From: paul [paul@thorntonmotion.com] Sent: Sunday, September 14, 2003 4:38 PM To: rule-comments@sec.gov Subject: File No. S7-14-03 Comments on S7-14-03 (Proposed Disclosure Changes) Dear Sir or Madam: The proposed disclosure rules regarding nominating committees and security holders communications with boards of directors will not "enhance the transparency of the operation of boards of directors." Instead, the proposed rules will add to the false and misleading impressions that most companies present regarding their boards of directors. These rules will promulgate the following false impressions: 1) Companies only nominate distinguished individuals to serve on their boards. 2) Members of the board of directors are interested in communicating with shareholders. 3) The SEC will allow board members and shareholders to communicate freely. PROPOSED NOMINATING COMMITTEE DISCLOSURE CHANGES The proposed "enhanced nominating committee disclosure" will make no meaningful change at the average company. Compare existing conditions to those after the proposed changes: Existing After Changes Corporate boards nominate all Identical candidates for the board. to existing. Election of directors is run under the Identical Soviet Model--no opponents. to existing. Shareholders' votes are meaningless in Identical regards to election of directors. to existing. Worse yet, the proposed disclosure changes will only aggravate the existing practice of companies presenting director nominees as distinguished individuals, regardless of their qualifications. The SEC presently permits this misleading practice. When I have contacted board members directly, I was shocked to find that their business qualifications were not represented accurately in the proxy statement. Often the proxy statement will indicate that a board member is president or a principal of a private company. While this may be technically accurate, the private company may be a business in name only. I have found it impossible to find phone listings or business addresses for some of the private companies associated with board members. Even when a director's private company is a serious business, a false impression can be given in the proxy statement. If a director's business qualifications included president of a single Dairy Queen, shareholders would have a good laugh and question the director's worthiness. Director Howard Buffett's business qualifications, reported in the 2003 Berkshire Hathaway proxy statement, include President of Buffett Farms. The Buffet Farms are reported elsewhere to be an 840 acre Illinois farm. This may sound impressive to most shareholders, yet many single Dairy Queens probably produce more annual revenue than the Buffet Farms. If the SEC adopts the new disclosure rules, it will go from permitting misleading statements in proxy statements, to promoting false impressions. The boilerplate that companies will add to their proxy statements will give the impression that director selection is a deliberative, SEC sanctioned, process used to nominate the best individuals for election to represent shareholder interests. The truth is that most companies use the Soviet Model of corporate governance. The existing elite select the new elite. In practice corporate boards are not elected boards, but instead, self-perpetuating boards. If the SEC is serious about making certain that proxies do not contain false and misleading statements, then the SEC should abandon the proposed nominating committee disclosure rule changes. Instead, the SEC should require that proxy statements regarding directors present a complete and accurate picture. PROPOSED SHAREHOLDER COMMUNICATION DISCLOSURE CHANGES The proposed new shareholder communication rules will create false impressions with the public and may lead some shareholders to unintentionally violate SEC regulations. The SEC has already created a false impression in the media with this proposal. For example, see Peter Meyers' story in the September 2, 2003 Wall Street Journal. Citing the SEC proposed rules, Peter Meyers tested the "responsive to small investors" of a few companies. He appears to believe that the purpose of the proposed rules is to make investor-relation officers more "individual-investor friendly." He did not try to contact directors but, instead, contacted company headquarter staffs. The average corporate director does not want to communicate directly with shareholders. In the Soviet Model the elite only communicate with other elite or those anointed by the elite. The average, unwashed shareholder does not matter. One channel presently available for communication between shareholders and directors is the annual meeting. At Berkshire Hathaway's annual meeting, the directors are seated in a roped off area protected by Berkshire representatives and security personnel. Some of the meeting's security personnel are armed. Given added channels for shareholder communication, there are still problems. American shareholders have a reasonable expectation of freedom of speech. If a group of shareholders, including the proposal proponent, wrote to directors regarding a 14a-8 shareholder proposal would they be required to make SEC filings? If a group of shareholders started a withhold vote campaign and wrote to directors concerning their campaign, would they also have to file with the SEC? Given the proposed new rule, shareholders would reasonably conclude that they could freely communicate with directors without making SEC filings. Assuming a corporate director wished to respond to a shareholder communication, could the director legally do so in all cases? What about Reg-FD? Some corporate governance policies only allow the Chairman to speak for the corporation (U.S. Steel for example). SEC regulation of speech makes this a sound corporate policy. Since the SEC does not allow shareholders and directors to speak freely it should abandon consideration of the new communications disclosure rule. The SEC should instead focus on finding ways to promote the free speech of shareholders. Shareholders, not encumbered by SEC speech regulation, will find ways of communicating with directors. The SEC should remember that "sunshine is the best disinfectant." In our society, free speech lets the sunshine in. Allowing individual shareholders to speak freely will do much to protect all investors. Thank you for your consideration. Paul Tomasik 605 N Williams Thornton, Il 60476 paul@thorntonmotion.com