MessageFrom: Klafter, Cary [cary.klafter@intel.com] Sent: Monday, September 15, 2003 6:18 PM To: rule-comments@sec.gov Subject: File No. S7-14-03; Proposed Rule on nominating committee function, etc. Jonathan Katz Secretary Securities and Exchange Commission rule-comments@sec.gov 450 Fifth Street N.W. Washington, DC 20549 Re: Release No. 34-48301 (Disclosure Regarding Nominating Committee Functions and Communications between Security Holders and Boards of Directors) Dear Mr. Katz: This letter is being submitted on behalf of Intel Corporation with regards to the above-referenced proposal. Intel is a listed issuer under the Exchange Act and will be subject to the rules if adopted. We appreciate the opportunity to express our views regarding possible changes to the proxy disclosure rules related to nominating committee functions and communications between shareholders and boards of directors. As an initial point, we would like to note that Intel's proxy statement currently includes the board's list of director-nominee skills and characteristics; this list also appears in the board's published corporate governance guidelines. The proxy statement also includes the mailing address and email address for use in submitting director nominations and stockholder proposals. No great effort is required to include this material in our published documents; this material has been in our proxy statement and published guidelines for a number of years. Intel also has an on-going program intended to engage in proactive reporting and outreach to stockholders and to make ourselves available to their questions. Our Investor Relations group meets directly with institutional and retail stockholder groups, and our Corporate Social Responsibility group engages directly with CSR stockholder representatives and other interested parties. We are not opposed to additional written disclosure relating to these topics, but we consider certain aspects of the Commission's proposal to be unnecessary and inappropriate. Nominating Committee matters. The Release proposes that the issuer must identify the specific individual who recommended a candidate who is being nominated for election in the proxy statement. We believe that requiring disclosure of the name of each individual who recommended a candidate could have a counter-productive and disruptive effect on the search process. The proposal also assumes that each name is presented by an explicit advocate, when in some cases names are gathered in a broader manner to add to initial lists and without particular advocacy. Persons might be suggested by multiple individuals or included in lists prepared by corporate staff or third parties. To avoid the artificial nature of identifying some "specific sources", we recommend that disclosure regarding the category of person(s) who made the recommendation (e.g., senior management, board members, search consultant, etc.) should suffice. As to your Question 11, we recommend that disclosure regarding certain rejected candidates not be required. Disclosure as to this particular rejected candidate would not present a complete picture as to the overall review process by the Nominating Committee, and would suggest a greater importance as to such person than may be the case. As to your Question 12, we recommend that the relevant threshold be set at no less than 5% and with a 2-year holding period at that level. We further recommend that investors' involvement in the nominating process not be exempted from the Exchange Act Section 13 and other large-holder disclosure and other requirements currently in place. There is no reason to assume that the interests and efforts of a particular 1%, 3% or 5% stockholder/group will be the same as those of other stockholders with regards to the nomination process, and so there is no logical reason for the Commission to expand stockholder access to the director selection process while simultaneously disregarding the percentage levels, disclosure requirements and other regulatory devices which Congress and the Commission have put into place over many years. E.g., Exchange Act Sections 13(d), (f), (g) and 14(f). Communication with the Board of Directors. As a general matter, we strongly recommend that any disclosure rules in this regard be neither over-broad nor overly detailed in content. We also strongly recommend that any rules be truly limited to disclosure rather than be a vehicle which actually serves as a prescriptive substantive requirement. We are concerned that rules of this nature would sweep in a substantial amount of immaterial disclosure and require a substantial amount of immaterial and inappropriate activity. Directors should remain free to set their own practices on how they deal with stockholder communications. It is straightforward and easy enough to do to for an issuer to publish board contact information; the rest is unnecessary. It is inappropriate to require a description of the "process" by which a company will determine which communications will be forwarded to the board. This is internal administrative detail that is set by the board with the company's employees, and which of necessity involves dealing with many types and content of communication. We note that neither Congress nor the Commission has seen fit to require this detailed disclosure of itself, other governmental agencies, institutional investors or any other body or individual. In this regard, we commend to you by analogy your recent comments on accounting standards. These views, if applicable to the structure of GAAP, are surely even more applicable as a general matter to the methodology by which a board handles its mail and telephone calls: "First and foremost, no standard setter can ever sufficiently identify the myriad of business situations to which accounting standards must be applied. As a consequence, it is virtually impossible for standard setters to construct accounting categories with sufficient refinement so as to be optimal for each and every situation encountered. Indeed, the more rigid and detailed accounting standards are, the less well they may fit the unforeseen specific facts associated with individual reporting companies' circumstances. In contrast, objectives-oriented accounting standards should provide a better balance of structure and flexibility that affords management and accountants the opportunity, and gives them the responsibility, to interpret company-specific facts in the manner that best conveys the underlying economic reality to investors. Second, excessively detailed accounting standards fail to take advantage of the company-specific knowledge of the front-line professionals-management, accountants, audit committee members, and auditors-who are making the accounting judgments. Managements have access to much information that is crucial for quality financial reporting. Excessive efforts by standard setters to eliminate judgment sacrifice valuable information that might otherwise be offered by the most informed parties. Accounting standards must incorporate some flexibility within their structure-as do objectives-oriented standards-to best facilitate the capture of such knowledge." Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System (July 25, 2003) at I.E. As a second matter, it is inappropriate and likely counterproductive to stockholder interests to require a description of any "material action" taken by the board "as a result" of communication from security holders. Corporate actions are typically the result of numerous factors, and may commence and evolve over long periods. It is naive to assume a direct and linear relation between some particular stockholder communication and a particular material board action. The proposed requirement is a string of undefined and ambiguous terms which offers no guidance to issuers as to proper execution. For example, is a "material action" one which is currently subject to mandatory disclosure under Exchange Act rules, or is this some entirely new category of activity which might result in disclosure if it has "resulted" from stockholder communication but would not have to be disclosed if it had a different origin? Further, any such disclosure would surely vest the particular "material action" with an exaggerated importance out of context to other company activity and this will be particularly the case if disclosure depends on the origin of the action. We suggest that disclosure triggered by a materiality standard be left to the current Section 13 regulations and standards. We appreciate the opportunity to submit these comments. Please contact the undersigned at (408) 765-1215 or Patrice Scatena ((408) 765-9771) if you would like any further information or input in this regard. Cary Klafter Vice President, Legal and Government Affairs Director, Corporate Affairs and Corporate Secretary Intel Corporation