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Letter to US SEC Chairman Christopher Cox re SEC Review of Rule 14a-8(i)(8)

13th October 2006

Re: SEC Review of Rule 14a-8(i)(8)

Dear Chairman Cox,

We are writing on behalf of the Cross Border Voting Practices Committee and the Shareholder Rights Committee of the International Corporate Governance Network (the “ICGN”). The ICGN is a global organization of more than 400 members representing institutional and private investors, corporations and advisers from 35 countries with capital under management of approximately $10 trillion. As a global organization with the mission of promoting good governance practices around the world, the ICGN has a strong interest in the enhancement of corporate governance in the United States market. The Cross Border Voting Practices Committee and the Shareholder Rights Committee of the ICGN are responsible for monitoring and addressing issues related to proxy voting, including the facilitation of voting by international investors.

We are writing with respect to the Commission’s upcoming review of Rule 14a-8(i)(8) (the “Rule”) in light of the recent Second Circuit Court of Appeals decision in AFSCME Employees Pension Plan (“AFSCME”) vs. American International Group, Inc. (“AIG”). In that decision, the Court ruled that AIG could not exclude from its proxy statement a proposal submitted by AFSCME to establish procedures permitting shareholders under certain circumstances to access the AIG proxy to nominate director candidates.

We strongly endorse the Second Circuit’s decision and urge the Commission to take steps to interpret the Rule consistent with that decision.

We believe one of the basic assumptions of corporate governance is that shareholders should have the right to exercise a meaningful role in the election of directors and that the election process should thereby function as a means to ensure board accountability. This right has not been fully realized in the United States. We believe the Commission should take this opportunity to strengthen the director election system by permitting shareholders to develop access rights under the Rule.

Critics of the Court of Appeals’ decision have expressed concern that shareholders would abuse procedures that might develop pursuant to resolutions establishing the right to access. We do not believe that the Commission should construe the securities laws or limit the ability of shareholders to hold boards accountable based on negative assumptions or concerns about shareholders. We know from experience that institutional investors, as fiduciaries, are obligated to behave rationally and in the economic interest of their beneficiaries. It clearly makes no sense for shareholders to undermine the enterprises in which they have invested. In our view, it is too soon to argue the case for or against shareholder access. We do not know what forms of access shareholders might propose, nor do we know the specific thresholds, limitations and qualifications that might be included in resolutions designed to attract widespread shareholder support needed for approval. We do know, however, that where comparable rights exist in jurisdictions outside the U.S., there have been no abuses of the type feared by opponents of shareholder access. We know that these rights are rarely used by investors. The mere existence of these rights increases shareholders’ bargaining power, with the result that activism takes the form of dialogue and negotiation rather than confrontation and adversarial proceedings.We believe that this would be the case in the U.S. as well. We also believe that a market-based approach to the design of access procedures would be more effective than a regulatory or legislative solution.

Based on our global perspective, the United States system clearly lags behind other major markets where the rights of shareholders to participate in and influence director elections are already well established. Giving shareholders a stronger voice in the nomination and election process would bring the U.S. market in closer conformity to international best practices and election standards. We recognize and applaud the recent movement by many U.S. companies to adopt majority voting in director elections. While this development has improved the alignment of the U.S. system with international standards, we believe that by opening up the process to permit shareholder access proposals, further improvements in U.S. corporate governance standards can be achieved.

The strengthening of shareholder rights should lead to significant positive consequences for the U.S. market. We have long believed that the lack of these rights and the inability of shareholders to have a meaningful say in electing directors has contributed to the costly and inefficient adversarial relationships that often develop between shareholders and companies in the U.S.

Strengthening shareholders’ rights with respect to director selection would encourage more dialogue, negotiation and constructive engagement, and would help reduce the confrontational nature of shareholder activism in the United States.

For all of these reasons, the ICGN urges the Commission to accept the decision of the Court of Appeals and to permit shareholders to submit access proposals under the Rule. This would improve the director election process in the United States, which we believe will inure to the benefit of both shareholders and companies.

We appreciate the opportunity to comment on this important issue. If you have any questions on this letter, please do not hesitate to contact us.


John C. Wilcox
Committee on Cross-Border Voting Practices

Alastair Ross Goobey
Chair, Committee on Shareholder Rights