Rockefeller & Co. Inc.December 22nd, 2003 Mr. Jonathan G. Katz, Secretary
Re: Security Holder Director nomination. S7-19-03 Dear Secretary Katz: On behalf of Rockefeller & Co.'s Socially Responsive Investment Division, we would like to submit the following comments in response to the Securities and Exchange Commission's solicitation of views concerning Security Holder Director nomination (File Number S7-19-03). As you may know, Rockefeller & Co. has been in the investment business for over a century and has a rich history of socially responsive investing. Originally founded as a family office by John D. Rockefeller in 1882, the Company now serves a wide variety of clients and manages approximately $3 billion in assets. Our Socially Responsive Investment Division was started in the 1970s and is one of the oldest SRI efforts in the industry. Our concerns have been not only with the issues traditionally associated with SRI funds, but also with good corporate governance. In addition to managing our own clients' investments, we also serve as a sub-advisor on two SRI mutual funds. We are pleased to comment on this proposed rule and commend the Commission for adopting rules requiring Disclosure Regarding Nominating Committee Functions, (which was a proposal we had made in our June 12th letter to the Commission), and requiring communications between security holders and boards of directors. We believe that the structure, composition and role of boards of directors are vital to the health of the U.S. financial markets. These rules are a very good start in the direction of board responsiveness to shareholders. We think that more must be done to ensure that they function in a culture that serves the long-term financial sustainability of the corporation. The long-term interest is the surest way to serve shareholders and the society in which a company operates. As we mentioned in our June 12th comment to the Commission on proposed rule S7-10-03, our concern is with vastly improved nominating procedures. We believe that a truly transparent nominating process will go a long way toward solving many of the issues currently plaguing numerous corporate boards in the U.S. Unfortunately, examples of governance failure due to poor board culture still abound. There is no practical way for shareholders to judge board culture, they only learn of poor ones after the fact. And then it is too late. We cannot but wonder why boards have failed even when the individuals who serve on them have proven to be ethical and highly competent in other settings. We have seen too many examples of this recently to put the blame on just a few bad apples. We can only conclude, as many others have, that a board culture born of insulation has pervaded U.S. corporations. There is an urgent need to remedy that insulation and to establish a mechanism that will reassure shareholders that boards are fully engaged and have the proper skills, knowledge and support tools. The Commission's final rule requires disclosure on the Nominating Committee but leave the details to the companies. We think this is a good start, but we would like to see incentives for the companies to create a process that is truly transparent and reinforces accountability and long term strategic thinking. In other words, a nominating process that truly serves the interests of the shareholders. The proposed rules with some modifications could become such an incentive. However, the potential benefits of the proposed rules are greatly hindered by the proposed triggering requirements that set too high a threshold and result in substantial delay for shareholders seeking to include a nominee in a proxy. Additionally, the requirement that a shareholder own more than five percent of a company's outstanding voting securities in order to nominate a director, will only serve to exclude many responsible sizable long-term shareholders from the process. We are aware of the various concerns that have been raised about nuisance candidates and interference with the management of well run companies. We believe that if the nominating process is truly focused on the health of the corporations, boards and management will have the support of the great majority of their shareholders and will not have to be concerned about nuisance candidates. We believe that the ultimate goal is to make U.S. boards models of a well-run capitalist system and that transparency in the nominating process is a vital first step in that direction. We would like to see models of good nominating processes develop in the next two annual meeting seasons. Shareholders' ability to nominate directors directly through access to the proxy is vital to the proper implementation of a healthy and effective nominating process. In short, we recommend that the Commission adopt director nominating rules which support and strengthen the "Disclosure Regarding Nominating Committee" rules and which foster an environment of cooperation between long-term shareholders, boards and management. Furthermore, we believe that if the Commission does not adopt reasonable and enforceable shareholder nominating rules, the disclosure rules on nominating committee function will not have the reforming effect that the Commission intended. We thank you very much for your attention to this letter.
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