BEFORE THE SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________________________ ) AMENDMENTS TO RULES ) Release No. 34-39093 ON SHAREHOLDER PROPOSALS: ) IC-22828 PROPOSED RULE ) File No. S7-25-97 ___________________________________) COMMENTS OF LONGVIEW COLLECTIVE INVESTMENT FUND In Release No. 34-34093, published at 62 Fed. Reg. 50682 (26 September 1997)(the Release ), the Commission proposed various amendments to its Rule 14a-8, which governs shareholder resolutions that are submitted to publicly traded companies for inclusion in proxy solicitation materials (17 C.F.R.  240.14a-8). The LongView Collective Investment Fund (the "LongView Fund" or the "Fund") is pleased to submit the following comments on that Release. Interest of the LongView Fund and summary of position. The LongView Fund is a collective investment trust operated by the Amalgamated Bank of New York. Founded in 1992, the Fund is an S&P 500 index fund with $2 billion in assets presently under management. As an index fund, the LongView cannot "vote with its feet" and sell shares in underperforming companies. As a result, the Fund has developed an active corporate governance program, which includes the submission of up to 20 resolutions each year, in an effort to engage companies in a dialogue about their performance on various issues. The LongView Fund is thus familiar with the operation of the SEC s rule on shareholder resolutions, and the Fund s resolutions have successfully identified issues of concern to shareholders. For example, the Fund s poison pill resolutions have often received a majority of the votes cast, and some companies have responded by redeeming their rights plans, including Advanced Micro Devices, Columbia/HCA Healthcare, Community Psychiatric Centers and Rite Aid; in addition, Weyerhaeuser let its plan lapse after a Fund resolution received 52% of the vote at the 1996 annual meeting. Similarly, the Fund s resolutions have helped persuade companies to eliminate pension benefits for outside directors and golden parachutes for executives. Apart from these traditional governance issues, the Fund has also filed resolutions on so-called "social" issues. Here too, it has enjoyed some success. For example, the Fund has successfully sought access to information disclosing a company s record in terms of equal employment opportunity ("EEO"), affirmative action, and outreach to suppliers owned by women and minorities. The Fund has also filed resolutions on "sourcing" issues, which pertain to a company s efforts to assure that it does not import goods made with slave labor, child labor or in conditions that are in violation of applicable local laws. One company, J.C. Penney, responded to a Fund sourcing resolution by putting it on the company s proxy statement and urging shareholders to vote "yes." Eighty-seven percent of them did. At other companies, the Fund has engaged in negotiations on sourcing issues. Thus, shareholder resolutions are an effective way to raise important issues about the way a company is managed for the benefit of its owners, the shareholders. This is true regardless of whether a resolution deals with governance issues or social issues, inasmuch as both categories may involve topics with a significant economic dimension to them. Consider, for example, the EEO and sourcing issues that LongView has raised in recent years. Management inattention on either topic can have a profound effect on shareholders, witness the $5 billion drop in value (later recovered) the two days following release of the "Texaco tapes" in November 1996, as well as the consumer backlash that followed media accounts of sweatshop conditions for workers making Kathie Lee Gifford clothing. Shareholder resolutions can thus operate as an early warning system that allows companies to have a dialogue on issues before they erupt into a full-scale problem. We make these points because we believe that, on balance, the proposed amendments would make it more difficult for investors to engage in the type of healthy dialogue that is now possible on a number of issues. Thus, while we commend the Commission for initiating this comprehensive review of how Rule 14a-8 works, our conclusion is that most of the major proposals for change should not be adopted. Indeed, in our view, adopting this package of proposals would be inconsistent with the National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290, 104 Stat. 3416. That Act directed the Commission to examine "whether shareholder access to proxy statements pursuant to section 14 of the Securities Exchange Act of 1934 has been impaired by recent statutory, judicial, or regulatory changes," id.,  510(b)(1)(A), and to study also the "ability of shareholders to have proposals relating to corporate practices and social issues included as part of proxy statements." Id.,  510(b)(1)(B). Congress went on to request that the Commission make recommendations that were deemed "necessary to improve shareholder access to proxy statements." Id.,  510(b)(2). This statutory mandate provides the benchmark against which the proposed reforms should be measured, and the net effect of the proposed amendments would be to hamper, not improve, shareholder access to proxy statements. As we explain more fully in the following section, the Release would significantly expand the scope of the exemptions allowing companies to omit resolutions on the grounds that they: ú relate to the ordinary business of the company (Rule 14a-8(c)(7)); ú involve issues that are de minimis in terms of the company s size and operations (Rule 14a-8(c)(5)); or ú failed to receive enough votes to warrant resubmission in a subsequent year (Rule 14a-8(c)(12)). In addition, the Commission is proposing to withdraw from the task of assessing corporate objections that a resolution reflects a personal grievance of the proponent (Rule 14a-8(c)(4)), as well as a objections that a company s Statement in Opposition to a given resolution contains false or misleading statements (Rule 14a-8(e)). Finally, the Commission proposes amendments to Rule 14a-4 that would make it more difficult for shareholders who choose to bypass the Rule 14a-8 mechanism and to solicit proxies at their own expense, as Rule 14a-4 permits. These are all changes that make it more difficult for shareholder voices to be heard. On the opposite side of the ledger we find only two entries: (1) a proposed repeal of the Commission s Cracker Barrel position, which articulated a blanket prohibition on workforce-related proposals, finding that this category of proposals falls within the (c)(7) ordinary business exclusion; and (2) a new override mechanism that would allow shareholders to submit proposals that might be excluded under the (c)(5) or (c)(7) exclusions if the proponent can submit proof that owners of three percent of the outstanding shares favor presenting the matter to their fellow shareholders. These changes offer shareholders very little and are insufficient to warrant the drastic cutbacks in shareholder access that we have set forth above. With respect to the proposed Cracker Barrel repeal, a close examination of the Release indicates that the this repeal would be in name only and that a number of resolutions would still be excluded. This is hardly a reform that would improve shareholder access, as Congress as specified. The proposed override could be a valuable tool for shareholders, though we doubt it would have much practical utility in the form that is being proposed, primarily because the three percent threshold is too high. Any threshold should be lower, but if a determination is made to set it as high as three percent, that level should be phased in, with a lower threshold (say, one percent) in the first years of implementation. With this introduction, then, we turn to the specifics of the proposal, taking them in the order that the Commission has outlined them in the Release. 1. The personal grievance exclusion (Rule 14a-8(c)(4)). The Commission proposes to offer no opinion about the application of this exclusion whenever it is raised in opposition to a particular resolution, including resolutions that are neutral on their face and raise issues of legitimate concern to shareholders, including issues that the Division has previously opined may not be omitted under other exclusions. This approach stands in contrast to the current policy, under which the Division will focus on the text of the resolution and, in the case of facially neutral resolutions, will reject a company s reliance on this exclusion unless the company can provide evidence to substantiate its claim that the proponent is advancing what the (c)(4) exclusion terms a personal claim or grievance or a personal interest that is not shared by the other security holders at large. The Division s proposed withdrawal from the field would be damaging to shareholder proponents because it could invite abuse and frivolous objections. Experience suggests that some companies will print a resolution unless they obtain a no-action letter from the Division, even during times that the Division has stated that it will not opine on a given topic, as was the case in 1994-95, when the Division was not opining on (c)(7) claims in response to Judge Wood s injunction in New York City Employees Retirement System v. SEC, 843 F. Supp. 858 (S.D.N.Y. 1994), rev d, 45 F.3d 7 (2d Cir. 1995). Not all companies took this position, however, and some were quite willing to omit resolutions even without the "cover" of a no-action letter. The proponents in these cases had to sue (or threaten to sue) in order to get resolutions included in the proxy materials of several companies. The Fund is concerned that this history could repeat itself if the Commission retires from this area. Suppose that the Fund or any other proponent submitted a proposal asking a company to declassify its board of directors, an issue that has long been viewed as proper for shareholders to consider. Under the Commission s approach, a company could stymie that resolution by objecting on personal grievance grounds, no matter how frivolous or groundless that objection may be. Such an objection would automatically prevent the Division from offering an opinion on the merits of the objection, thus forcing the proponent to bring legal action in order to have the resolution printed in the company s proxy materials. Such a result would be particularly harmful to smaller shareholders and is inconsistent with Congress s 1996 directive that the Commission should be looking at ways to improve shareholder access, not create new roadblocks to shareholder democracy. Accordingly, we ask the Commission to withdraw this proposal and to continue its long-standing role of assessing the validity of personal grievance objections to the same extent it passes on the validity of objections under other exclusions. 2. The relevance exclusion (Rule 14a-8(c)(5)). This exclusion presently allows companies to omit proposals that are viewed as being of little economic relevance to a company. To that end, the rule lets companies omit proposals that account for under five percent of the company s total assets at the end of its most recent fiscal year and for under five percent of net earnings and gross sales during that same fiscal year, provided that the proposal is not otherwise significantly related to the registrant s business. The Commission now proposes to eliminate the not otherwise significantly related element and to allow the exclusion of proposals relating to a matter that involves the purchase or sale of services or products representing $10 million or less in gross revenues or total costs for the company s last fiscal year; for companies with gross revenues or total costs, the threshold would be three percent of gross revenues or total assets, whichever is higher. As the Release acknowledges (at 8), the Commission has in the past considered similar proposals to make the application of this exclusion turn on a strict numerical computation and to omit any qualitative analysis of the sort that is needed under the not otherwise significantly related prong of this test. The Commission has rejected that approach in the past, and it should do so again here. For many of the reasons discussed below in connection with the (c)(7) ordinary business exclusion, resolutions on issues that are significantly related to the company s business should be a proper subject for consideration by shareholders. As the court discussed in Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc., 821 F. Supp. 877, 881-82 (S.D.N.Y. 1993), the legislative history behind section 14(a) of the Securities Exchange Act evinces Congress s intent that shareholders should be able to discuss important issues affecting the company through the medium of a company s proxy materials. The current formulation of the (c)(5) exclusion allows shareholders to do just that. As the Commission recognized in its 1976 rulemaking, there may be issues of undeniable interest to shareholders that, if quantified, would fail the $10 million/three percent benchmark being proposed here, and the examples given then were cumulative voting rights or the ratification of auditors. Release at 8. Moreover, as the Release also recognizes, there are times when companies have successfully invoked this exclusion notwithstanding the not otherwise significantly related test. Id. at 8-9 & n.59. The Commission s observation that only a handful of proposals are being excluded on this ground does not mean that the exclusion needs to be expanded. Two equally plausible answers are that the current construction of this exclusion is giving shareholders an opportunity to vote on matters that are important to them and also that proponents are filing proposals that take into account the current interpretation of the (c)(5) exclusion. There is no need to alter this exclusion, and the Commission should now (as it has done in the past) reject the notion that a purely economic benchmark is appropriate here. 3. The "ordinary business" exclusion (Rule 14a-8(c)(7)). The Commission proposes several changes with respect to this exclusion, including a revision of the text, repeal of the Cracker Barrel letter and a statement of how this exclusion would be interpreted once these changes were made. The LongView Fund urges the Commission not to amend the text of this exclusion, to clarify that the interpretation enunciated during the 1976 rulemaking proceeding remains in effect, and to repeal Cracker Barrel, both categorically and with respect to specific situations in which it may be applied. a. The text and interpretation of the (c)(7) exclusion. The Release proposes rewriting the (c)(7) exclusion to let companies omit a proposal that "relates to specific business decisions normally left to the discretion of management." A proposed note to this new language would specify situations in which a proposal could be omitted, for example, the way a newspaper formats its stock tables, or the way a company charges an annual fee for using its credit card; the proposed note does not include any examples in which the exclusion would not apply. Release at 41. The Release explains that the new text reflects an effort to cast Rule 14a-8 into plain English with no substantive change in the meaning of this exclusion. Release at 6. The use of plain English in federal regulations is indisputably a worthwhile goal and may be appropriate in other portions of Rule 14a-8, but this is not one of them. The current "ordinary business" formulation has acquired a certain meaning after more than two decades on the books, and we believe that the best course is to leave the text as is, while reaffirming the two-part test which the Commission enunciated in the 1976 rulemaking that set out the current construction of this exclusion. In that rulemaking the Commission indicated that a proposal could be excluded only if it involved business matters that were both "mundane in nature" and that did "not involve any substantial policy or other considerations." 41 Fed. Reg. 52994, 52998 (3 December 1976). This two- part test has been affirmed in various court cases construing the scope of the (c)(7) exclusion, e.g., Roosevelt v. E.I. DuPont de Nemours & Co., 958 F.2d 416, 426 (D.C. Cir. 1992); ACTWU v. Wal-Mart, 821 F. Supp. at 890. The addition of a "substantial policy" prong was significant because, prior to 1976, it was possible for a company to characterize a proposal in ways that would make the issue seem mundane in nature, even though the proposal involved a serious policy question. The paradigm cited by the Commission in its 1976 rulemaking was a proposal asking PEPCO not to construct a nuclear power plant. Prior to 1976, PEPCO successfully omitted the proposal by arguing that the only issue at stake was the utility s choice of a fuel source, which PEPCO argues was a quintessentially "ordinary" business decision of the sort normally left to management. In the 1976 proceeding, the Commission decided to break from that interpretation, explaining that "the economic and safety considerations attendant to nuclear power plants are of such magnitude that a determination whether to construct one is not an ordinary business matter." 41 Fed. Reg. 52994, 52998 (3 December 1976), quotedin ACTWU v. Wal-Mart, 821 F. Supp. at 884. Accordingly, the Commission continued, "proposals of that nature as well as others having major implications be considered beyond the realm of an issuer s ordinary business operations, and future interpretive letters of the Commission s staff will reflect that view." Id. Although the current Release indicates (at 6) that the new language to be construed consistently with current interpretations, we are concerned that the Commission s choice of language may inadvertently return to the pre-1976 situation. Nothing in the new (c)(7) text captures the idea that a "substantial policy" issue must be lacking in order for a proposal to be omitted. If anything, the proposed text seems to capture only the first prong, namely, that a proposal must involve a "mundane" issue. The Commission s new language would thus seem to exclude a resolution of the sort presented to PEPCO in the early 1970s. Would a decision by a utility whether to build a nuclear power plant a "specific business decision normally left to the discretion of management"? Or what about decisions about executive compensation? Or corporate contributions to political parties? Or divestiture of particular subsidiaries or opera- tions? The answer may be that the proposed language would exclude only those proposals that relate to "specific" business decisions and that the word "specific" is included to permit shareholders to vote on resolutions having a policy component to them. This will not work. The word "specific" is not synonymous with "lacking in policy significance," and the use of a new formulation involving "specific business decisions" will likely create new confusion and uncertainty over the precise meaning of the (c)(7) exclusion. This is in no one s interest. The current controversy over Cracker Barrel notwithstanding, there appears to be a fairly high level of satisfaction with the Commission s administration of the (c)(7) exclusion, at least as measured by the absence of litigation challenging the exclusion of specific resolutions after a no-action letter is issued. Given the statement in the Release that the Commission intends no change the interpretation of this exclusion, no useful purpose would be served by substituting current language for new language that will make more work all around. Accordingly, the LongView Fund urges the Commission to retain the current text of the (c)(7) exclusion and to re-affirm the two-prong test from the 1976 rulemaking as the operative standard for interpreting this exclusion. b. Repealing the Cracker Barrel decision. The Commission also proposes to repeal the Cracker Barrel interpretation, which has acted as a barrier against any resolution that relates to a company s workforce. Although this proposal is welcome, it does not go far enough. The Cracker Barrel interpretation is fundamentally inconsistent with the two-part test enunciated in the 1976 rulemaking, because there can be issues that affect a company s workforce that involve substantial policy issues. This is the case with respect to resolutions asking companies to report on their equal employment opportunity and affirmative action pro- grams, and such was the holding of the court in ACTWU v. Wal-Mart, which held that Cracker Barrel was not entitled to judicial deference because of its inconsistency with that two-part test. The trial court reached a similar result in New York City Employees' Retirement System v. Dole Food Co., 795 F. Supp. 95 (S.D.N.Y.), vacated as moot, 969 F.2d 1430 (2d Cir. 1992), a decision involving a company s response to national health care proposals that preceded Cracker Barrel, but which the Division of Corporate Finance opined could be omitted under the (c)(7) exclusion. We believe that these decisions correctly construed the scope of the (c)(7) exclusion and should be followed in the future. The Commission s proposed repeal of Cracker Barrel is grudging and fails to take these factors in consideration. The text accompanying footnotes 74, 75 and 79 of the Release strongly suggest that the proposed repeal of Cracker Barrel would not alter the Division s view that proposals on a company s Maquiladora operations, success in attaining a high- performance workplace and its EEO/affirmative action policies would continue to be excluded. Release at 12. This approach is inconsistent with the two-part standard, as construed by the courts, as each of these topics contain substantial policy components which make them appropriate for consideration by shareholders. The point is most clearly indicated with respect to EEO/affirmative resolutions. Footnote 79 of the Release suggests that a 1991 no-action letter involving Capital Cities/ABC, which opined that such resolutions could be omitted, reflects a correct interpretation of the law. This is incorrect for several reasons. First, ACTWU v. Wal-Mart indicates that such resolutions may not be omitted, and the Commission s notice to proponents and companies when a no-action letter is issued indicates that no-action letters are informal in character and that the courts are ultimately responsible for construing the Rule 14a-8 exclusions. The ACTWU v. Wal-Mart decision should foreclose further debate on this score. Second, Capital Cities/ABC is itself a sharp deviation from the Commission s prior and long-standing interpretation that such resolutions may not be omitted. In a 1990 no-action letter involving AT&T, the full Commission reaffirmed its position that EEO/affirmative action resolutions could not be omitted under the (c)(7) exclusion. A year later, with no obvious change in circumstances, the Division reversed course in a letter involving Dayton Hudson Corp., which position was followed shortly thereafter in Capital Cities/ABC and blossomed a year later into the categorical rule announced in Cracker Barrel. See ACTWU v. Wal-Mart, 821 F. Supp. at 886-89. Thus, Capital Cities/ABC is the aberration, not the norm and should not guide construction of this exclusion.<(1)> Accordingly, the Fund urges the Commission to make it clear that Capital Cities/ABC is not a valid interpretation of the law and that the approach taken in ACTWU v. Wal-Mart is the correct approach. Along the same line, we urge the Commission to repudiate the positions taken in the letters cited at notes 74 and 75 with respect to Maquiladora operations and high- performance workplace resolutions, which are also includable under the governing two-part test. The Commission s citation of Capital Cities/ABC raises another issue that we urge the Commission to reassess. The text accompanying footnote 79 suggests that a resolution may be omitted if it seeks intricate detail, Release at 13, a formulation that the Release suggests is derived from a statement in the 1976 Release to the effect that proposals may be omitted if it probes too deeply into matter of a complex nature that shareholders, as a group, would not be qualified to make an informed judgment on, due to their lack of business expertise and lack of intimate knowledge of the (company s) business. Release at 13, quoting the 1976 Release. This in- tricate detail interpretation, as applied in Capital Cities/ABC, does not flow from the quoted language from the 1976 Release and raises significant issues of its own. The quoted language might provide a sound rationale for the position adopted by the District of Columbia Circuit in Roosevelt v. DuPont, where the resolution asked DuPont to reduce chlorofluorocarbon emissions to a certain level by a fixed date several years away. By the time the court of appeals issued its decision, the specified deadline was only a year away, and the court upheld exclusion under that set of circumstances. The court appeals recognized, however, as did the - Commission in a brief as amicus curiae, that a more request for a phase-out over a longer period of time might not be omitted under the (c)(7) exclusion. That result seems more closely in tune with the 1976 Release than an approach that takes a seemingly categorical rule that proposals seeking information that is deemed too intricate in the details may automatically be excluded. Thus, we submit that this intricate details interpretation cannot be grounded in the legal principles enunciated in the 1976 Release. There are also serious practical problems with trying to administer an intricate details interpretation. First, companies often make generalized complaints about the alleged burdens that would be imposed if a shareholder resolution is adopted, and as a practical matter, the Division may not be in a position to divine whether or not this is so. This is demonstrated in ACTWU v. Wal-Mart, where the Division perceived that the resolution demanded excessively detailed information and cited that factor in opining that the resolution could be omitted. As the record presented to the district court demonstrated, however, a number of companies had previously made available the requested information in pamphlet form or on a single page of the company s annual report. Thus, predictions of what is needed to comply with a resolution may be far off the mark. Second, reliance on an intricate details benchmark may yield disparate results from company to company. Consider, for example, an identical resolution that is submitted to two companies in the same industry asking each firm to report on its political contributions, a topic that is routinely considered by shareholders notwithstanding the (c)(7) exclusion. Company A may make very few contributions, while Company B may make extensive donations at the state and federal levels. As a Company B might thus argue that compliance with the resolution would force it to provide intricate details of that company s operations. It would make no sense to hold that the shareholders of Company A have a right to vote on the proposal, but not shareholders of Company B, particularly when the extent of Company B s activities might make the information of more inter- est to its shareholders. An interpretation of the (c)(7) exclusion that would operate in such a subjective or inconsistent manner is at odds with the substantial policy principle that guides the analysis here. 4. Resubmission thresholds (Rule 14a-8(c)(12)). The Commission would also revise the percentage of votes needed to resubmit a proposal from three percent in year one, six percent in year two and ten percent in year three to a regime of six percent, 15 percent and 30 percent, respectively. The Fund opposes this proposal, which would have a devastating effect on many proposals, as would virtually any change to the current thresholds. It is important to emphasize the crippling effect that this proposal would have on many proposals, particularly those raising so-called social issues. A recent study released by the Social Investment Forum demonstrates that over the past decade, very few of the social issues would attain a six percent threshold in the first year, and most (if not all) would be excluded after a second or third try. Even resubmission thresholds as low as 4%-8%-12% would knock out many proposals. A rulemaking that results in significant exclusion of repeat proposals is utterly inconsistent with Congress s mandate that the Commission should be exploring ways to improve shareholder access. In our experience, the current thresholds have worked well and should be retained for several reasons. First, the nature of institutional investing is such that a low threshold is important at the outset. Many institutional investors have guidelines setting forth how their shares should be voted in response to the various proposals that appear in corporate proxy materials. When a resolution on a new topic comes along, the institutional investor may not have a position on that topic and in the absence of such guidance may vote no or abstain. Thus, it is not surprising that many proposals obtain a fairly low level of support in the first year or so they are submitted. The filing of a resolution on a new subject may, however, trigger internal review procedures at institutional investors, who are aware of the fact that proposals may come back a second and third year and who may not have the time to research the issue and formulate a position by the time it is necessary to vote in the first or even the second year. As the Social Investment Forum survey demonstrates, even a one percent increase in the current thresholds would eliminate many resolutions after only one year, and the adoption of new thresholds that wipe out resolutions before a serious dialogue can even begin would be a major step backwards. Second, the debate over the size the current thresholds obscures an important fact, which is that shareholder resolutions can have a discernible impact even if they fail and even if they obtain fairly low votes. Resolutions on corporate practices in South Africa often failed to move out of the single digit range and almost never got as high as 20 percent of the vote, yet these resolutions had an important effect in focusing companies on questions of how they did business in that country during the apartheid era and helped produce changes that were good for the affected companies, good for investors and good for the people of South Africa. An analysis by the Investor Responsibility Research Center buttresses the point with respect to resolutions on tobacco issues. Since 1990, a variety of resolutions have been submitted to companies regarding different aspects of their tobacco operations. Those resolutions obtained, on aver- age, 5.8% of the vote -- enough to get the proponent two bites of the apple under the current Rule, but only one bite under the Release. IRRC, Shareholder Proposals Can Get Results, Investor's Tobacco Reporter, vol. 1, no. 2, at 6 (September 1997). Despite the seemingly low level of investor interest in those topics, IRRC summarized how even at this level of sup- port, a resolution can lead a company to focus on the issue that might otherwise receive inadequate attention: ú Kimberly-Clark Co. credited shareholder activism with that company's 1995 decision to divest its tobacco-related operations, even though the shareholder proposal received only 8.8 percent of the vote. ú Also in 1995, Knight-Ridder adopted voluntary guidelines for local editors of its publications on accepting tobacco advertising. The company credited a 14.2 percent vote in favor of a resolution, initiated three years earlier, that sought a restriction on tobacco advertising. ú 3M responded to a 1990 shareholder resolution seeking a ban on cigarette advertising by 3M's billboard subsidiary by agreeing to cut that advertising by half over a five-year period; in May 1996, 3M decided to ban such advertising by 1999. ú In 1992 Philip Morris announced that it would voluntarily place English-language warning labels on cigarette packages sold in countries that had no labelling requirement. This decision came after an 11-year shareholder campaign seeking health warning labels. As these examples illustrate, shareholder dialogues can bear fruit, though the response may not be instantaneous. Thus, we believe that the Commission s current thresholds have struck the proper balance in this area and that no amendments are warranted. 4. Proposed override mechanism. The Release contains one innovation that could be of considerable utility to investors, and that is the proposal to let shareholders bypass or override the (c)(5) and (c)(7) exclusions and place proposals on the ballot if they can find support for their proposals from the holders of three percent of a company s outstanding shares. This reform would mark an important advance in terms of corporate governance because it would let shareholders take the initiative in deciding what issues are important enough to warrant consideration by all investors in a given company. Although we favor this proposal, we are concerned that the three percent threshold is too high, at least as an initial matter. During the first few years that any override mechanism is in place, it may be difficult for shareholders to obtain that level of support, given the novelty of the proposal and the fact that many large institutional investors -- who will understandably receive a number of requests to sponsor override proposals -- will need to adopt procedures about how to respond to these requests. The level of support a proponent must obtain is significant. To illustrate the point, the Fund determined the number of shares outstanding at three companies chosen at random (Coca Cola, Disney and General Electric) and calculated that in order to use the override mechanism at Coca Cola or Disney, one would need to find support from investors holding approximately $1.4 billion worth of stock; at GE, the figure was approximately $2 billion. This can be a daunting task, which suggests that it may be appropriate to phase in the three percent threshold with, say, a one percent figure in the first year or two, thereafter rising to two percent for one or two years, before arriving at the three percent benchmark set out in the Release. 5. Discretionary voting authority (Rule 14a-4). There are times when a shareholder will decide to bypass Rule 14a-8's limitations with respect to the items that can be included in a company s proxy materials and will conduct its own solicitation at its own expense on behalf of a particular proposal. Such initiatives are covered by Rule 14a- 4, which the Commission is proposing to tighten. Specifically, the Release would amend Rule 14a-4(c), which sets out five situations in which a proxy may confer discretionary authority to how to vote. The Release proposes to rewrite this provision to let the proxy solicit discretionary authority if the registrant did not have notice of a matter 45 days before the date it mailed its proxy materials during the prior year or if the registrant includes in its proxy statement a discussion of matters that might arise, states how the registrant plans to exercise its discretion and includes in the proxy card a cross-reference to this discussion and a box to withhold authority. The Fund does not object to the proposed 45-day deadline as a means of providing notice to a company that an independent solicitation is being waged. We believe, however, that once such a bona fide solicitation is undertaken, the company s proxy should be limited to giving shareholders who want to vote the company s card the options of voting on the proposal, not a grant of discretionary authority, which will almost invariable be authorizing a no vote. The concern, as we understand it, is that companies may incur the ex- pense of printing their proxies to give shareholders notice of the independent solicitation, only to learn afterwards that the proposal was not presented at the annual meeting. In our view, this is no basis for letting the company solicit discretionary authority. The risk and expense here are no greater than they are in situations where a proposal is submit- ted under Rule 14a-8, it is printed and voted on the company s card, and the proponent fails to attend the resolution and formally move adoption of the resolution. Since the resolution in question has not been presented at the meeting, the company technically does not have to count the votes cast for or against. In addition, Rule 14a-8 makes it clear that if a company enforces the requirement that the proponent appear in person at the meeting, a no-show proponent is barred from resubmitting the same proposal under Rule 14a-8 the following year.<(2)> Thus, we propose leaving Rule 14a-4(c) intact, but amending Rule 14a- 4(d), which outlines four situations when a proxy may not confer authority, by adding a fifth situation as follows: (d) No proxy shall confer authority: * * * (5) To vote with respect to a proposal to be presented at an annual meeting if-- (i) The proponent advises the registrant of its intent to present the matter at least 45 days (or such date specified by the advance notice bylaw) before the date on which the registrant first mailed its proxy materials for the prior year s annual meeting of shareholders; if the registrant did not hold an annual meeting of shareholders the prior year, or if the date of the annual meeting has changed more than 30 days from the prior year, then notice must be received a reasonable time before the company mails its proxy materials for the current year; (ii) The proponent submits to the registrant at the time that notice is presented a statement that the proponent intends to solicit at least the number of shares necessary for the matter to be adopted; (iii) The proponent files in accordance with Rule 14a-5 and 14a-6 both preliminary copies of the proxy statement and form of proxy, as well as definitive copies of such materials, and the definitive proxy statement contains a statement that the proponent is soliciting at least the number of shares necessary to enact the proposed matter; and (iv) No later that the day of the annual meeting, the proponent submits to the registrant and files with the Commission a statement attesting that the number of shares necessary to pass the resolution has been solicited; this requirement may be satisfied by the submission of a statement to the proponent from any custodian or solicitor employed for that purpose. The failure of any proponent to submit and file such an attestation shall disqualify the proponent from conducting an independent solicitation of the registrant s shareholders for a period of three years and may subject the proponent to liability under Rule 14a-9. 6. Other proposals. Finally, we comment on the proposal to eliminate the mechanism provided in Rule 14a-8(e), by which the Commission is available to review allegations to false or misleading statements in a company s statement in opposition to a shareholder resolution. The Release proposes doing so because of its perception that only a handful of proponents avail themselves of this mechanism every year. The absence of such complaints indicate that the system is working, not that it needs to be scrapped. Roughly eight to ten of LongView s proposals come to a vote each year. In each instance, we are provided with a statement in opposition that we review and offer comments, which in virtually every instance are accepted. Many of them are minor, such as expressing a belief as a belief, rather than a statement of fact -- the sort of change that proponents make when similar allegations are raised in response to the text of a shareholder resolution or supporting statement. The fact that the SEC is available as an ultimate arbiter is what makes this system work as efficiently as it does, for the proponent and company both know that if they reach an impasse, the proponent can seek guidance from the Division. Accordingly, we submit that the current system is working well and should not be al- tered. Conclusion. For the reasons stated above, the LongView Fund respectfully urges the Commission to retain Rule 14a-8 in its current form with the changes and clarifications suggested above and to limit changes to Rule 14a-4 in the manner suggested. The Fund appreciates this opportunity to comment on the Release and hopes that these comments are useful to the Commission in its deliberations. Respectfully submitted, Cornish F. Hitchcock 1600 20th Street, N.W. Washington, D.C. 20009-1001 (202) 588-7724 Attorney for LongView Collective 2 January 1998 Investment Fund <(1)> An additional reason why Capital Cities/ABC is not good law is that it was vacated by the Commission at the joint request of the proponent and Capital Cities/ABC. See ACTWU v. Wal-Mart, 821 F. Supp. at 888. <(2)> We note, however, that not all companies insist that proponents attend their meetings and formally move adoption of a given resolution. During its five year existence, the Fund has found that some companies are quite willing (by prearrangement before a meeting) to let Fund resolutions be voted at their annual meetings without a LongView representative being present, and LongView s absence has not been viewed as a barrier to resubmission of the same proposal in subsequent years. This has been true even when there has been no dialogue between LongView and a given company about the resolution, or there are been a dialogue, but it failed to produce a compromise leading to the withdrawal of the resolution in question. In our experience, many companies are not interested in prolonging their annual meetings; also, once a resolution has been presented to the shareholders in the company s proxy mate- rials and has been voted by the shareholders, there may be little that is gained by requiring a representative of the proponent to stand up, make a brief speech that will affect few votes (if any) and then wait to learn the results of the vote.