format so that its contents can be easily understood.
The proposed change in ownership thresholds from $1000 to $2000 does not make any meaningful change. Both are low dollar amounts which pose no real barrier to submitting a shareholder proposal.
We feel that the requirement that shareholders hold shares for at least one year prior to submitting a proposal is a fair rule as it will help ensure that the shareholder has a long-term commitment to the issuer.
Thank you for the opportunity to submit these comments.
Very truly yours,
D. Craig Nordlund
Associate General Counsel & Secretary
3000 Hanover St. M/S20BQ
Palo Alto, CA 94304