Subject: Comments on File No. S7-25-97 Date: 11/10/97 3:00 PM To the Commissioners and staff: I appreciate your effort to improve the shareholder proposal rules, and the opportunity to express my views. In general, I believe this is a worthwhile effort, but I have serious concerns about some aspects of the proposal. It is important, as we look at this issue, to remember that the costs to the company (or, more properly, to the shareholders themselves) are minimal. A very small proportion of publicly held companies even receives shareholder proposals each year. While it is true that "household name" companies often receive a dozen or more, no more than a handful of companies receive more than one or two. Many (and more each year) are withdrawn following successful negotiations, and never go to a shareholder vote. Those that do are strictly limited in subject matter and length. In addition to the other restrictions, the subject must be closely enough related to the company to be relevant, but not so closely related as to interfere with the company's conduct of its "ordinary business." Furthermore, almost all shareholder proposals are precatory, and non-binding even if the vote is unanimous. The cost of including an additional half-page of text and tabulating another vote is very small. The risk of undue interference in aspects of the company's business that are best left to management and the board is zero. It is just as important to remember that the benefits of the shareholder proposal process are substantial. The very limits that protect companies from undue interference by shareholders give great strength to the process. A shareholder may submit (or support) a shareholder resolution, to demonstrate concern over the company's direction, without any fear that the result will force managers to make decisions inconsistent with their deeper understanding of the company's position and options. As former SEC Commissioner Joseph Grundfest argued eloquently in his "Just Vote No" article, the luxury of a non-binding vote is that it enables shareholders to send a powerful vote of "no confidence" without undue disruption. Edward Jay Epstein memorably said that shareholder elections "are procedurally much more akin to the elections held by the Communist party of North Korea than those held in Western democracies." The reality backs him up. Management picks the slate of candidates, no one runs against them, and management counts the votes. Managers even know how shareholders vote, unless the company has adopted full confidential voting (almost certainly following a shareholder proposal). Without confidential voting, managers can call and try to persuade (or pressure) those who vote against them. And, of course, management has access to the corporate treasury to finance its search for candidates and solicit support for their election, while anyone running against them must put up their own money. Management has access to the shareholder list; even under the revised rules, a dissident shareholder faces significant obstacles to getting one. Since shareholders have no real participation in the "election" of directors, shareholder proposals provide a constructive and worthwhile middle ground for communication. It is in this context that these comments are submitted. I support the reversal of the Cracker Barrel interpretation, but I do believe that any proposal not strictly relating to corporate governance (clearly appropriate for shareholders to determine) must be couched in economic terms. Because it is so clear that employment practices relate to a company's economic viability, these resolutions are appropriate for shareholder consideration. There is no reason to raise the resubmission thresholds so dramatically. Indeed, I see no evidence that any change is necessary. Before any adjustment is made the Commission should develop some data on the number of proposals resubmitted each year following a vote of fewer than 10 percent of the shareholders. Unless it is so substantial as to document a serious cost to corporations and their shareholders, no change should be made. Second, I approve of the proposal for a 3 percent override to allow proposals supported by a significant shareholder block, even if they would otherwise be excluded by rules 14a-8(c)(5) and (7). This is a flexible and creative approach and can go far to make the shareholder proposal process more meaningful. I suggest, however, that mere co-sponsorship of such a resolution for this purpose should not trigger filing requirements by constituting co-sponsors as a "group." Third, and on similar reasoning, there should be no restriction of any kind on proposals circulated at the proponent's expense, on a separate proxy card. If the level of commitment to the issue enough that a shareholder is willing to commit the resources necessary for such a solicitation, the Commission should play no role in limiting the subject matter of the resolution. Finally, I want to point out what I consider the most dangerous part of the current proposal, the proposed amendments to the "personal claim or grievance exclusion." It is absolutely critical that the SEC establish that any concerns about this exemption relate to the proposal on its face. If the proposal meets all other requirements as to word length and subject matter, the motivation of the proponent is simply and utterly irrelevant. At LENS, we always make every effort to communicate with management and the board on an informal basis, and it is only when that effort fails that we resort to filing a proposal. Under the proposed change, a company could simply assert that our proposal was based on a "grievance" with the company, leaving us no recourse but expensive litigation. If the proposal is, in the terms of the release "neutral on its face," it deserves to be included on the company's proxy and voted on by shareholders. The level of controversy this proposal has generated and the importance of the issues makes it worthwhile to hold hearings on this proposal, and I urge the Commission to consider scheduling one as soon as possible. Sincerely, Nell Minow LENS Suite 800 1200 G Street, NW Washington, DC 20005 http://www.lens-inc.com