Progress Energy
William Cavanaugh III
Chairman and Chief Executive Officer
P.O. Box 1551
Raleigh, NC 27602
December 22, 2003
Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: File No. S7-19-03
As Chief Executive Officer and Chairman of the Board of Progress Energy, Inc., a North Carolina corporation with approximately $8 billion in annual revenues, I appreciate the opportunity to provide comments regarding the Securities and Exchange Commission's ("SEC") proposed rules requiring companies to include shareholder nominees for director in company proxy materials under certain circumstances.
Progress Energy has a long history of sound corporate governance practices. A substantial majority of our directors are independent; I am the only insider on the Board. With the exception of the Executive Committee, on which I sit, all Board committees consist entirely of independent directors (Audit and Corporate Performance; Operations, Environmental, Health and Safety Issues; Corporate Governance; and Organization and Compensation Committee). The Corporate Governance Committee conducts an annual assessment of the performance and effectiveness of the Board and its standing committees. All non-employee directors meet in executive session on a regularly scheduled basis. The responsibilities of each Board committee are clearly defined in a written charter approved by the Board and available on the Company's website. Additionally, we maintain and make available to our shareholders the Company's Corporate Governance Guidelines and the Code of Ethics that applies to our directors, officers and all other employees.
In short, we have worked very hard on achieving good corporate governance at Progress Energy and the feedback we get from various governance raters is excellent. I am concerned that the SEC's proposal will hinder rather than promote sound corporate governance. The proposed rules will complicate the director election process and foster special interest groups' access to corporate boardrooms. I believe that an independent governance committee is best suited to select qualified directors with the unique mix of skills and experience needed to oversee each company. A company's directors have a duty to nominate persons they believe will serve the best interests of all the company's shareholders. Shareholders, while free to nominate candidates and wage contests for their election, do not have a similar fiduciary duty. Adoption of the proposed rules could lead to the election of "special interest directors" who promote the agendas of the shareholders who nominated them, rather than the long-term interests of the company and all of its shareholders.
Additionally, the proposed rules could turn director elections into proxy contests. This will substantially disrupt corporate affairs, causing significant costs to a company and all of its shareholders, and dissuading from board service well-qualified individuals who do not want to routinely stand for election in a contested situation.
Finally, I am concerned that the proposed rules go far beyond the SEC's stated intent of targeting a small number of unresponsive companies. Indeed, the rules, as proposed, will impact many domestic public companies--regardless of their corporate governance practices or their responsiveness to shareholders. A basic rule of business and organizational management is that problems should be resolved at their specific source, not generalized to a larger group that does not suffer from the malady.
For these reasons, I do not support adoption of the proposed rules in their current form. Instead, I believe the SEC should permit the significant corporate governance reforms enacted by Congress, the SEC and the securities markets to be fully implemented before proceeding with additional regulation. The changes that are being implemented pursuant to those reforms are designed to increase the independence of boards of directors, strengthen the role and independence of nominating committees and enhance shareholder-director communications. After the impacts of those reforms are assessed, the SEC could make a reasoned and analytical determination about whether additional regulation of shareholder access is needed. If the SEC nevertheless proceeds to consider adoption of the proposed rules, I strongly urge the agency to consider significantly modifying the rules to address the concerns outlined above.
Thank you for considering my concerns.
Sincerely,
William Cavanaugh III
Chairman and Chief Executive Officer
c: Hon. William H. Donaldson, Chairman, U.S. Securities and Exchange Commission
Hon. Paul S. Atkins, Commissioner
Hon. Roel C. Campos, Commissioner
Hon. Cynthia A. Glassman, Commissioner
Hon. Harvey J. Goldschmid, Commissioner
Giovanni P. Prezioso, General Counsel
Alan L. Beller, Director, Division of Corporation Finance