Date: 12/15/97 3:07 PM December 12, 1997 Jonathan G. Katz Secretary, U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: File No. S7-25-97 Dear Mr. Katz: As representatives of the undersigned philanthropic institutions with combined investments of more than $1.49 billion, we write to comment on the proposed Amendments to Rules on Shareholder Proposals. We are aware that you will be receiving comments from a wide variety of interested parties including corporate management, other institutional investors, and individual shareholders. As philanthropists, we support endeavors that advance the common good. Our ability to support those endeavors depends, to an important degree, on the return on our investments; we therefore place a premium on strong financial returns. Because of our commitment to the common good, we also value corporate responsiveness to environmental and social concerns and recognize the importance of forward looking corporate governance policies. We believe that the shareholder resolution process has played a critical role in encouraging companies to be responsive to their shareholders and responsible corporate citizens. In case after case, throughout the past twenty-five years, shareholder advocacy has prompted a company to reassess an important policy or practice. Whether the issue was investing in South Africa under apartheid, or environmental concerns, shareholder input has been essential. As publicly traded companies have replaced privately held companies as the dominant features of our economic landscape, shareholder resolutions have become increasingly important. They provide an important avenue for shareholders, the individuals and institutions who collectively own our publicly traded companies, to provide corporate managers with guidance on the kinds of ethical, social and moral decisions that have traditionally been the province of owners of privately held enterprises. These corporate decisions have tremendous impact on the common good. Shareholders usually attempt to communicate directly with company management before filing a resolution and file only if management is unresponsive. We are deeply concerned about any rule change which unnecessarily or unfairly hampers shareholder initiatives. We believe that the package of proposed rules unnecessarily restricts the ability of individual and institutional investors to file resolutions. We oppose a number of the proposed rule changes and urge the SEC to change the Final Rule accordingly. 1. Resubmission Thresholds: Currently, a shareholder may resubmit a proposal which, in the first year, receives 3% of the vote. After the second year, the threshold goes up to 6%, and 10% in the third and subsequent years. The proposed jump to 6%, 15% and 30% is unnecessary and unrealistic. It particularly impairs the ability of shareholders to address social and environmental issues in widely traded corporations. For example, a staggering number of shares would be required to reach the 15% and 30% of EXXON. Most thoughtful corporations recognize that a 10% vote indicates that an issue is of significant concern. Many early anti-apartheid resolutions would have failed to pass the proposed resubmission thresholds if those thresholds had been in place at the time; yet apartheid became an issue of great concern to corporations involved in South Africa. 2. Personal Grievance: The new rule would allow management to refuse to place a resolution on the company's proxy whenever, in management's sole judgment, the resolution is motivated by a "personal grievance" or some other special interest. Shareholders would be forced to go to court to compel a resolution's inclusion; the SEC would issue no opinion. We believe that company proxies should offer shareholders an opportunity to vote on any proposal which, on its own merits, is appropriate for shareholder consideration. The SEC, rather than the court system, is the appropriate first arbiter of the propriety of a resolution. Litigation could quickly make shareholder activity too costly for many shareholders who seek to address any of a broad range of issues with tremendous bearing on the common good. 3. The Override Provision: The proposed override provision is of little practical assistance to most shareholders. The proposed rule would allow a shareholder to file a resolution, over management objections, by gathering the endorsements of the holders of 3% of a company's shares. In effect, this requires shareholders to run two separate campaigns, at prohibitive cost. This proposal is only viable for huge pension funds, who rarely sponsor resolutions addressing environmental or social issues. 4. Requirement that a Proposal Deal with $10 Million of a Company's Business: This proposal leaves a number of questions unanswered. How does a company, the SEC, or a sponsor, decide if an issue like child labor, or a pattern of discrimination in employment, relates to $10 million of a company's business? What if a company was about to make a new investment with potentially disastrous environmental impacts, or in a country with a horrendous human rights record (like apartheid in South Africa) but hadn't invested a dollar yet? This rule could block resolutions on these issues. 5. Discretionary Voting By Management: Under Rule 14 (a) (4) a shareholder can present a resolution at the company's stockholder meeting and solicit proxies independently, without securing the company's agreement to carry the resolution on its proxy statement, so long as the shareholder contacts the holders of more than 50% of the company's shares. Management cannot vote general discretionary proxies against such a proposal, unless the proxy contains the resolution and provides an opportunity for shareholders to vote for the proposal. The proposed rule would allow management to seek discretionary authority to vote against a resolution without providing shareholders with the precise language of the resolution or an opportunity to vote for it. This clearly works against shareholder proposals, and could subject shareholder proposals to misrepresentation on company proxy statements. 6. Right to Review Management Statement Against a Resolution: The new rules strip shareholders of their right to review a proposed management statement opposing a resolution for false or misleading statements. Again, this creates an unfair disadvantage for shareholders sponsoring resolutions, who must defend the veracity of their own statements without an opportunity to challenge any false statements made by resolution opponents. The Final Rule should be even-handed, and provide checks and balances for investors and management. We urge you to take these issues into account as you finalize the rules. Sincerely, Jan Konigsberg, Executive Director Alaska Conservation Foundation Elise Miller, Executive Director Jennifer Altman Foundation Tom Van Dyck, President Conrad MacKerron, Executive Director As You Sow Foundation John R. Hunting, President Beldon Fund Rebecca Golden, Director Ben & Jerry's Foundation Thomas A. Gougeon, Executive Director W.M.B. Berger Foundation Paul Brainerd, President Ann J. Krumboltz, Executive Director Brainerd Foundation Melanie Taylor Farland, Trustee Kathleen Price Bryan Family Fund Nelson J. Holl, Executive Director California Consumer Protection Foundation James C. Compton, President Edith Eddy, Executive Director Compton Foundation, Inc. Richard A. Cummings Nathan Cummings Foundation David Godfrey, Finance Director Educational Foundation of America Christina Roessler, Managing Director FACT Services Company Inc., for the French American Charitable Trust Rebecca Adamson, President First Nations Development Institute J. Christopher Hormel, President & Executive Director Global Environmental Project Institute Jennifer O. Russell, Executive Director Island Foundation Linda Cloud, President William C. Kenney Watershed Protection Foundation Giles W. Mead, Jr., President Giles W. & Elise G. Mead Foundation Martha Shuttleworth, Founder The Neptis Foundation Stephen Viederman, President Jessie Smith Noyes Foundation Carol Guyer, President Anne Romasco, Managing Director James C. Penney Foundation Vera Bennett, Director of Finance and Administration Peninsula Community Foundation Sally Lilienthal, President Naila Bolus, Executive Director Ploughshares Fund Jill Ratner, President Thomas W. Little III, Executive Director Rose Foundation for Coummunities and the Environment Martha Lyddon, President Dorothy S. Lyddon, Chair Seven Springs Foundation Kathy Fong Stephens, Trustee Kerry Anderson, Trustee True North Foundation Peter Bahouth, Executive Director Turner Foundation Marjorie Fine, Executive Director Unitarian Universalist Veatch Program at Shelter Rock Tim Greyhavens, Executive Director Wilburforce Foundation James N. Sheldon, Executive Director Weeden Foundation