Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609
Dear Secretary Katz:
On behalf of the 1.4 million active and 600,000 retired members of the International Brotherhood of Teamsters (IBT), I am pleased to comment on File No. S7-10-03, “Solicitation of Public Views Regarding Changes to the Proxy Rules.” This issue is perhaps the single most important reform ever undertaken by the Securities and Exchange Commission (SEC), and it has the possibility of producing true and lasting reform to the U.S. equity markets. IBT pension and health and welfare trust funds collectively hold over $100 billion in assets. Therefore, our Union is particularly aware of the dramatic effect the corporate scandals of the past two years have had on investors in the U.S. equity markets. It is in this vein that the IBT is requesting that the SEC bring true democracy to U.S corporate boardrooms, and we urge the Commission to use its current review of proxy rules on director nominations and elections, to adopt comprehensive rules granting shareholders access to the corporate proxy for their director nominees.
Our Union gratefully acknowledges the work over the past year that the SEC has done in creating rules and procedures under the auspices of the Sarbanes-Oxley Act for the benefit of all U.S. equity investors. This work shows a genuine commitment to the rights of shareholders everywhere. But, there is more work to be done. We are pleased to see the SEC considering rules that will create real reform where it is truly needed: in America’s corporate boardrooms. This reform, if ultimately implemented by the Commission, would restore investor confidence in the markets and assist in the cleanup of the U.S. equity markets.
As you are well aware, investors in the past three years have seen $7 trillion evaporate from the U.S equity market. Among the hardest hit were members and retirees of unions due to the nature in which pension funds are required to invest our member’s money. Typically, worker’s money is invested in “index funds.” As you know, indexing is an investment strategy to match the average performance of a market or group of stocks. Usually this is accomplished by buying a small amount of each stock in a market. An index, such as the S&P 500, is the number that represents the market or group of stocks. Because of trustee’s fiduciary duty under the Employee Retirement Investment Security Act (ERISA), investments must have a long-term growth strategy. Therefore, worker’s money is often left in a company’s equities until far too late, as is true in the WorldCom and Tyco scandals where Teamster pension and health and welfare funds lost millions of dollars of workers’ retirement money.
Real representatives of shareholder interests are needed on corporate boards now more than ever. This would introduce a fresh perspective to the board and encourage increased responsiveness and accountability to shareholders. By providing an efficient means for shareholders to nominate candidates and communicate with other large, long-term shareholders, a shareholder right of access to the company’s proxy would help bring accountability to our system of corporate governance.
While state law does provide shareholders with the right to nominate their own candidates for board directorships, the reality is that for most investors, even large institutional investors like our funds this right remains effectively unavailable so long as shareholder nominees are denied equal access to the proxy. Incumbent directors can freely spend the corporate treasury to get re-elected to the board, while shareholder candidates are forced to mount largely cost prohibitive proxy fights in order to reach shareholders.
We urge the SEC to establish a proxy access rule based on the following general principles:
Access to the Proxy Card for Shareholder Candidates
The IBT favors a rule that would require the corporation to include a statement in its proxy statement soliciting support for shareholder nominated candidates. In addition, the SEC should make rules that would allow for the right of the shareholder candidates to include in the proxy a statement of reasonable length detailing why the candidate should be elected. This statement could also be available on the corporation’s website. There should be complete equal access to the proxy. Shareholder nominated candidates as well should provide the same type of information that corporate nominated boards provide to investors.
Long-Term Ownership Threshold
In order to remove the risk of hostile takeovers, shareholders should be required to have held their share for an extended period of time before they are allowed to run as a candidate for the board. This period would qualify the shareholders as “long-term owners” and only such “long-term owners” would be allowed to run.
Minimum Ownership Threshold
Only shareholder groups that own a substantial block of shares of the corporation should be allowed to nominate candidates. We suggest a minimum ownership requirement of 3% of the corporation’s outstanding shares.
Maximum Permissible Slate
Shareholders that qualify should be able to nominate a substantial number of directors at each shareholder meeting. This right is not intended to allow the shareholders to capture control of the corporation, but is rather meant to ensure that shareholders have a voice that cannot be ignored by top management. The SEC should, at the same time, prohibit management from using corporate funds to campaign against these shareholder nominees and thereby defeat the purpose of the proposed reform.
Exemption From Regulation 13-D
Communication among shareholders together, holding more than 5% of the outstanding stock, should be exempted from burdensome requirements under Regulation 13-D, so long as that communication is limited to efforts to nominate director candidates.
The above criteria would help to create a fair and open process that would allow long-term institutional investors access to the company proxy. Again, we thank the Commission for taking its mandate to protect investors and maintain the integrity of the U.S. equity markets seriously. If we can be of any assistance to the Commission as it considers these very important reforms, please call the IBT’s Office of Corporate Affairs at (202) 624-8100.
James P. Hoffa
International Brotherhood of Teamsters