BankAmerica Corporation Bank of America Center Box 3700 San Francisco, California 94137 Cable : BANKORP Cheryl Sorokin Executive Vice President and Secretary December 17, 1997 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Comments on 34-39093, Amendments to Rules On Shareholder Proposals (File No. S7-25-97) Dear Mr. Katz: The Commission has requested comment on Release No. 34-39093, which proposed various amendments to rules governing the shareholder proposal process. BankAmerica Corporation ("BAC") submits the following comments. I. GENERAL OBSERVATIONS We comment not only as a public company which has received and responded to many shareholder proposals, but as an institution which holds shares in many other companies, both in our proprietary accounts and as a fiduciary on behalf of our customers. We are sensitive to the needs of both issuers and shareholders. Last proxy season, BAC voted about 3,000 proxies. With our recent acquisition of Robertson Stephens, which has approximately $4.6 billion in assets under management, we should vote even more proxies next season. BAC encourages shareholders to engage with us on a wide array of matters of interest. We strive to be respectful and responsive in our interactions. We are open to discussing policies and practices and view such conversations as valuable communications. We prefer dialogue to confrontation. We follow the same approach when acting as a shareholder in other companies. Unfortunately, our experience has been that the shareholder proposal arena is inherently adversarial. Many of the issues raised by proposals are too complex to be understood or resolved with a yes or no vote, are not of general shareholder interest, reflect a narrow special or personal perspective, and are not motivated by the best interests of shareholders at large. Our interactions with shareholder proponents too often deteriorate into strained negotiations rather than dialogue. However, we believe that starting over completely would be inappropriate. We prefer amending the existing rules and, with the exception of points we discuss later, we like the overall approach taken in the release. We agree with you that: . . . [t]he purpose of the rule is to ensure proper disclosure and enhance investor confidence in the securities markets by promoting proposals raising significant issues that are relevant to the company and its business. We place great emphasis on your language that proposals must raise "significant" issues which must be "relevant" to the company and its business. We feel that the two overarching principles that you should focus on in revising the rule are 1) significant long-term investment in the company as a basis for submitting proposals, and 2) simplicity of implementation of the rule. For example, we feel strongly that eligibility thresholds should be increased beyond the proposed $2,000 requirement, and that the increase in resubmission thresholds you propose should be adopted even if other changes are not. We believe the SEC is the most appropriate person to judge proposals, and would disagree with transferring that duty to others. We give you a great deal of credit for reformatting the rule in plain English. However, the changes will require ongoing interpretation and you should be prepared to clarify them as needed. II. PROPOSED AMENDMENTS WE GENERALLY AGREE WITH We generally agree with the following proposed changes: Rule 14a-8 Question 1: Definition of Proposal Question 2, Par. 1: 1 Year Holding Requirement and Requirement to Continue to Hold Securities Through Meeting Date Question 8, Par. 1: Presentation of Proposal at Meeting Question 5, Par. 2, 3: Timeliness Question 3, and Question 6, Par. 1: Number of proposals Question 4: Length of Proposal/Supporting Statement Preamble to 14a-8, and Question 1: Supporting Statement Question 9 Grounds for Exclusion: Par. (i)(1): Improper Under State Law 1/ Par. (i)(2): Violation of Law Par. (i)(3) Violation of Proxy Rules Par. (i)(6) Absence of Power/ Authority Par. (i)(8) Relates to Election Par. (i)(9) Conflicts with Company's Proposal Par. (i)(10) Moot/Substantially Implemented Par. (i)(11) Duplication Par. (i)(13) Specific Amounts of Dividends Question 14, Par (1): Identification of Proponent in Proxy Statement Question 14, Par. (2): Responsibility for Proposal Rule 14a-5(e): Disclosure of deadline for proposals 2/ III. SUGGESTED CHANGES TO OTHER PROPOSED AMENDMENTS Question 2: Eligibility BAC supports the proposed change, but suggests that $5,000 would be a more realistic threshold of ownership. Your proposed increase from $1,000 to $2,000 is based solely on the effects of inflation since the $1,000 limit was adopted in 1983, but fails to factor in the increases in disposable income and invested assets that have occurred since that time. In short, the average investor owns more today than he or she did in 1983 and has more at risk in the market. BAC feels that a shareholder should hold a meaningful stake and long-term commitment in the issuer before being allowed to submit proposals. The proxy process involves a substantial amount of corporate, governmental and shareholder time. These resources should be used only when a serious investor has submitted a serious proposal. In addition, a higher limit would tend to discourage the submission of proposals that relate to personal claims or grievances, and address the Commission's concern about the handling of such proposals when they are facially-neutral. For the same reasons, we believe that security ownership for at least a year is an appropriate prerequisite. Question 6, Par. 1: Company's Request For Proof of Beneficial Ownership We support decreasing the deadline for responses to requests for proof of beneficial ownership from 21 days to 14 days. It streamlines the proxy process by using the same 14 day time periods for both issuer and proponent, and expedites the process of receiving a response. Question 6, Par. 2: Proponent's Failure to Hold Security through Meeting Date, and Question 8, Par. 3: Proponent's Failure to Present Proposal at Meeting BAC supports the retention of the two year exclusion in these instances, as a means of impressing upon shareholder proponents the importance of honoring their implied commitment to conform to the rules of the proxy process. Identity of Proponent (current Rule 14a-8(a)(2)): Although it seems implicit, for the sake of clarity, the rules should continue to specify that information regarding the proponent's name, address, number of securities held of record or beneficially, dates of acquisition and proof of claim of beneficial ownership must be provided when the proposal is submitted. Question 5, Par. 1: Electronic Submission of Proposals Give companies a choice whether to accept proposals by electronic means and allow them to specify an acceptable means. Companies have numerous fax machines, electronic mail systems and voice mail capabilities. A proponent should use only the means specified in the proxy statement, so that the company will know when a proposal has been submitted. This becomes more important in light of the proposed 40-day deadline for issuers to challenge proposals. Also, the proponent should be required to specify an electronic means for the issuer's use in verifying the identity of the submitter, such as a return fax number, phone number or e-mail address. Failure to comply with this requirement should be a separate grounds for exclusion. Grounds for Omission: Question 9 Question 9, Par. (i)(4) Personal Grievance; Special Interest We feel particularly strongly that the SEC should not withdraw from issuing no-action relief for facially-neutral proposals. The staff has at times authorized exclusion of all future proposals from someone with a grievance who habitually submits proposals that are facially-neutral. (See, e.g., Cabot Corporation, 11/4/94). This is an important control mechanism for those who abuse the process. Complete withdrawal is not the answer to your concern about being the arbiter of disputed facts. In such cases, all you need do is state hypothetically whether you believe grounds exist for omission, assuming (without deciding) that the company's assertions are factually correct. Thereafter, it would be the company's choice whether to omit, based on the strength of its evidence of the grievance. This would give both issuer and proponent the benefit of your views, and leave the issuer to decide whether it could establish the facts in the event of litigation. Question 9, Par. (i)(5): Relevance We agree with deleting the "otherwise significantly related" exception. However, the $10 million threshold is too low. We would favor retaining the existing 5% tests or at least moving to a much higher dollar amount than $10 million. If you do move to a dollar threshold scheme, please add production, capital expenditures and dispositions of assets/operations to purchases, sales and costs as types of proposals that may be subject to exclusion on relevance grounds. Question 9, Par (i)(7): Ordinary Business/Management Functions We believe this provision should cover matters left to the discretion of the board of directors or management, rather than just management. The Note to this paragraph should state that "matters that should be left to the discretion of the company's managers because of their complexity, impracticability of shareholder participation, or relative insignificance" are excludable, so that the rule reflects your intent as discussed in the release. In addition, we believe Cracker Barrel should be retained. Businesses should not be in the position of deciding public policy. We agree with the Cracker Barrel analysis and think that an employment-related proposal should not be included simply because it is tied to a social issue. Those issues should be discussed and decided by society as a whole through the political process. However, corporations should have the flexibility to change their practices for policy reasons when they deem it appropriate in the specific context of their business. Although we oppose the override mechanism, if the override is adopted, we suggest that it also apply to exclusion decisions based on the Cracker Barrel analysis. Question 9, Par. (i)(12) Resubmissions BAC agrees with the increase in thresholds. We think that varying the thresholds based on company size, though, would be confusing and unworkable. Including abstentions and broker non-votes would be inappropriate, because these items are not considered as "votes cast." In addition, we think the thresholds should be increased even if the whole package is not adopted. Also, we agree with the proposed threshold amounts. Question 10, Par. (1): Override Mechanism We disagree with the override concept. We feel it is inappropriate for shareholders to, in effect, overrule the SEC's exclusion decisions. Also, it would add a cumbersome new process to the already pressured and time consuming process of proxy solicitation. As we noted earlier, one of the two main principles we should be following here is simplicity. The override, we feel, violates the simplicity principle. However, if you do adopt the override, we feel 3% is too low a threshold. If the SEC has already excluded a proposal, it should take more than 3% (perhaps 6%) to contradict the agency's determination. Also, we feel that the proponent's own shares should be excluded. Otherwise, those with minority stakes would have too much power and control. If the override is adopted, we would prefer a standard threshold rather than a level that varies by company size. Also, the proposal is one-sided. If proponents are allowed to seek support for override, issuers should be able to seek support from other shareholders to uphold exclusion, as well as seek to convince the proponent's supporters to withdraw support. Question 10, Par. (2): Proof of Override Support You have asked whether a shareholder list should be provided to a proponent soliciting support for an override. We believe that shareholder lists should be provided only where a proponent mails proxy soliciting materials and agrees to bear the costs. Override evidence should only be used to support the inclusion of a proposal in connection with one shareholders meeting. We feel that supporters should meet the same length and level of ownership and holding requirements as proponents. It seems inconsistent to impose such eligibility requirements on proponents but not on supporters, especially when the override mechanism will act as a substitute for the SEC's own judgment. Those who wish to put the company and other shareholders to the expense of including a proposal should have a continuous investment interest, regardless of whether they are proposing or supporting. Also, there should be no exception for institutions subject to fiduciary restrictions. These institutions currently face the same holding and retention issues when they submit proposals, yet they continue to do so. Failure of supporters to continue to hold through the meeting should entail exclusion of proposals from that supporter, and disqualification from supporting other proposals for two years, to parallel the treatment of proponents who fail to hold. Question 11: Override Limits We would favor the proposed limit, if the override is adopted. Supporters should be treated essentially the same as proponents. Just as proponents may only submit one proposal per company, supporters should only be allowed to support one proposal per company. Question 12, Par. (1): SEC Challenge by Company You propose to require issuers to challenge proposals within 40 days of receipt so that proponents will have your response on exclusion in time to override. Since proponents may only override exclusions that are based on relevance or ordinary business/management functions, the 40 day requirement should apply only where the company seeks to exclude for one of these reasons. The existing 80 day period should continue to apply where the company seeks to exclude for other reasons. Also, where omission is based on eligibility, BAC believes that a submission to the SEC is not necessary, unless there is some ambiguity involved. The staff should not need to advise whether a proponent has sufficient share ownership or submitted the proposal on time. Question 13: Proponent's rebuttal to company's challenge BAC supports the change. It is fair to advise proponents that they may challenge the company's position. The staff has allowed this practice in the past. 3/ Statement in Opposition: Current Rule 14a-8(e) We agree with deletion of the requirement to send the statement in opposition to the proponent in advance and of the opportunity for the proponent to challenge the statement. But, we think you went too far and deleted the company's right to have a statement in opposition in the first place. The omission might imply that companies no longer have this right. Proponents should be aware that their proposals may not go unanswered by the company, and that voting shareholders will have before them the views of both sides. One of your purposes in revising the rule is to explain the entire procedure. This is an essential part of the procedure that would be missing. Rule 14a-2: Solicitations Covered by Proxy Rules The change is appropriate but one-sided. Since the proponent may solicit override support without filing proxy material, issuers should be allowed to contact the proponent's supporters to convince them to withdraw support, without having to file proxy material. Also, issuers should be able to seek support from other shareholders to uphold exclusion without filing proxy material. If a prospective supporter or a member of the news media seeks the company's views, the company may not respond for fear that anything it says may be considered a "communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy," part of the definition of "solicitation" in Rule 14a-1(l)(1)(iii). Rule 14a-4: Discretionary Authority We support the change since it clarifies issuers' obligations. However, the extra box on the proxy card that you are proposing is not needed. It should be sufficient to state, as is currently required, how proxies are intended to be voted on additional matters that could arise. Also, we do not see the need for preliminary proxy material. The staff can review the functioning of the new rule after the fact and publicize its views as to compliance, as it did in the 1993 release reviewing compliance with the 1992 amendments. Also, the staff could offer to review proxy material for companies that wish to voluntarily submit, as it did in 1992-93 and which apparently worked well. Rule 14a-5(e) Notice of Change in Meeting Date Notice in the 10-Q is acceptable, unless state law requires some other form of notice. However, issuers should be permitted more flexibility. Those who issue interim reports or send other correspondence to shareholders should be allowed to use those media, especially since it is more likely that a shareholder would read such material rather than a 10-Q. Also, issuers who wish to disclose the information in an 8-K or press release, or in a shareholder mailing, should be permitted to satisfy their obligation in that manner. In addition, issuers should be allowed to comply by adding this information to their internet home pages, if they say in the proxy statement that proponents should check the home page for possible changes or call the corporate offices. 13d-5(b)(3): Acting in Concert Re: Voting Proponents should be advised that activities exceeding the limitation in 13d-5(b)(3) may require a 13D filing. IV. CONCLUSION On balance, we think that many of the proposed changes will improve the shareholder proposal process. We commend your thoughtful analysis of a very difficult area. Based on recent news reports regarding reaction to these amendments, we are mindful that others might oppose some of our views. We would welcome the opportunity to work with the Commission and other interested parties towards a mutually acceptable result. If you wish to discuss these comments, please contact me at 415/622-2091. Sincerely, Cheryl A. Sorokin Executive Vice President and Secretary 1/ However, we believe the language of the existing rule is more precise. Using "state of incorporation" in the amended rule would exclude foreign corporations and non-corporate entities that have securities registered under Section 12 of the '34 Act. 2/ The cross reference should be to Question 5 rather than Question 4, which relates to the permitted length of a proposal. 3/ You should make it clear that the proponent must copy the company on any correspondence to you regarding a proposal.