November 24, 1997

Jonathan G. Katz, Esq.

Secretary

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: File No. S7-25-97

Dear Mr. Katz:

As the investment adviser and/or a trustee for five New York City defined benefit plans, eight variable supplements plans, one 457 defined contribution plan and one 403(b) defined contribution plan, with aggregate assets totaling some $90 billion, I respectfully submit the following comments concerning the Securities and Exchange Commission’s ("SEC") amendments to rules on shareholder proposals. I am familiar with the shareholder proposal process, both through the various New York City funds, and through my work as former Co-Chair of the Council of Institutional Investors, an association of more than 100 public, corporate and Taft-Hartley pension funds with more than $1 trillion in investments.

The SEC proposed rules, although professing to be even-handed, increasingly shift the balance from shareholders who wish to introduce proposals, to corporate managements which wish to exclude shareholder proposals from their proxy statements. To me, the proposed narrow "reversal" of the SEC’s Cracker Barrel determination, which will permit employment-related shareholder proposals raising social policy issues to be considered on a case-by-case basis by the SEC staff, and the 3% override option for inclusion of some proposals, which we believe would be difficult to achieve, cannot be considered "balanced" by the proposed high resubmission thresholds for shareholder proposals. As discussed below, these thresholds would virtually eliminate every corporate responsibility proposal and most corporate governance proposals after their first submission to a company. Thus, while we appreciate your desire to have the various rules adopted as part of an overall package, we believe they will deny owners the ability to make their own decisions as a result of severely-restricted proxy access.

The SEC often quotes former SEC chairman and former Supreme Court Justice William O. Douglas’ statement that "[w]e are the investor’s advocate." In fact, the new shareholder proposal rules would prevent investors from advocating for important issues in corporations’ proxy statements. We sympathize with the Commission’s avowed desire to minimize the amount of "line drawing" it does with regard to shareholder proposals and we are also in agreement with the desire to have shareholders themselves make decisions about which resolutions they desire to support. However, to the extent that interpretations must be made, we believe the SEC, and not corporate management, is the proper entity to make such interpretations.

We speak from vast experience in introducing shareholder proposals: we began our program of shareholder activism in 1985 and since then, have sponsored both corporate responsibility and corporate governance proposals each year. From 1985 to 1997, we have sponsored 311 corporate responsibility proposals and 172 corporate governance proposals on issues as diverse as environmental standards for companies, independent boards and independent executive compensation committees, confidential voting and fair employment practices for companies operating overseas and in the United States. Increasingly, we are able to reach agreements with managements prior to a vote, an achievement made possible because the ability to bring proposals encourages productive dialogue with corporate managements.

Cracker Barrel

Let me commend you for reversing after five years the ill-advised Cracker Barrel determination. The New York City Employees’ Retirement System ("NYCERS"), one of the five defined benefit pension funds of which I am a trustee and/or investment adviser, sponsored the Cracker Barrel shareholder proposal, which asked the company to implement nondiscriminatory employment policies related to sexual orientation and to add explicit prohibitions against such discrimination in the company's employee manual. NYCERS proposed the resolution after Cracker Barrel in 1991 instituted an official company policy of discriminating against lesbian and gay workers. The SEC's determination in Cracker Barrel was inconsistent with its previous determinations that shareholder proposals dealing with equal employment opportunity issues were beyond the realm of "ordinary business." Thus, we are pleased that you now recognize that employment-related shareholder proposals which raise important policy issues should no longer automatically be excluded from company proxy statements. However, as discussed below, we are concerned that your proposed "case-by-case" approach will exclude many important proposals from corporate proxy statements.

Change in wording of (i)(7)

In place of the current language of (c)(7) ("if the proposal deals with a matter relating to the conduct of the ordinary business operations of the registrant..."), the SEC proposes to substitute in (i)(7), "if the proposal relates to specific business decisions normally left to the discretion of management." This change is helpful in clarifying that the proposals to be excluded are those which relate to specific decisions made by management and not broad policy matters. The examples given also help clarify this intent. [ Examples include "the way a newspaper formats its stock tables, whether a company charges an annual fee for use of its credit card, the wages a company pays its non-executive employees and the way a company operates its dividend reinvestment plan."] However, the change would eliminate any proposals involving non-executive compensation, since one example cited in the list of examples is "the wages a company pays its non-executive employees." If wages are extremely low, as is sometimes the case in foreign countries in which a company does business, such wages should not be considered a "business decision normally left to the discretion of management." The SEC should mandate that shareholder proposals involving broad policy issues, such as slave labor or child labor in certain foreign countries, be included in proxy statements.

In addition, the SEC’s discussion of the policy underlying the Division's application of the "ordinary business" exclusion is disturbing. The SEC states that "where a proposal seeks intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies," the proposal is likely to be excluded under (i)(7). Examples of proposals the SEC believes excludable include Capital Cities (where the shareholder proposal requested detailed information on the composition of a company's workforce) and Roosevelt (where the shareholder proposal requested an earlier timetable for cessation of CFC production). See SEC proposed rule, footnote 79. We are concerned that the SEC, although reversing Cracker Barrel, is substituting a case-by-case analysis which will exclude shareholder proposals deemed too "complex" or "intricate." MacBride Principles proposals, other employment code proposals or CERES Principles proposals could be excluded. Further, without clear criteria as to what is "complex" or "intricate," the SEC staff may be criticized as making arbitrary or inconsistent determinations. Moreover, the thrust of the footnote seems to counter the desire to let investors make their own decisions. We believe that shareholders should decide if something is too "intricate" or "complex."

The SEC asks in its release whether the number of employment-related proposals would rise as a result of the reversal of Cracker Barrel. We believe that the number of such proposals may rise slightly, but also believe that is the wrong question. The number of shareholder proposals placed on corporate ballots should not be important to the SEC but the subject of such proposals is significant -- and proposals on sweatshops or slave labor deserve to be in corporate proxy statements.

Personal Grievance Exception

Rule 14a-8 (c)(4) currently permits companies to exclude shareholder proposals relating to personal grievances or special interests. The SEC proposes to modify its administration of the rule to express "no view" if the proposal does not on its face relate to the grievance or interest. This proposal is unfair and contrary to the SEC’s duty to shareholders. We believe this exception would increase substantially the number of proposals excluded by corporate management each year, because companies could determine that a proposal is based on self-interest, notify a shareholder of the proposed exclusion and then exclude the proposal. In effect, any corporation can allege self-interest with little evidence (the SEC release states "[c]ompanies receiving ‘no view’ responses could elect to omit the proposal if they believe they possess adequate factual records to demonstrate the personal grievance or interest") and force the proponent to shoulder legal fees to challenge the exclusion. It is unfair to have corporate management -- the party in interest -- drawing the line as to what should or should not be included in proxy statements. Indeed, it is a reversal of traditional American civil procedure law to permit an involved party -- corporate management -- to delete a shareholder proposal and then place both the burden on a shareholder to file suit and the "burden of proof" on the shareholder to disprove the allegation of "personal grievance."

Resubmission exception

Your release notes that:

[r]elatively few shareholder proposals are approved by shareholders each year...Even if a proposal does not obtain shareholder approval, however, it may nonetheless influence management, especially if it receives substantial shareholder support. A proposal may also influence management even if it is not put to a shareholder vote. We understand that in some instances management has made concessions to shareholders in return for the withdrawal of a proposal.

The mere introduction of a shareholder proposal can be a powerful tool to influence a corporation’s behavior and the obtaining of a significant share of the shareholder vote can be even more convincing to management. However, it is also important for the SEC to recognize that shareholders need to be able to re-introduce a proposal after its first appearance in a proxy statement, since it sometimes takes a significant amount of time to gather support for a new proposal. Institutional investors, in particular, often need additional time to consider shareholder proposals on new issues, because of the need for consideration by their proxy committees and codification into written proxy guidelines. Thus, it is not fair to shareholders to give them the opportunity to vote on a proposal only once, and then state, as the release indicates, that "it has been fairly tested and stands no significant chance of obtaining the level of voting support required for approval," because it has gotten a small percentage of the vote when submitted for the first time to a company. Proposals should not be excluded from a second consideration based on a small vote in their first consideration by shareholders.

The SEC proposed rule appears to be predicated on the notion that resolutions only matter if they can pass and/or receive a majority vote. But the shareholder proposal rule was conceived to promote shareholder communication. The vast bulk of resolutions are nonbinding; yet on a wide range of issues corporate managements have been responsive to concerns expressed by a significant minority of shares voted. Further, sometimes companies ignore majority votes.

Raising the threshold levels for resubmission of shareholder proposals in (i)(12) from 3%/6%/10% to 6%/15%/30% will have a major negative impact on corporate responsibility issues and also will affect a number of corporate governance resolutions. According to the Investor Responsibility Research Center ("IRRC"), of 344 resolutions submitted in 1997, 40% could not be resubmitted in 1998 if the new thresholds were applicable; under the current rule, only 12% of the resolutions are excludable. In all, according to the IRRC, 94 resolutions would be excluded because of the new thresholds. Half of these are resolutions that received support from less than 6 percent of the votes cast. Corporate governance proposals that would be excluded by the rule include thrice-proposed resolutions relating to nonemployee director pensions, executive compensation, no discretionary voting and an independent nominating committee. Thus, we oppose the new thresholds.

The 15% threshold for the second submission of a shareholder proposal is much too high. It would devastate corporate responsibility proposals, which average 7 or 8% and seldom receive more than 15 percent of the vote. The IRRC informed us that 24 of the 94 current proposals that would be excludable because of the raised thresholds would be eliminated because of the second-year 15 percent threshold.

We agree with the release that "even if a proposal does not obtain shareholder approval, however, it may nonetheless influence management." My Office’s experience with submission of MacBride Principles resolutions for more than a decade illustrates the SEC’s statement. Not one MacBride Principles proposal has received 50% of the vote and only one has received a 30% vote; thus, the proposed regulation effectively would end the submission of these proposals. However, two-thirds of American companies operating in Northern Ireland have agreed to implement the MacBride Principles, largely because the resubmission of the proposals focused corporate managers’ attention to solutions which they decided were reasonable. In sum, resubmission thresholds must be set only high enough to ensure credibility for ballot access. Credibility, not "a significant chance of obtaining the level of voting support required for approval," must be the goal.

We strongly support the proposed rule prescribing a "votes cast" standard for determining resubmission. We have found that a few corporate managements play fast and loose with re-submission requirements. The "votes cast" standard would make the rules clear for all.

Three percent override proposal

This SEC proposal will permit shareholders who have 3% of ownership to bypass the (i)(5) ("economic relevance") and (i)(7) ("management functions") exclusions. This is an important step in the right direction; the threshold, however, should be lower than 3%. The SEC requests empirical information about whether the 3% support level for the override proposal is achievable; based on our experience with attempting to obtain support for the pension funds’ shareholder proposals, it is extremely difficult.

Prior to undertaking an override effort, proponents need to learn the SEC’s Division of Corporation Finance’s position on the proposal. In addition, evidence of support for an override should be used only for the particular proposal and only for the particular year that the proposal appears. Further, there should be no limit on shareholder endorsements of proposals sponsored by other shareholders -- issues, not number of proposals sponsored, is what is critical to shareholders. We note that the SEC is not providing any special mechanism to require companies to provide shareholder lists; this should be included in a final rule in order to make an override provision useful. Finally, a safe harbor should be provided for shareholders supporting an override effort from the 13(d) group beneficial ownership reporting requirements.

"Relevance" exclusion

The SEC’s proposal to modify the relevance exclusion of (i)(5) so that economically "insignificant" proposals would be excluded, is troubling because it would prevent shareholders from considering many important proposals. A company would be permitted to exclude proposals relating to matters involving the purchase or sale of services or products that represent $10 million or less in gross revenue or total costs, whichever is appropriate, for the company’s most recently completed fiscal year. The proposed rule states that:

the exclusion would apply only to proposals relating to quantifiable matters, such as operations in a specific foreign country, a specific product line, or a specific retail store of set of stores. It would not apply to proposals where quantification is impracticable or unreliable, such as proposals on cumulative voting, or the ratification of auditors.

Also, the SEC notes that "the exclusion would apply only to proposals relating to the purchase or sale of products and services...not to matters involving the company’s internal governance." Thus, the proposed rule would permit the exclusion of corporate responsibility issues of importance to shareholders, if they relate to issues involving specific foreign countries or specific products; we believe this is unfair to shareholders. For example, a proposal dealing with a small operation abroad involving slave labor or child labor should be considered economically "significant," since a boycott of a company’s product based on the use of such labor could be extremely costly for a company. Further, in the case of shareholder proposals relating to the MacBride Principles, since several states and municipalities have laws requiring compliance with such principles in order to do business with the particular state or locality, non-compliance could be quite economically "significant" for companies.

Moreover, the proposal does not allow for proposals relating to items of contingent liability. Thus, for example, the relevance exclusion would allow environmental resolutions at Exxon the year after the Exxon Valdez ran aground, but not the year before. Similarly, it would allow a diversity resolution at Texaco the year after it paid more than $100 million to resolve a discrimination case, but not the year before. The exclusion irrationally forces owners to lock the barn door only after the horses have gone. The current SEC rule, which does not permit exclusion if the proposal is "otherwise significantly related to a company’s business," should be retained.

"Substantially implemented" -- former (c) (10), proposed (i) (10)

The SEC proposes to replace the language "if the proposal has been rendered moot" with "if the company has already substantially implemented the proposal." Although the SEC’s intent is to conform the rule to existing staff interpretations, interpretation of the term "substantially implemented" will continue to involve SEC staff in the difficult process of determining whether a proposal in fact has been implemented. Thus, the current language in (c)(10) is preferable to the new proposal.

Plain English

We are pleased with your revision of Rule 14a-8 into a plain English, question and answer format, which should make it easier for shareholders to understand and use the Rule.

Elimination of mechanism for a shareholder to obtain staff review of a company’s statement in opposition

We oppose the SEC’s elimination of the mechanism for a shareholder to obtain staff review of a company’s statement in opposition. In the past, we have used the possibility of SEC review effectively to obtain companies’ agreements to change their proxy statements in opposition to our proposals. Although the proposed rule states that this mechanism has been used infrequently, we have used it and believe it is an effective and efficient method of leveling the playing field between shareholders, who, unlike management, are limited to 500 words in their proposals, and management. The mechanism should be retained.

Use of Electronic Means to transmit proposals

The language of proposed Question 5 reads in pertinent part that "[i]n order to avoid confusion, shareholders should submit their proposals by means, including electronic means, that permit them to prove the date of delivery." We suggest that you clarify the language in Rule 14a-8 (e) Question 5 to specify that shareholder proposals that are submitted to a company via e-mail or fax must be accepted. We are pleased that the SEC rule provides that companies and proponents may submit their objections and response to objections via e-mail to the SEC; the rule should clarify that companies and proponents may submit these by facsimile as well.

Other modifications

We have no objection to the increase in ownership of shares from $1,000 to $2,000; we believe that the one-year continuous ownership requirement should be continued; we oppose the reduced time for shareholders to respond to a company’s request to correct a deficiency.

We appreciate this opportunity to share our concerns with you that the proposed rule should be amended to ensure that shareholders retain the ability to use the proxy statement to convey their important concerns to other shareholders.

Sincerely,

Alan G. Hevesi

Comptroller

City of New York

AGH:sed