Date: 11/21/97 2:07 PM Subject: s7-26-97 / BankAmerica Corporation November 12, 1997 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Comments on H.R. 944 and H.R. 945 (3/5/97), Corporate Charitable Gifts (File No. S7-26-97) Dear Mr. Katz: The Commission has requested comment on H.R. 944 and H.R. 945 (introduced on March 5, 1997 by Representative Gillmor). H.R 944 would require that companies disclose corporate charitable giving for the prior fiscal year in connection with every solicitation of a proxy. H.R. 945 would provide for a shareholder vote on corporate charitable gifts. BankAmerica Corporation ("BAC") opposes both bills for the following reasons. H.R. 944 Ambiguous The bill is ambiguous. It contains no definition of "charity" or "local charity," which could cover a range of different entities. Some companies have programs under which an employee's charitable gifts are matched by the employer. In the case of the United Way, an employee may designate the United Way client charity to receive the donation. The bill could be read to require disclosure of each employee's gift, which may prompt employees to decline to participate. The bill does not specify whether a gift to a large institution that aids other groups, such as the United Way or Catholic Charities, would be disclosable as one gift, or whether companies would have to disclose the ultimate recipients of the gifts. Nor is it clear whether gifts by corporate foundations such as the BankAmerica Foundation are disclosable. Counterproductive Requiring companies to track and disclose this information will result in additional costs which may cause some companies to reduce their charitable giving to compensate. Given the additional reporting burden, corporations that now give to numerous charities may decide to reduce the number of recipients, in order to streamline their disclosure obligations. In an era of government cutbacks of support for nonprofit organizations and social programs in general, with calls for more support from the private sector, it appears somewhat inconsistent to adopt legislation that may discourage private giving. The bill is unnecessary. Many companies, including BAC, already make appropriate information available to interested shareholders. BAC shareholders may call our Corporate Community Development department for a list of BAC's charitable grants. Shareholders who believe more information is appropriate at any given company may submit a shareholder proposal. Discriminatory To the extent that it permits the Commission to exempt from disclosure any gifts to public or private nonprofit educational institutions and "local" charities, the bill unfairly discriminates against other charities. H.R. 945 Ambiguous This bill is equally ambiguous. It is unclear whether shareholders may only approve or disapprove management's selection of charities, or whether they may "write-in" their own choices. Assuming write-ins are permitted, the bill does not limit the number of charities a shareholder could choose. The bill vaguely calls for "participation" of shareholders "on a basis proportional to the number of shares owned or controlled." The language could mean that shareholders may designate a dollar amount to each charity. If so, the bill could bankrupt a corporation, since it provides no contribution limits. Or, it could mean that every dollar of corporate giving must be distributed to charities pro rata based upon the votes received by each. Also, the bill does not state whether a designation of "additional recipients of such contributions" by the company would affect the size of gifts given to those charities approved by shareholders. It is also uncertain whether the company is bound to follow shareholder designations. The bill's preamble states that its purpose is to require corporations "to obtain the views of shareholders concerning corporate charitable contributions" rather than to substitute shareholder judgment for that of management. Also, it is unclear what, if any, effect the bill would have on corporate matching gift programs. It could be read to override a corporate matching gift if the recipient has not been approved by shareholder vote. Sometimes, companies direct their giving toward specific relief efforts in response to natural disasters and other sudden occurrences. Presumably, such initiatives must await shareholder vote, thereby preventing the corporate community from rendering immediate assistance to the needy without holding a special shareholders' meeting, a costly and impractical choice. The bill does not indicate whether gifts by corporate foundations are covered. One might assume that they are not, since foundations are different legal entities that do not participate in the proxy solicitations of their sponsoring corporations. There is no definition of "local charity," which the bill allows the Commission to exempt from coverage. For example, there is no way to determine whether the local branch of a larger charity, such as the United Way or the Red Cross, is covered. Counterproductive Corporations make donations to aid their communities and to create a favorable impression of themselves in the minds of the public. Corporations wish to be perceived by their customers and potential customers as good corporate citizens ready to help the community when needed, in the hope that their reputation will increase their business. The bill would completely reverse this rational giving process and substitute a helter-skelter procedure which could seriously damage a company's relationship with its community. Shareholders may designate charities located far beyond the company's geographic location, from which the corporation would receive little or no public relations benefit. The bill does not restrict shareholder designation only to institutions eligible for tax deductible charitable donations. Shareholders could designate any institution or individual, including themselves, or those with interests adverse to the company, which could cause more harm to the company than good. This bill would be extremely difficult to implement. It would require additional proxy tabulation and inspection services. Companies would have to account for and track a potentially limitless and ever-changing number of charities. We understand that there are over 600,000 institutions that currently have 501(c)(3) status with the IRS. We estimate it would cost over $1 million to institute the new voting procedure at BAC. Also, we may need to educate shareholders as to why these matters are now being submitted for vote. For us, a special shareholder mailing for this purpose would cost approximately $250,000. These additional expenses would make corporate charitable giving more costly and likely reduce the amount of future giving. As noted above regarding H.R. 944, in an era of government cutbacks of support for nonprofit organizations and social programs in general, with calls for more support from the private sector, it appears somewhat inconsistent to adopt legislation that may discourage private giving. Discriminatory The bill suffers from the same discrimination problems of H.R. 944. There is no indication why "local" charities should be subject to exemption by the Commission, or why nonprofit educational institutions are favored versus religious institutions such as Catholic Charities and groups such as the Red Cross which are not educational institutions. By excepting tangible personal property the bill unfairly favors manufacturing companies and retailers versus companies like BAC which have no products to donate. The bill would also allow large shareholders to monopolize corporate giving since they hold more proportional voting power. Conclusion In short, these bills strike us as an attempt to micro-manage corporate affairs. As the Commission stated in connection with proposed amendments to the shareholder proposal rules: Certain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight. (34-39093, 9/18/97). The Commission also stated in the release that one of the considerations behind the exclusion of proposals on "ordinary business" grounds is "the degree to which the proposal seeks to 'micro manage' the company by probing too deeply into 'matters of a complex nature that shareholders, as a group, would not be qualified to make an informed judgment on, due to their lack of business expertise and lack of intimate knowledge of the (company's) business.'" The quote fairly well describes the effect of these bills. Shareholders who wish to make charitable contributions would be better off either donating some of their dividends or selling some of their shares and donating the proceeds, which would be simpler administratively and would provide a charitable contribution exemption directly to the shareholder. If you wish to discuss these comments, please contact me at 415/622-2091. Sincerely, /s/Cheryl Sorokin Cheryl Sorokin Executive Vice President and Secretary 123872 Jonathan G. Katz, Secretary November 12, 1997 Page 5