RELATIONAL INVESTORS LLC
11975 El Camino Real, Suite 300
San Diego, California 92130
Telephone (858) 704-3333
Facsimile (858) 704-3344

VIA EMAIL

December 21, 2003

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

Re: File No. S7-19-03

Dear Mr. Katz:

Relational Investors LLC ("Relational") is a $2.2 billion registered investment adviser, specializing in strategic investments in publicly traded companies. Relational, as a significant shareholder, has often sought board representation at its portfolio companies. On behalf of Relational, I am pleased to comment on the U.S. Securities and Exchange Commission's ("Commission") proposed rule for security holder director nominations.

We commend the Commission for taking action toward such reform. Access to the proxy for director nominations could be a very useful and constructive tool. By providing shareholders such access, the Commission will inject an increased level of accountability into the director selection process.

The most powerful impact of the proposed rule will not flow from the contests themselves, but rather the potential challenges will have on the boards and management teams of underperforming companies. The proposed rule, if properly constructed, will cause corporate boards to take preemptive steps to ensure that their boards are not vulnerable to these challenges. This phenomenon will have the general impact of upgrading the quality and independence of corporate directors.

Unfortunately, as an asset manager with a relational-based strategy, we, and ultimately our clients, would not benefit from the rule as it is currently constructed. Other asset managers with similar "relational" investment strategies would also not avail themselves of its added benefit.

We direct our comments to two primary areas: triggers for access and the definition of director independence.

  • Triggers. The proposed rule should focus on minimum requirements, such as the 5% beneficial ownership threshold, rather than reverting to triggers for shareholder proxy access. Triggers assume something must go wrong before shareholders can exact accountability from corporate managers. In certain circumstances the damage is costly and/or irreversible. Disallowing preventative measures, such as the challenge of a large shareholder for a board seat, is contrary to spurring a company's optimal performance. We believe shareholders that meet certain minimum ownership requirements and provide proper disclosure should be allowed to efficiently participate in the director nomination process.

  • Director Independence. We are baffled as to why the Commission's proposed rule considers share ownership a conflict of interest. We believe that shareholders, certainly at levels below 20%, are ideal independent directors. Such directors' interests are directly aligned with the other shareholders they represent.

    The proposed rule should not exclude long-term shareholders or publicly traded companies from this potentially beneficial process. This exclusion throws the proverbial baby out with the bath water. The definition of director independence, as currently written, removes shareholders' authority to nominate and select the most qualified board members. Relationships between a shareholder and the nominee would be fully disclosed in the proxy and would address perceived or potential conflicts of interests. The ultimate decision of whether a nominee is elected will still reside with the shareholders. The company and its incumbent board would have ample opportunity during the proxy voting process to point out any concern regarding a particular nominee's fitness for service.

    In my 15 years of experience working with board members of public companies and through the experience I have gained by serving as Chairman and director of public companies, I have witnessed the benefit of having a large shareholder on the board. For example, as principals of Relational Investors, David Batchelder and I have each served on four boards of our portfolio companies. At each board meeting we contribute the knowledge of a team of analysts who have worked for months, or even years, on a focused, methodical plan for creating long-term value at that company. Our presence as a large shareholder injects a positive dynamic into the boardroom.

As chairman of the board of Apria Healthcare Group Inc., the largest home healthcare company in the world, I advocated, and Apria's board of directors recently adopted, a "shareholder access" policy. As illustrated by Apria's policy, a regulatory scheme can be readily devised that provides reasonable access for shareholders with long-term commitments to their companies. The complete policy was filed with the Commission in Apria's Proxy Statement dated June 11, 2003, and is attached hereto. The policy's key provisions are:

  1. The Company will include in its annual meeting proxy statement information concerning up to two nominees submitted by any stockholder or group of stockholders.

  2. For inclusion in the Company's proxy statement, a stockholder nomination must be submitted by one or more stockholders that have owned beneficially at least 5% of the Company's common stock for two years or more, as of both the date the nomination is submitted and the record date for the annual meeting. Each stockholder or group of stockholders submitting nominations in accordance with this policy is referred to herein as a "Nominating Stockholder." A stockholder may only participate in the nomination of two candidates.

  3. The information included in the Company's proxy statement concerning each stockholder nomination will be limited to that information concerning the candidate and the Nominating Stockholder required to be disclosed in accordance with the rules of the Securities and Exchange Commission.

  4. Stockholder nominations must be submitted to the Secretary of the Company, in writing, not less than 90 nor more than 150 days prior to the first anniversary of the Company's previous annual meeting. Each nomination must indicate the incumbent director for whose board seat the nomination is submitted.

  5. Only two stockholder nominations will be included in the Company's proxy statement for each board seat. If more than two such nominations are received by the Company for the same board position, the nominee(s) of the Nominating Stockholder(s) beneficially owning the most shares of the Company's common stock will have priority.

  6. Any Nominating Stockholder nominee who does not receive at least 25% of the votes cast in the related election of directors will be prohibited from serving as a Nominating Stockholder nominee for four years from the date of the annual meeting in question.

We appreciate your willingness to consider our comments. We would welcome the opportunity to participate in an open dialogue with the Commission and its staff to consider these and other improvements to the proxy voting system.

Sincerely,

/s/Ralph V. Whitworth

Ralph V. Whitworth
Principal

Enclosure

APRIA HEALTHCARE GROUP INC.

POLICY REGARDING
ALTERNATIVE DIRECTOR NOMINATIONS BY STOCKHOLDERS

  1. The Company will include in its annual meeting proxy statement information concerning up to two nominees submitted by any stockholder or group of stockholders in accordance with this policy. The form of proxy solicited by the Company will include the names of stockholder nominees, in addition to the nominees approved by the Board of Directors.

  2. For inclusion in the Company's proxy statement, a stockholder nomination must be submitted by one or more stockholders that have owned beneficially at least 5% of the Company's common stock for two years or more, as of both the date the nomination is submitted and the record date for the annual meeting. Each stockholder or group of stockholders submitting nominations in accordance with this policy is referred to herein as a "Nominating Stockholder." A stockholder may only participate in the nomination of two candidates.

  3. The information included in the Company's proxy statement concerning each stockholder nomination will be limited to that information concerning the candidate and the Nominating Stockholder required to be disclosed in accordance with the rules of the Securities and Exchange Commission ("SEC"). The Nominating Stockholder will be responsible for providing a written statement of such information at the time the nomination is submitted. Nominating Stockholders are responsible for any proxy solicitation activities in which they wish to engage, including compliance with applicable SEC rules.

  4. Stockholder nominations must be submitted to the Secretary of the Company, in writing, not less than 90 nor more than 150 days prior to the first anniversary of the Company's previous annual meeting. Each nomination must indicate the incumbent director for whose board seat the nomination is submitted. The Nominating Stockholder and each of its nominees must submit, with the nomination, a signed statement acknowledging that:

      a) each nominee, if elected, will represent all Company stockholders in accordance with applicable laws and the Company's charter and by-laws;

      b) each nominee, if elected, will comply with the Company's (i) Code of Ethical Business Conduct, (ii) Code of Business Conduct and Ethics for Members of the Board of Directors, (iii) Stock Ownership Requirements for Directors, (iv) Corporate Governance Guidelines, and (v) any other applicable rule, regulation, policy or standard of conduct applicable to the Board of Directors and its individual members; and

      c) the Nominating Stockholder will maintain beneficial ownership of at least 5% of the Company's common stock through the date of the annual meeting at which the Nominating Stockholder's nominee(s) will stand for election.

    In addition, each nominee must submit a fully completed and signed Questionnaire for Directors and Officers on the Company's standard form, and each Nominating Stockholder must agree that any form of proxy solicited by it will include, in addition to the name(s) of its nominee(s), the names of all other nominees appearing in the Company's proxy statement.

  5. Upon receipt of a Nominating Stockholder nomination, the Corporate Governance and Nominating Committee of the Board of Directors shall seek to communicate with the Nominating Stockholder for the purpose of discussing, among other things, the possibility of the Nominating Stockholder's nominee(s) being included in the Company's slate of director nominees.

  6. Only two stockholder nominations will be included in the Company's proxy statement for each board seat. If more than two such nominations are received by the Company for the same board position, the nominee(s) of the Nominating Stockholder(s) beneficially owning the most shares of the Company's common stock will have priority.

  7. Any Nominating Stockholder nominee who does not receive at least 25% of the votes cast in the related election of directors will be prohibited from serving as a Nominating Stockholder nominee for four years from the date of the annual meeting in question.

  8. The Corporate Governance and Nominating Committee of the Board of Directors is authorized to adopt such rules and procedures as it deems appropriate for the purpose of implementing this policy and to determine any questions of interpretation that may arise hereunder.