1 THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

 2 

 3 

 4 UNOFFICIAL TRANSCRIPT OF THE 

 5 ROUNDTABLE DISCUSSION ON 

 6 PROPOSALS FOR SHAREHOLDERS 

 7 

 8 

 9 

 10 Friday, May 25, 2007 

 11 9:17 a.m. 

 12 

 13 

 14 

 15 SEC Headquarters 

 16 100 F Street, N.E. 

 17 Auditorium L-002 

 18 Washington, D.C. 

 19 

 20 

 21 

 22 

 23 

 24 Diversified Reporting Services, Inc. 

 25 (202) 467-9200
 1 C O N T E N T S 

 2 PAGE 

 3 

 4 Opening Remarks . . . . . . . . . . . . . . . . . . . . . . 3 

 5 Chairman Christopher Cox, U.S. 

 6 Securities and Exchange Commission 

 7 

 8 Introduction . . . . . . . . . . . . . . . . . . . . . . . 5 

 9 John W. White, Division of Corporation Finance 

 10 

 11 Panel One - Vindicating fundamental state law rights . . . 6 

 12 Moderators: 

 13 John W. White, Division of Corporation Finance 

 14 Martin P. Dunn, Division of Corporation Finance 

 15 

 16 Panel Two - Promoting communication between shareholders and 

 17 the company . . . . . . . . . . . . . . . . . . . . . . . 52 

 18 Moderators: 

 19 John W. White, Division of Corporation Finance 

 20 Martin P. Dunn, Division of Corporation Finance 

 21 

 22 Panel Three - Revisiting the relationship between state law 

 23 rights and the federal proxy rules . . . . . . . . . . . 90 

 24 John W. White, Division of Corporation Finance 

 25 Martin P. Dunn, Division of Corporation Finance
 1 P R O C E E D I N G S 

 2 (9:17 a.m.) 

 3 OPENING REMARKS 

 4 CHAIRMAN COX: Good morning. I'm going to call this 

 5 to order just a little bit late this morning, and I 

 6 appreciate very much everyone's being here. Welcome to what 

 7 is going to be the SEC's third and last roundtable at least 

 8 this month on proxy process. 

 9 Let me begin by recapping for those of you who may 

 10 not have been following these roundtables closely what we've 

 11 heard and learned thus far. At our first roundtable on May 

 12 7th we discussed the state law underpinnings of shareholder 

 13 rights to nominate and vote for directors. We looked at the 

 14 way that shareholders can make proposals that are binding on 

 15 companies as well as the way that the federal proxy rules 

 16 have embellished state law rights when it comes to nonbinding 

 17 proposals. 

 18 At our second roundtable yesterday morning we 

 19 focused on the way that the exercise of shareholders' state 

 20 law rights are very much affected by the mechanics of the 

 21 proxy voting system. As you can see it's been a busy and a 

 22 productive month and the commission and our staff have 

 23 benefitted from the enthusiasm and the willingness of our 

 24 panelists in these two roundtables to share their knowledge 

 25 and their expertise with us.
 1 Today's roundtable will build on what we've learned 

 2 and address the most important question before us, how can we 

 3 improve our proxy system going forward. What approach by the 

 4 SEC will best serve the rights and the interests of 

 5 shareholders in the way that Congress intended? 

 6 Today's panelists include representatives of a 

 7 broad spectrum of shareholders who use the federal proxy 

 8 process to make proposals. The first panel this morning will 

 9 consider what types of binding proposals by shareholders 

 10 should be included in the company's proxy statement. They'll 

 11 address questions such as whether the federal government 

 12 should impose an eligibility requirement if there isn't one 

 13 under state law and what kind of disclosures shareholders 

 14 might need about the person making the proposal in order to 

 15 make an informed decision. 

 16 Our second panel will consider the ways in which 

 17 shareholders can communicate with their companies and vice 

 18 versa in addition to the annual meeting of shareholders. 

 19 Given the advances in telecommunications technology that we 

 20 all enjoy, in fact that we're going to enjoy today because 

 21 we'll have one panelist participating via telecommunications 

 22 from Stanford later on, there may be more effective ways for 

 23 shareholders to communicate with the company beyond what 

 24 everyone acknowledges is the rather cumbersome federal proxy 

 25 solicitation process.
 1 Several of the speakers on this panel have often 

 2 used rule 14A-8 to make nonbinding shareholder proposals to 

 3 companies. 

 4 In light of their experience, they and the other 

 5 panelists will be asked for their views on how something 

 6 along the lines of an electronic shareholder forum might 

 7 permit shareholders to promote their ideas and vote on 

 8 nonbinding proposals more often than annually. 

 9 Finally, our third and last panel will help us knit 

 10 together all that we've heard in the previous panels and in 

 11 the preceding roundtables and address the question whether 

 12 any or all of these ideas for changes in the federal system 

 13 would better vindicate shareholder state law rights than the 

 14 current system. 

 15 Since four of the members of our third panel 

 16 appeared at our first roundtable, we'll have come back full 

 17 circle to the fundamental questions that we addressed that 

 18 day of the relationship between federal and state law. At 

 19 this time hopefully we'll be a little bit better informed and 

 20 a little wiser. 

 21 On behalf of the commissioners and the commission 

 22 staff, I'd like to welcome our distinguished panelists, 

 23 beginning with the first panel, to this day's roundtable. 

 24 And thank you very much for your participation. We're 

 25 looking forward to discussing and learning.
 1 PANEL ONE - VINDICATING FUNDAMENTAL STATE LAW RIGHTS 

 2 MR. WHITE: Thank you, Chairman Cox, and good 

 3 morning. I am John White, director of the Division of 

 4 Corporation Finance, and I am very pleased to welcome you as 

 5 well to the commission's roundtable on proposals for 

 6 shareholders, our third and final roundtable for this month 

 7 at least, as Chairman Cox said. 

 8 Chairman Cox has laid out what we are hoping to 

 9 accomplish in each of the panels today, so I will not go 

 10 through that again, but I will point out that we are very 

 11 pleased at this final roundtable to have the -- I guess I 

 12 will call it the stakeholders, the companies and investors 

 13 with experience in the area of shareholder proposals. And of 

 14 course on our final roundtable, final panel, we will also 

 15 have some of the participants from our first roundtable 

 16 rejoining us from the academic world and the judiciary. 

 17 To my right is Marty Dunn, deputy director of the 

 18 Division of Corporation Finance. He's joining me again at 

 19 the moderator table for the morning. 

 20 A few rules of the road. Similar to the previous 

 21 roundtables, we've prepared a number of questions for the 

 22 panelists. They are in the agenda and up on the web site for 

 23 those who would like to see them. We also anticipate we'll 

 24 be having questions from the commissioners. 

 25 We have specifically asked each of the panelists
 1 today not to provide formal opening statements. Instead we 

 2 want to go directly to our questions. However we have 

 3 encouraged them like we encourage each of you in the audience 

 4 and each of you listening by webcast to submit written 

 5 statements and other materials that you'd like to us. There 

 6 is a combined public comment file for all three of the 

 7 roundtables out there and we would certainly like to have any 

 8 submissions that you'd like to make. 

 9 We will, at the end of each of the panels as we 

 10 come to the close, ask each panelist to give us a minute or 

 11 two of their closing thoughts and suggestions for the 

 12 commission. That's in lieu of opening statements; we'll have 

 13 closing comments. 

 14 To ensure that everything runs smoothly we would 

 15 ask both the panelists and the commissioners, if you would 

 16 like to be recognized to please turn your tent card up on 

 17 end. And Marty and I promise to make every effort to 

 18 recognize everyone, not necessarily in the order you put your 

 19 tent cards up, but we will do the best we can. 

 20 So with that I'd like to move to our first panel. 

 21 Let me introduce everyone starting on the far left. Rich 

 22 Ferlauto, director of corporate governance and pension 

 23 investment at the American Federation of State, County and 

 24 Municipal Employees; Jonathan Gottsegen, director of 

 25 corporate and securities practice group at the Home Depot;
 1 David Hirschmann, president of the U.S. Chamber of Commerce 

 2 Center for Capital Markets Competitiveness; Bess Joffe, who 

 3 works on corporate governance issues at Hermes Equity 

 4 Ownership Services; Bill Mostyn, deputy general counsel and 

 5 corporate secretary at Bank of America; and Damon Silvers, 

 6 associate general counsel at AFL-CIO. 

 7 So let's go to our first topic. As Chairman Cox 

 8 described, at our first roundtable there was a good bit of 

 9 discussion about the fact that some binding shareholder 

 10 proposals, including proposals to amend the bylaws to permit 

 11 shareholder nomination of directors are permitted under state 

 12 law but are not permitted today under our proxy rules. 

 13 So Damon, I guess we'd like to start with you and 

 14 go to our threshold question of whether the federal proxy 

 15 rules should be revised to be more consistent with the state 

 16 law rights of shareholders and permit any matter that can be 

 17 made binding under state law to be included in a company's 

 18 proxy statement. 

 19 MR. SILVERS: Thank you, John. It's a pleasure to 

 20 be here with the commission. 

 21 The question you pose I think points out this sort 

 22 of anomaly that there are proposals that are valid under 

 23 state law that have real effect that are not, that at times 

 24 the commission staff has not allowed to go through under 

 25 14A-8. And this seems sort of perplexing and strange in a
 1 way. 

 2 And so the solution that's proposed, to allow all 

 3 such proposals and take the burden off of Marty and his 

 4 colleagues to sort them out which one is which under current 

 5 commission practice has a lot of merit on its face. It 

 6 embodies what I believe has been the prior discussion of the 

 7 fact that under state law shareholders have sort of three 

 8 fundamental rights. One is to simply participate in the 

 9 annual meeting in all of its forms. Two is to amend the 

 10 bylaws and three is to elect directors. 

 11 It's particularly troubling I think that this hole 

 12 that you identified and that this panel seeks to address is 

 13 in the area of director elections primarily because that 

 14 right is so fundamental under state law. There are three 

 15 issues that I think the commission and the staff need to look 

 16 at if they want to go in this direction. And I think that, 

 17 assuming that reasonable and effective answers to these 

 18 issues are found, that investors would be quite supportive of 

 19 moving in the direction that the question poses. 

 20 The first issue is understand what exactly the 

 21 zone, the range of proposals that would then be automatically 

 22 allowed would be. The question of what is a proper, binding 

 23 proposal under state law, even just in Delaware, is one that 

 24 has not been extensively litigated, and there are quite 

 25 differing theories out there about how broad that range is.
 1 Shareholders at various times both in front of the 

 2 commission and in courts have urged that the latitude for 

 3 binding proposals is quite broad. The corporate community 

 4 has generally viewed provisions of Delaware law that vest the 

 5 management of the corporation and the board as narrowing that 

 6 dramatically. 

 7 It's unclear, I believe, and as part of trying to 

 8 understand that you'd have to understand what the commission 

 9 would do to resolve questions about what that range is. I 

 10 don't think that you would want that result to be the 

 11 commission appearing before the Delaware courts 20 or 30 

 12 times a proxy season. I don't think that's a practical 

 13 response. 

 14 Secondly, I think the commission would want to look 

 15 at the question of whether this approach would create its own 

 16 anomaly. And the anomaly would be that there would be 

 17 certain items which you could not bring as a precatory 

 18 proposal but you could only bring as a binding proposal. 

 19 I think investors generally feel that the 

 20 preferable way of making change in corporate governance is 

 21 through bringing precatory proposals which outline a 

 22 principle, which are then enacted in detail by the board who 

 23 are familiar with some of the ramifications thereto, and that 

 24 binding proposals are generally only brought when a board 

 25 simply refuses to listen to shareholders.
 1 And so I don't think the commission would want to 

 2 close off that as the general way of doing things, 

 3 particularly in areas as important as say, directorial 

 4 elections. And so I think that if the commission wanted to 

 5 look at those two issues and figure out appropriate ways of 

 6 handling them, that this is a very attractive way to proceed. 

 7 I would conclude by saying one thing, which is that 

 8 I disagree with the premise and the materials that precatory 

 9 proposals are a creation of the federal law. The federal law 

 10 really doesn't have the ability to create state law rights, 

 11 and the right to bring a precatory proposal is part of the 

 12 broad rights of participating in an annual meeting. 

 13 It's certainly true that the federal rules have 

 14 heightened the importance of them and made them more common. 

 15 Thank you. 

 16 MR. WHITE: Jonathan, do you want to give your views 

 17 on this question? 

 18 MR. GOTTSEGEN: Well, to answer your initial 

 19 threshold question, John, straightforward, I don't think the 

 20 proxy rules are in need of revision to be more consistent 

 21 with state law. In my view, from where I sit, the commission 

 22 at the end of the day, in order to improve our system going 

 23 forward, which is the goal articulated by Chairman Cox, 

 24 should focus on only a few specific changes to the 

 25 shareholder proposal process.
 1 From the in house perspective, with the exception 

 2 of a handful of pieces of 14A-8, there is strong familiarity 

 3 and history that both companies and shareholders can rely on. 

 4 And the rules work pretty well, as is evident by the number 

 5 of proposals that companies receive and include in their 

 6 proxies each year. And the rules work well, as is evident by 

 7 the number of contested elections that we see more and more 

 8 of. 

 9 So I think, to give a very simple answer to the 

 10 initial question, I would move cautiously in terms of 

 11 revising the rules in an effort to make them more consistent 

 12 with state law. 

 13 MR. WHITE: Bill, how do you feel about that? 

 14 MR. MOSTYN: I would agree with many of the things 

 15 that Jonathan said. My view is that, especially in terms of 

 16 director nominations, I think this is an issue that is a 

 17 solution looking for a problem, frankly. 

 18 Shareholders have a right today to bring up their 

 19 own slate of directors and contest the directors slate. And 

 20 the costs of that are really not that much. In fact, I think 

 21 the costs are going to be coming down substantially in terms 

 22 of use of the internet. 

 23 I suspect that Rich, you probably spent more money 

 24 on that AIG case in legal fees than it would have cost you to 

 25 run your own slate at AIG. It's not that big of a deal. I
 1 think we're making a much bigger issue out of it than it 

 2 really has to be. 

 3 MR. DUNN: Rich, I won't ask you to answer that, but 

 4 I was going to turn to you next, Rich, because one of the 

 5 questions that Damon's point raises is -- do you think that 

 6 this would result in companies seeing more binding if you 

 7 went that route, and is that a good or a bad thing? 

 8 MR. FERLAUTO: We the AFSCME Fund probably has more 

 9 experience drafting binding proposals than probably any other 

 10 shareholder or shareholder group. We've drafted and filed I 

 11 think about 20 over the past five years, a number of them 

 12 relating to the access question, but also majority voting. 

 13 Leo Strine is in the audience here -- you know, capturing the 

 14 solicitation expenses. 

 15 There are certain barriers and requirements that 

 16 make -- that if narrowed shareholder access just to binding 

 17 proposals I think it wouldn't do the issuers any good and 

 18 certainly wouldn't do the proponents very good. 

 19 First of all you've got -- the question that you 

 20 first posed is that there's a wide range of state law that's 

 21 developing now in terms of what can be binding or not. You 

 22 know, certainly we've got the recent changes in North Dakota. 

 23 We've got changes that are moving through the legislature in 

 24 Ohio. We've had recent changes in California so that for 

 25 shareholders to decide or to have a competition among states
 1 regarding what binding rights might exist might be difficult. 

 2 The other difficulty, which I think should be of 

 3 concern to the issuers on this as well as ourselves is that 

 4 under current rules we have 500 words. To craft a 

 5 sufficiently robust amendment to the bylaws in 500 words, 

 6 which would include the leading material that doesn't work in 

 7 adding material that would give the detail that would be 

 8 required, particularly when there are nuance questions to be 

 9 dealt with, is burdensome and frankly quite difficult to do, 

 10 although I think we're capable of doing it. 

 11 We spent a lot of time trying to figure out how 

 12 that works. I think from the issuer perspective they would 

 13 much rather hear our views and have some flexibility in 

 14 drafting language in consultation with a shareholder vote 

 15 that would urge them and give them impetus for that kind 

 16 of -- those sets of changes. 

 17 And frankly, other than the I-8 question around 

 18 access, the 14A-8 process works pretty well. It's an 

 19 imperfect system but it seems to work for everybody basically 

 20 because there's been at least 50 years of sort of robust 

 21 discussion in which shareholder rights or the rights for more 

 22 robust communication have developed. And in practice you've 

 23 got corporate secretaries, you have issuers, you've got the 

 24 proponents, who are all comfortable with the system and 

 25 understand how to make it work pretty well given the
 1 moderation of and the very good work of the staff. 

 2 So in short I think binding proposals are a tool 

 3 that would be used only occasionally, and for the most part 

 4 precatory proposals would be the preferred method of 

 5 engagement. And the problem that we run into -- again, it's 

 6 the anomaly that Damon point out -- is that you've got a 

 7 fundamental right under Delaware and most state laws around 

 8 director elections. 

 9 That's really the principle upon which the 

 10 structure of the corporation in the U.S. has been created. 

 11 And that's one right that communications vehicle doesn't 

 12 allow the discussion around. And that's what we're focused 

 13 on. And rather than taking our broad battle axe to how 14A-8 

 14 might be recreated in some way, my suggestion is that you 

 15 really focus on binding proposals related to -- or any type 

 16 of proposals for that matter relating to the director 

 17 election question, which is allowable under state law. 

 18 MR. DUNN: Before we move off the threshold question 

 19 I want to give David and Bess a chance. I'll start with 

 20 David and then let Bess be next. 

 21 MR. HIRSCHMANN: Well, thank you. Thanks for 

 22 including me and thanks to the commission for holding this 

 23 series of roundtables. I had the chance to listen to the 

 24 previous roundtable and thought it was a very constructive 

 25 discussion.
 1 The question here is really whether the commission 

 2 should move in this direction. I want to make it clear that 

 3 we believe that the second question, which is the can 

 4 question, is also important, which was discussed in previous 

 5 roundtables. And my views of that ultimately will be decided 

 6 in the courts. 

 7 But the should question hinges on whether the 

 8 commission believes that in doing this it will advance its 

 9 to-for mandates. And in some ways when thinking about this 

 10 it just seems to me that it's based on -- the should question 

 11 is based on somewhat of a false premise, the premise that 

 12 somehow if these state rights were reflected in the proxy 

 13 process they might be used for a different purpose or more 

 14 responsibly than the current rights that shareholders have 

 15 under the proxy. 

 16 And I'm not sure that that is really the case. 

 17 It's really about one of two things. It's either about 

 18 leverage over the board or it's about changing the governance 

 19 model and having a board that represents a diversity of 

 20 constituencies that reflects more the European system or 

 21 about both. 

 22 You know, I believe that Damon and Richard do their 

 23 jobs very well. If I tomorrow woke up and worked at the 

 24 AFL-CIO, I'd want to have as much leverage for my members as 

 25 possible. And I believe that they, frankly, use this
 1 leverage more responsibly than most. 

 2 It doesn't mean we agree with everything. Mondays, 

 3 Wednesdays and Fridays -- agrees with organized labor, on 

 4 immigration and other issues. On Tuesday and Thursdays we're 

 5 fighting on card check and other issues. I'm just not sure 

 6 that giving this additional leverage would serve ultimately 

 7 long-term shareholder value or that others would use it as 

 8 responsibly as Damon or others might. 

 9 Companies tell us that at the end of the day when 

 10 they sit down with those proposing these proposals, 

 11 especially AFSCME or the union proposals, it's always about 

 12 the union agenda. And I think if you look at the track 

 13 record of AFSCME last year, in more than half the cases, 

 14 boards sat down and negotiated an outcome that they were 

 15 willing to live with, with the unions. 

 16 The question is, whether that's good or bad, do we 

 17 need to enhance that leverage. And the second 

 18 question -- issue is a question of what's the right 

 19 governance model. Do we really want boards that represent a 

 20 diversity of interests with fractious and conflicting 

 21 agendas, whether it's unions or environmental groups or 

 22 biotech companies, pro- or anti-stem research groups or a 

 23 defense company's views on the war or shareholders who might 

 24 want short-term gains versus long-term gains? 

 25 I don't think the commission wants to put the staff
 1 in the position of deciding what board directors qualify or 

 2 don't qualify. And you know, it's a worthy debate to decide 

 3 what the board should look like, but I don't think simply 

 4 wrapping this in the name of democracy would produce a better 

 5 long-term value for shareholders. 

 6 MR. DUNN: Well, Bess, before I turn to you, since 

 7 it seems like everybody agrees on the panel -- a couple of 

 8 things David said I thought were quite interesting and turn 

 9 to you. One is he mentioned the European system and he also 

 10 mentioned the notion of leverage and rights that folks have 

 11 now. 

 12 A number of years ago I met with somebody else at 

 13 Hermes and they pointed out that the European system which 

 14 provides them the leverage means that they rarely have to use 

 15 it, which is kind of an interesting balance there. So I 

 16 think it's a good point to turn to you to close us up here, 

 17 and if you can add anything to the leverage point I 

 18 appreciate it. 

 19 MS. JOFFE: Well, thank you very much for the 

 20 opportunity to speak here. 

 21 I think that is true very much about the European 

 22 system, the U.K. system in particular and several other 

 23 common law jurisdictions around the world as well. And the 

 24 point that I was going to make is generally with -- in the 

 25 U.S. context I would agree with much of what Jonathan said,
 1 that the system tends to work quite well as it is currently. 

 2 But I think if the general -- if you want to limit the number 

 3 of precatory proposals that shareholders submit on an annual 

 4 basis, I think in some way enfranchising them with more 

 5 rights, that would go a long way to see a diminished number 

 6 of proposals being submitted. 

 7 I think majority voting is key to that. An 

 8 advisory vote on compensation structures is also key. I 

 9 think just having a bit more say in what goes on in a company 

 10 and different ways of engaging with boards and management 

 11 would alleviate the pressure of the proposals in a lot of 

 12 instances. 

 13 And with respect to the issue of binding and 

 14 nonbinding proposals, when I see a proxy card on my desk we 

 15 evaluate them much on the same basis. And I actually think 

 16 that -- I mean we oppose many nonbinding proposals because 

 17 they come across as too prescriptive to the board or too 

 18 restrictive. And we would like to stay away from increasing 

 19 the number of binding proposals. 

 20 It's very difficult for shareholders to accurately 

 21 draft these types of proposals that can then be actually 

 22 useful to companies. And that would create a whole other set 

 23 of problems. I think Rich highlighted some of them. 

 24 The other sort of theoretical issue is that the 

 25 bylaws are really very important constating to a corporation
 1 and we wouldn't want to see those changed constantly with 

 2 several of the issues that come up as nonbinding proposals. 

 3 So I think there has to be a balance between the two. But I 

 4 think you could decrease the number of proposals that you see 

 5 by enhancing other rights. 

 6 MR. DUNN: To jump into -- oh, I'm sorry, Rich. Go 

 7 ahead; I didn't see your card. 

 8 MR. FERLAUTO: Just to respond generally here, you 

 9 know, one person's leverage is another institution's 

 10 accountability mechanism. There is a mediating factor here 

 11 that hasn't been discussed in any of the panels, and that is 

 12 the fiduciary responsibility of the trustees of the 

 13 institutions. 

 14 Now whether they are multi-employer funds governed 

 15 by ERISA or state pension funds governed by whatever state 

 16 law is applicable, there's a strict fundamental duty that the 

 17 actions of those institutions be for the beneficial 

 18 ownership, which is the creation in the case of my members, 

 19 of long-term value related to their pension retirement 

 20 system. 

 21 So to say that or to make accusations out of thin 

 22 air that whatever the motivations are seem to ring fairly 

 23 hollow. What we're looking for are accountability mechanisms 

 24 that again are endorsed by a majority of the shareholders 

 25 through a vote. And I think that's the fundamental question
 1 here. 

 2 In the exercise of fiduciary duty, which under ERISA law 

 3 is quite explicit, given the Avon letter and 94-1, that those 

 4 interpretive bulletins actually provide impetus for action on 

 5 our part, that we would be actually in breach of our 

 6 fiduciary duty if we weren't engaged in these fundamental 

 7 issues that would create long-term shareholder value. And 

 8 hopefully when we get to the materiality questions we can 

 9 talk about our view of long-term value and what that means. 

 10 MR. WHITE: Commissioner Atkins, did you have a 

 11 question? 

 12 MR. ATKINS: Well, yes. I guess I just wanted to 

 13 follow up on this point about precatory proposals because 

 14 we've been talking about the discussion and leverage that 

 15 they engender. And I guess the thing that troubles a lot of 

 16 people is that this discussion and leverage occurs in the 

 17 shadows with the few shareholders out of really the sight of 

 18 the many. And we're using the apparatus of the corporation 

 19 to put forward these precatory proposals, which obviously are 

 20 nonbinding. And if it's important enough to invoke that 

 21 apparatus shouldn't it be only for binding things rather than 

 22 just for this side show that happens without disclosure and 

 23 oftentimes people don't really know what the cause and effect 

 24 of it is? 

 25 MR. SILVERS: I mean to answer one level, if
 1 investors were told that they could not withdraw proposals 

 2 and could not negotiate with companies about those proposals, 

 3 I suppose we can live in that environment. I'm not sure what 

 4 the corporate community would think about that, but I think 

 5 we'd be happy with that arrangement. 

 6 In terms of what precatory proposals are, I think 

 7 it's important that the commission be aware that most comp 

 8 proposals are precatory and probably have to be. Although 

 9 again there's some dispute about that. 

 10 Secondly, a series of issues which I think there is 

 11 very broad public support for in terms of the ability of 

 12 investors who are concerned about them to raise, pretty much 

 13 have to be in precatory form. And those include issues 

 14 related to equal employment opportunity, the famous Cracker 

 15 Barrel question, issues related to the environment, many of 

 16 which have very substantial business consequences, and issues 

 17 relating to human rights, which have a history going back to 

 18 South Africa but today are raised in the context of the Sudan 

 19 and Burma and other things of very high profile in terms of 

 20 the public's view and many shareholders' view of what 

 21 business in America ought to do. 

 22 I cannot see how those issues could practically, 

 23 regardless of what the Delaware courts might decide, I can't 

 24 see how those issues could practically be brought up in the 

 25 context of binding proposals, nor would anyone want to see
 1 them brought up that way. And I don't think it's -- I think 

 2 the notion of taking precatory proposals of the table would 

 3 be fundamentally disenfranchising. 

 4 MR. ATKINS: Just to follow up on that, I guess one 

 5 thing is most of those fail dismally when they come up on the 

 6 ballot. They never get anywhere near the majority. So I 

 7 mean obviously there are a few -- going back to my question, 

 8 the few versus the many, a few people are very interested or 

 9 agitated about it, but not the many. I just was curious 

 10 about it. 

 11 MR. SILVERS: I would suggest that Nelson Mandela 

 12 didn't think they failed. 

 13 MR. DUNN: David, you had a view on this, and then 

 14 we'll go to Bill after that. 

 15 MR. HIRSCHMANN: Two points. I think it's important 

 16 to remember why this leverage is so strong already, which is 

 17 in part because you have -- and why AFSCME and others are 

 18 more successful than others who are presenting shareholder 

 19 proposals, and that simply ISS. And that came up 

 20 significantly in the first roundtable. 

 21 You know, when you have one participant who's able 

 22 to direct over a third of the votes cast, then that leverage 

 23 becomes very powerful and that forces boards to make a choice 

 24 between two bad alternatives, either accepting something that 

 25 may not be in the interest of shareholders long-term or
 1 spending the time and cost and money and distraction of the 

 2 board and management in order to fight the proposal. 

 3 And boards have to make the right fiduciary choice 

 4 at the time, which is it may be a cost but the greater good 

 5 for shareholders is to accept something that has a 

 6 consequence and not distract the board or spend additional 

 7 resources fighting that proposal. 

 8 MR. DUNN: We are -- clearly the commissioner has 

 9 touched a nerve here because everybody wants to talk now. 

 10 We're going to go with Bill and then Bess, and hopefully then 

 11 we're going to move on to some more specific questions. 

 12 Sorry about that, Rich, but I need to keep us moving here. 

 13 MR. FERLAUTO: Some statistics that might have been 

 14 helpful to Commissioner Atkins, that's all. 

 15 MR. DUNN: All right. Well, we'll get there. 

 16 MR. MOSTYN: I'll just make this quick. The 

 17 companies -- and I think I speak for all companies, including 

 18 yours Jonathan. We spend a lot of time and effort, a lot of 

 19 resources, corporate resources dealing with precatory 

 20 proposals. And to answer your question specifically 

 21 commissioner, in some sense it's better for us to be able to 

 22 negotiate out real quick rather than have these issues on the 

 23 proxy statement. If it means just sending a delegation to 

 24 somebody's office to have a discussion, which -- a lot of 

 25 times that's what it means, they just want to have a
 1 dialogue, then we can do that. 

 2 And I don't see any need to raise the issue and to 

 3 bring it to a vote for all shareholders. A lot of these 

 4 things are just not worth the time and effort to do that. 

 5 MS. JOFFE: I would agree with Bill and just say 

 6 that Hermes undertakes quite an extensive engagement program 

 7 on a number of issues, mainly with respect to performance, 

 8 financial performance on a global basis. 

 9 And the vast majority of discussions that we have 

 10 with companies are done privately. We find that that 

 11 actually works best and engenders a very good relationship, 

 12 fosters constructive and collaborative dialogue with 

 13 companies and it is often the case that we are really just 

 14 looking for further disclosure on issues to give us comfort 

 15 that certain risks are being managed in an appropriate way. 

 16 And as a result in most of the world we don't have 

 17 this phenomenon of shareholder proposals that get used hardly 

 18 ever. And the other point, just with respect to the 

 19 discussions going on in the shadows, I think that's a very 

 20 good point to make because when I do talk to companies about 

 21 certain shareholder proposals on ballots, when I'm looking at 

 22 how I'm going to vote, one of the first questions I ask is 

 23 have you engaged with this proponent and where does this 

 24 proposal come from and can you give me some context on the 

 25 discussions that you've had because that informs my decision
 1 making process as well. 

 2 I'd like to know where the shareholder is coming 

 3 from and what kind of relationship and dialogue they've had 

 4 with the company. So I think that it can be illuminating. 

 5 MR. DUNN: Okay. I'd like to move on to a little 

 6 different discussion, which is -- assume for the sake of our 

 7 discussion today that we move to something more towards the 

 8 federal rules coinciding better with the state law and saying 

 9 if it's a binding proposal that you can bring under state law 

 10 that you can bring it and it would go into proxy. 

 11 Under our 14A-8 right now there's the threshold of 

 12 $2,000 of ownership for a year. The U.K. system is very 

 13 different. As we learned it's five percent holder or a 

 14 hundred folks getting together who I think own 100 pounds 

 15 each or something similar to that. Is there a notion that 

 16 you'd have to balance a broader access for binding proposals 

 17 with a different eligibility standard, and would that be wise 

 18 or would that be too disenfranchising of folks, because 

 19 there's obviously a huge range between $2,000 and five 

 20 percent, at least in most public companies? 

 21 If you don't mind, Jonathan, I'd like to start with 

 22 you on that and get your views on it. 

 23 MR. GOTTSEGEN: I think eligibility should be 

 24 reviewed and considered for all proposals. It doesn't matter 

 25 if the proposal is binding or not. It's critical that
 1 shareholders are able to express concerns to the board and 

 2 management, however there are parts of 14A-8 that are in 

 3 desperate need of being dusted off. 

 4 To use an expression from earlier this month, I 

 5 think proponents should have more skin in the game. There 

 6 should also be an examination of employing more stringent 

 7 resubmission limitations. Regarding the latter, there are 

 8 many examples of proposals appearing on a company's proxy, 

 9 five, six, seven, eight years in a row, and that proposal 

 10 being defeated by a wide margin year after year after year. 

 11 But the proponent has the ability to come back 

 12 because of the thresholds in paragraph 12, is it, are too low 

 13 or have become too low. And the $2,000 requirement is, I 

 14 think, even more stark. And I haven't verified this, but I 

 15 was told that the threshold was $1,000 in 1942, which is 65 

 16 years ago during the administration of FDR. 

 17 So I think that both of those requirements, both of 

 18 those rules need a hard look. 

 19 MR. DUNN: Rich, since I cut you off on the last one 

 20 I'll go to you this time. And one thing, I'd like your 

 21 response to what Jonathan thought, but at the same time could 

 22 you deal with some of it by permitting more collective action 

 23 to get together smaller holders? 

 24 MR. FERLAUTO: Well, that's what I was going to say. 

 25 I think the fundamental problem here for institutional
 1 holders, some adjustment, inflation adjustment or some other 

 2 adjustment, isn't a substantial issue. I think the question 

 3 is really the rights of the small holders in this case. And 

 4 there is a fairly robust community of small shareholders who 

 5 feel that their rights are being denied in some way in terms 

 6 of this engagement. 

 7 I was at a shareholder meeting yesterday as a 

 8 matter of fact in which there was quite a robust discussion 

 9 and engagement by the small shareholders. So that's where my 

 10 concern would be in that regard. 

 11 I'd also say that if there was some type of 

 12 materiality test what you might want to do is look at both 

 13 ends and that is an override position, particularly regarding 

 14 to issues related to I-7, to ordinary business, so that if a 

 15 filer came in with three percent or two percent or five 

 16 percent if you wanted to look at the ordinary business set of 

 17 issues, that might be an override on there because that's 

 18 material. 

 19 But again my concern is with the small 

 20 shareholders. And I'm not sure that you want to be in a 

 21 position at this point of restricting their rights. 

 22 MR. DUNN: If I could turn to Bill for one second, 

 23 I'll get to you Damon. 

 24 Bank of America gets a ton of proposals I know 

 25 because you send us a ton of letters. And we appreciate them
 1 all. And -- they're beautifully written, yes. And the thing 

 2 I was wondering is, in the proposals you see, what's the 

 3 average size? I mean the nature of the proponents you see, 

 4 are they small, are they large, is it a mix? 

 5 MR. MOSTYN: They own generally between about the 

 6 minimum of $2,000 worth of stock to maybe $5,000 worth of 

 7 stock. They're usually the individual shareholders and they 

 8 usually have their own unique idea of how we should run the 

 9 company. 

 10 MR. DUNN: Are those smaller ones usually though 

 11 with precatory proposals or binding? 

 12 MR. MOSTYN: Generally precatory. We've had some 

 13 attempted binding proposals, yes, bylaw changes. 

 14 MR. DUNN: Damon, did you want to? 

 15 MR. SILVERS: I think in this area there's a long 

 16 history of these, both the minimum ownership thresholds and 

 17 the numbers for being able to resubmit proposals being 

 18 reexamined by the commission every decade or so. And it 

 19 tends to be very contentious because of what Rich said about 

 20 the fact that for individual investors this mechanism is 

 21 pretty much the only effective voice they've got, and those 

 22 individual investors who feel that they ought to be heard 

 23 will fight very strongly for these things. 

 24 For institutions they're less critical issues, 

 25 although the resubmission issue is important because while
 1 some proposals may not move up, others do over time, and many 

 2 key corporate governance issues such as independent 

 3 directors, declassifying boards and majority votes for 

 4 director elections have all moved up dramatically over the 

 5 years. 

 6 I think this question really poses sort of the 

 7 subtext issues of these series of meetings, which is that 

 8 there is great concern on the part of investors about the 

 9 shareholder nominations process and on the other hand there's 

 10 no question that there's been deep opposition from at least 

 11 some segments of the public company community to those same 

 12 issues over the years. We all know that. 

 13 And currently the second circuit has found that 

 14 shareholder proposals on proxy access are proper under the 

 15 14A-8 rules as they stand today. The commission wants to 

 16 know what to do about that. One solution that the commission 

 17 could look at would be to follow the second circuit's general 

 18 view but to have higher standards for submitting a proposal 

 19 of that kind. 

 20 If you move that concept from that one issue to the 

 21 broad category, say, of binding proposals, you then implicate 

 22 these historic issues that have been intractable and not 

 23 intractable for bad reasons, intractable because they are 

 24 profound and legitimate interests involved in terms of the 

 25 small investor which is after all in many ways what our
 1 securities law is designed to vindicate, very differently for 

 2 example than the securities law regime and corporate 

 3 governance regime in Europe, which really treats the 

 4 individual investor as though they don't exist. Many 

 5 Europeans are upset about that. 

 6 MR. DUNN: Dave wants to go next. I did want to 

 7 point one thing out. One second, Dave. On the resubmission 

 8 thresholds, you know, when they were set up ten years ago, 

 9 you saw a lot of the precatory social responsibility issues 

 10 max out at like eight, ten, twelve percent, and now you see 

 11 most of them max out at like 22, 25, 28 percent. So it is 

 12 possible that just the nature of the voting core has changed 

 13 and what really reflects interest may have changed over the 

 14 years, and it is something that may need to be looked at. 

 15 David, you wanted to chime in. 

 16 MR. HIRSCHMANN: I have two quick points. The first 

 17 is a serious point, which is that in today's technology world 

 18 shareholders, small groups of shareholders have many more 

 19 ways to communicate with companies, so the notion that it all 

 20 has to be done through the proxy I think is a false notion. 

 21 We have YouTube, blogs, the communications tools to 

 22 make your point. Very small groups of people can have a huge 

 23 impact, and we've seen that in the political sphere. I don't 

 24 think it's any different in this sphere either. 

 25 The perhaps slightly less serious point but
 1 still -- it just helps make a serious point -- is I think the 

 2 threshold should be one percent more than the number of 

 3 shares, the percentage of shares that ISS can instruct at any 

 4 particular company. 

 5 MR. DUNN: That's a difficult rule to write. Bess 

 6 and Bill wanted to finish up this point, so we'll go in that 

 7 order. Go ahead, Bess. 

 8 MR. MOSTYN: I just want to comment about something 

 9 that Rich said. Rich mentioned shareholder rights. This is 

 10 an invention of the proxy rules I think in this context, but 

 11 one thing I would caution about is whether small shareholders 

 12 have a right to tie up the kind of resources at companies 

 13 that they do tie up for issues that really are not of general 

 14 interest to the majority of shareholders. 

 15 I think there really has to be a higher threshold, 

 16 maybe partly a materiality threshold, but we are, as 

 17 Professor Joffe said, we're subject to the tyranny of the 100 

 18 share stockholder. We are, and it's a monster that's 

 19 beginning to get even bigger. 

 20 MS. JOFFE: Until the end I was going to say I 

 21 largely echo what Bill was saying about tying up resources 

 22 and looking at the amount of money that companies are 

 23 spending dealing with so many of these proposals. And I 

 24 think that one of the ways to address it, and just to repeat 

 25 myself from earlier, is enhancing the accountability of
 1 directors and management to all shareholders, whether they 

 2 are large or small, by extending other basic shareholder 

 3 rights. And I think then you address a lot of these issues. 

 4 MR. DUNN: Jon, you had wanted to go next, but if I 

 5 could ask you to tie in what you were going to say with one 

 6 other thing -- everybody has mentioned materiality -- and 

 7 then we'll get to Damon after that. The other way to look at 

 8 this of course is, is there sufficient shareholder interest 

 9 in it for it to keep going forward? Another way to look at 

 10 it is what's the materiality of this to the company? Is it 

 11 really any effect and should that be a test? 

 12 The test in the rule right now is largely 

 13 overridden by the significance language that goes along with 

 14 it, so the five percent test isn't particularly forceful. If 

 15 you could, address possibly ways you consider materiality of 

 16 the company as well as whatever it was you wanted to add in 

 17 there. 

 18 MR. GOTTSEGEN: I looked at the materiality question 

 19 in advance, obviously. And I struggled with how it would 

 20 work. I believe there should be some materiality threshold, 

 21 but it may be difficult to apply in practice given its 

 22 subjectivity. 

 23 What I wanted to come back to, Bill has the same 

 24 job that I have at a different company, and what I wanted to 

 25 echo is the resources dedicated to the shareholder proposal
 1 process. It doesn't matter if it's binding or if it's not 

 2 binding. Even with one proposal, what -- companies use 

 3 in-house lawyers, outside lawyers, Delaware counsel, 

 4 securities counsel, investor relations staff, compensation 

 5 analysts; it goes on and on and on. Management and the 

 6 board, the board has a role in the process. They have to be 

 7 involved because at the end of the day they make a resolution 

 8 to recommend or not recommend that proposal to shareholders. 

 9 It is a very consuming, resource intensive process 

 10 that's -- frankly, it's not just the season anymore. You 

 11 know, it's become six months, nine months of the year. 

 12 We have meetings with Rich's group, with Damon's 

 13 group, with everyone throughout the year. It's fairly 

 14 consuming. 

 15 MR. DUNN: Damon, you had wanted to go. And if 

 16 could, address some of those points as well. 

 17 MR. SILVERS: Two points. One, again, I mean this 

 18 meeting has this kind of sideways quality to it because 

 19 there's a very specific issue involved here, which is the 

 20 question of how the proxy process ought to deal with director 

 21 elections questions, and then there are these very broad sort 

 22 of statements that kind of scoot around it. 

 23 And I'll make one point about this, that when a 

 24 statement is made that we need, that there would be less 

 25 shareholder proposals if there was more accountability, all
 1 right, what that statement is really telling you, I think, is 

 2 that perhaps the commission ought to go back and look at the 

 3 14A-11 approach to these issues, the notion that you ought to 

 4 have a structured, required process, as you do more or less 

 5 in the United Kingdom, whereby shareholders can nominate 

 6 directors on the company proxy. 

 7 Now that issue has been done to death by the 

 8 commission at various times and now we are looking at 

 9 basically ways of dealing with shareholder involvement and 

 10 director nominations through a sort of private process, 

 11 through the 14A process of allowing shareholders to bring 

 12 that idea to companies one by one as an alternative. 

 13 I think most investors, and I'm sure you've heard 

 14 this already and will hear it again, most investors would be 

 15 happy with the commission going in either direction as long 

 16 as it was real, as long as there was a real ability to have 

 17 accountability to long-term investors around the board 

 18 election process. 

 19 Either way works. Today we're really focused on 

 20 the voluntary way, all right, which has a nice ring to it. 

 21 Now I would say this about -- every time this 

 22 commission probably back until the 1940s has convened on this 

 23 subject I am sure that someone from the corporate community 

 24 has pointed out the fact that there are costs involved in 

 25 shareholder proposals. Now if we were hearing this from very
 1 small companies I suspect -- I have a little bit of sympathy. 

 2 Bank of America and Home Depot can afford the price of a 

 3 meeting in order for there to be accountability. Home Depot 

 4 could afford to pay Bob Nardelli what they paid him; they can 

 5 afford to meet with shareholders, and they can afford the 

 6 cost of dealing with shareholder proposals. 

 7 Now it is true that just as it could cost the 

 8 shareholder a lot of money to litigate it can also cost a 

 9 company a lot of money to fight tooth and nail to the bitter 

 10 end to keep a proposal off the proxy process. If that's what 

 11 they choose to do, we certainly can't stop them. But to them 

 12 come here and complain that it costs a lot of money to fight 

 13 to silence your investors, it just doesn't have the ring of 

 14 credibility. 

 15 MR. DUNN: Rich, I wanted to go to you next, but I 

 16 also want you, as you finish this up, to move to our next 

 17 topic, which is something Commissioner Atkins had discussed 

 18 earlier. And that's the notion of, if you're expanding this, 

 19 is there some notion that there needs to be more in the proxy 

 20 than simply, "I'm Marty Dunn, I live at x address, and I put 

 21 forth this proposal." Should there be some more disclosure 

 22 regarding the nature of the proponent? Is that of interest 

 23 to the people deciding how to vote? Is that important in 

 24 figuring out the process? Is it important for accountability 

 25 on both sides, to use Damon's phrase?
 1 MR. FERLAUTO: Sure. Let me follow up first and 

 2 then I'll end up there. 

 3 One is you've got to talk about the price of 

 4 communication of the issuer to the broader community and that 

 5 in attempting to -- and if you narrow that or you expand that 

 6 rather in a way that is so broad that what you're going to 

 7 end up with is chaos -- and attempting to deal with chaos is 

 8 going to be much more expensive for the Home Depot or the 

 9 Bank of America than a mediated, structured process through 

 10 14A-8 and shareholder meetings that if they need to worry 

 11 about every single posting on the web every day and were in a 

 12 virtual shareholder meeting that occurs 24/7, 365 days a 

 13 year, what you've got to do is you've got to establish a 

 14 system that monitors MySpace or something like that. 

 15 And I'm not sure that that's productive for 

 16 anybody, but if that's the terrain that gets established for 

 17 communicating with shareholders, that's what you're going to 

 18 get. So I think our preference and the preference of the 

 19 issuers are really very common, are absolutely common. And 

 20 that is give us a structured process that's rational, that's 

 21 got rules of the game, that sets benchmarks for 

 22 participation, and we will attempt to work within those 

 23 rules. 

 24 If you give us chaos, it's going to be 

 25 extraordinarily expensive and the communications that you see
 1 now are -- the communication costs are just going to become 

 2 exponential for everybody. 

 3 So trying to deal with the very specific issue that 

 4 Damon was honing in on about -- the I-8 issue about proxy 

 5 nominations I think is key, and if we get lost it will be a 

 6 problem for everybody. 

 7 In returns -- to disclosure issues, we're about 

 8 nothing if we're not about disclosures. We believe in 

 9 absolute transparency and the more transparency the better. 

 10 At the same time, there are certain collective action 

 11 problems, which I'll talk about a little bit later hopefully 

 12 in closing. 

 13 So that filing a 13-G form or something like that, 

 14 I think, for an institutional shareholder is not a big deal. 

 15 We are long-term passive investors and many of our funds, 

 16 many of the big public funds need to file the G form anyway 

 17 because they're large enough or could take positions that are 

 18 larger. 

 19 If you get into 13-D, I think there are other 

 20 issues that are involved, collective action issues that 

 21 become much more complicated. Again, you run into the 

 22 problem of how do you mediate that in an electronic world 

 23 where you're not exactly sure who's participating in any 

 24 particular point in time, so it becomes problematic for the 

 25 smaller shareholders.
 1 So in essence, fundamental transparency is a good 

 2 idea. How do you apply it in an electronic system? I really 

 3 couldn't -- I don't have a clue. 

 4 CHAIRMAN COX: I wondered if I might ask the 

 5 moderators if I can jump in at this point. Bess, earlier you 

 6 said, on this point about disclosure, you said earlier that 

 7 it's material to you whether or not the proponent has engaged 

 8 the company, and that you inquire about that. Why is that 

 9 so? 

 10 MS. JOFFE: Well, really it's because for us, I mean 

 11 our view is that shareholder proposals should be a last 

 12 resort in terms of engagement or it should take place only in 

 13 very egregious situations. But I think we always want to 

 14 make sure -- I certainly do, I think my colleagues do as 

 15 well, but as I deal with the Americas it falls on me mainly. 

 16 I always want to make sure that the proponent has 

 17 submitted the proposal for what I would consider to be a 

 18 valid reason that emanates from a position of responsible 

 19 ownership, caring about the long-term performance of the 

 20 company. And oftentimes I do get information that leads me 

 21 to believe that that's not exactly the case, that there are 

 22 other angles or motives behind the submission of the 

 23 proposal. And that really causes me a lot of discomfort. 

 24 So that's why it's material. And I would say that 

 25 I think we would also support more disclosure as to the
 1 identity of the proponents, what their interests are. I just 

 2 question how that could be regulated because when I 

 3 talked -- last year, there were several proxy contests, for 

 4 example, and I would speak to hedge funds who had submitted 

 5 their own slate of directors and always the answer comes 

 6 back, "of course we're in it for the long-term, and we've got 

 7 a huge skin in the game because we have six or eight percent 

 8 of the company." But how do you know as a fellow shareholder 

 9 if that's actually true, and how would that be regulated? 

 10 MR. WHITE: I think we're pretty close here to 

 11 coming to our conclusion. But Bill, could you just comment 

 12 on the disclosure point before we go to the concluding 

 13 statements? 

 14 MR. MOSTYN: Well, I think if you raised the 

 15 threshold level to five percent you'd probably solve your 

 16 problem anyway. The fact is that a lot of these precatory 

 17 proposals you know what the objective is, you know who's 

 18 behind it. I don't think at a lower threshold level you're 

 19 really going to add a lot to the equation, honestly. 

 20 MR. WHITE: Why don't we move to -- I guess we'll 

 21 call it the closing remarks. And Rich, we'll start with you 

 22 and then move down the table. 

 23 MR. FERLAUTO: Sure, thank you. I think this was a 

 24 very interesting panel and I thank you all for the 

 25 opportunity to be here.
 1 I just want to put this in context a little bit, 

 2 and that's why -- I think that we're not as far apart from 

 3 the business community as they may argue that we are. You 

 4 know, we're long-term shareholders, and that we're concerned 

 5 about the power of long-term shareholders who will be holding 

 6 the company primarily through index funds or just because of 

 7 the diversification that we need to be appropriate 

 8 fiduciaries for a very long time, and that we'd want to be 

 9 able -- but there are a lot of us out there, too, so we've 

 10 got a collective action problem at the same time. 

 11 We don't want to be disadvantaged by the short-term 

 12 manipulators that may be -- you know, a hedge fund or an 

 13 arbitrage or somebody who wants to short the stock or 

 14 somebody who's engaged in empty voting in some way. And I 

 15 think those are the real issues or problems that are out 

 16 there, so that we're looking for -- and they've got the 

 17 resources, obviously, to put together an eight or nine 

 18 percent position in a very short term and flip that around 

 19 and try to create specific value that goes to them and not 

 20 broadly to the rest of the shareholders. 

 21 We're looking for power, frankly, for long-term 

 22 shareholders, so that the materiality question may actually 

 23 be "are you committed to the company and are you committed to 

 24 long-term shareholder value?" And I think the best way to 

 25 reflect that is rather than trying to get into my brain,
 1 Bill, and figure out what our motives are here, is is that 

 2 reflective in holding of the stock for some period of time. 

 3 So I would make that a test and I would suggest to 

 4 you that that should be the right materiality test. Are you 

 5 in the company for a year or two years or three years or 

 6 whatever might be appropriate? And if we're concerned about 

 7 the long-term shareholder value aspect I think then the 

 8 concerns about leverage and all that other stuff sort of 

 9 disappears because we're looking for value, and the other 

 10 issue again is the collective action problem in terms of 

 11 putting together groups of shareholders. 

 12 You know, there's a very significant cost to that, 

 13 so that any threshold for proxy access or anything else, even 

 14 if it's one, two or three percent, is fairly significant. 

 15 And then even through proxy access -- I mean there's a proxy 

 16 access proposal coming up next week at United Health -- is 

 17 the cost for engagement there are still fairly substantial so 

 18 that there is skin in the game even around promoting those 

 19 types of processes. 

 20 So again, I don't think we're looking for broad 

 21 reform in any of these rules. What we're looking for is much 

 22 more specifically dealing with the rights of shareholders 

 23 regarding the access question and the nomination question. 

 24 And the way to deal with that is through clarifying I-8. I 

 25 believe the second circuit has already done that, and by
 1 codifying the second circuit decision in some way, that I-8 

 2 relating to the election of directors for the purpose of 

 3 creating a process would be totally appropriate. 

 4 And that will deal with your problem rather than 

 5 trying to reinvent a proxy process that can open up a 

 6 Pandora's box that nobody wants to go towards. 

 7 Thank you very much. 

 8 MR. GOTTSEGEN: Thank you again for the opportunity 

 9 today. 

 10 In my view, as I've tried to emphasize, many 

 11 underestimate the work of the board and management and the 

 12 considerable resources used to manage this one corner of 

 13 compliance. Using my own company as an example, currently a 

 14 shareholder needs a pen and some paper and about 50 shares 

 15 and he can grab the attention of management, grab the 

 16 attention of the board, he can compel negotiations, he can 

 17 appear on the proxy, at the meeting, and force a vote on 

 18 serious issues or, at best, simply require the corporation to 

 19 use limited resources in the case of a frivolous proposal. 

 20 I think currently there's an imbalance as boards 

 21 attempt to budget time and resources between compliance and 

 22 regulatory matters and most importantly their primary job, 

 23 which is to manage the business of the corporation. The 

 24 balance, I think, could be restored to some degree by 

 25 amending and strengthening certain sections of 14A-8 without
 1 diminishing the rights of shareholders. 

 2 Thanks again. 

 3 MR. HIRSCHMANN: I want to join in thanking the 

 4 commission and the staff for allowing me to be here and 

 5 frankly for the way in which you conduct these roundtables. 

 6 We were joking before the session that if Congress helped 

 7 prepare people as well as the commission staff does that 

 8 people would look forward to testifying before Congress. 

 9 And I'd like to begin really my final comments 

 10 where you left of, Jonathan, which is that cost is really 

 11 about more than dollars. Even cost, I would hope we could 

 12 all agree that companies should only spend money where it 

 13 provides a return, where there's some value to it. 

 14 But you know, the time, no matter how well paid a 

 15 CEO and the board directors still have the same amount of 

 16 hours in a week as in a smaller company. And the management 

 17 time point I think is a very fundamental point. 

 18 So the question I would in conclusion ask the 

 19 commission to think as they look through these issues is how 

 20 is the leverage used today? Is it being used responsibly by 

 21 everybody? How do you prevent its irresponsible use? What 

 22 is ISS's role in this process, and if you're going to make 

 23 additional changes, what is needed in terms of reforming 

 24 ISS's role? 

 25 How would additional powers be used? Would they
 1 lead to factious boards that might not function the way 

 2 Sarbanes-Oxley intends boards to function or would they 

 3 really be used as leveragings, which case, even though the 

 4 underlying proposal may be valid and supportable, how do all 

 5 shareholders know that when they get into the private room 

 6 what's really being asked is something that is not in the 

 7 interest of all shareholders? And if you give groups of 

 8 shareholders more power, how do you ensure that you're not 

 9 disadvantaging shareholders in that process? 

 10 MS. JOFFE: I also would like to thank you for 

 11 inviting me to participate in the panel. I think it's been 

 12 very useful to hear what everybody's views are. Our view at 

 13 Hermes is that as long-term shareholders we're on the same 

 14 side as management and boards of directors. We all are 

 15 looking for the same results of improving value. 

 16 With respect to the U.S. situation, we'd really 

 17 like to advance the idea of extended accountability rather 

 18 than the creation of more rules. And I think it was in the 

 19 first panel discussion where Mr. Underhill took part, talking 

 20 about the rights that exist in the U.K. and also for that 

 21 matter in many other jurisdictions. It's very difficult to 

 22 just import those rights into a different context, and I 

 23 certainly recognize that. 

 24 That being said, I do think that, again, if you 

 25 do -- and as you said at the beginning, Marty, that if you do
 1 give shareholders more rights there's less likelihood of 

 2 actually needing to use them. And so I think going forward 

 3 that would be a way to address a lot of these concerns. You 

 4 would cut down on the resources that companies have to 

 5 expend, which we would certainly be in favor of, in dealing 

 6 with shareholder proposals. You would address many of the 

 7 accountability issues that smaller investors have and open up 

 8 the process more to them and diminish the costs that they 

 9 undertake to participate with a louder voice. 

 10 MR. MOSTYN: Thank you, Mr. Chairman, commissioners, 

 11 John and Marty. Just a couple of brief comments. 

 12 I think that the system generally works pretty 

 13 well, and to address an issue that Rich has raised, which I 

 14 think is really the subject for another panel, at least in 

 15 the current system we spent about four months, we dedicate 

 16 resources in my group to about four months of the year. If 

 17 we were to expand that, I'm not sure what the costs would be, 

 18 but it would probably be a lot more. 

 19 The advantage that the system has to us is that 

 20 it's predictable. We can estimate the kind of resources that 

 21 we need to dedicate each year to this process. And we budget 

 22 for it and we go on with it. 

 23 If we were to make substantial changes, especially 

 24 where you can allow access across the board, 12 months a 

 25 year, I think that that would have a significant impact on
 1 use of resources. 

 2 Most of the precatory proposals that we get are 

 3 really not intended to add value to the company. They're not 

 4 interested necessarily in allowing us to achieve our 

 5 objective, which is to earn money for our shareholders. 

 6 There are many social issues and many other things. 

 7 I'm not saying that that's a bad thing. I'm just 

 8 saying that that's what we get. That's what most of the 

 9 issues deal with, and that's what we dedicate our process to. 

 10 I'm not sure necessarily that that's the correct model. I 

 11 don't think that was the original intention of the corporate 

 12 model, but that's what we have today. 

 13 In terms of access to the proxy statement for 

 14 director elections, I think the system is not broke. I think 

 15 that if a sufficient number or larger shareholder, somebody 

 16 who has more skin in the game than some real small 

 17 shareholders are interested in nominating their slate of 

 18 directors or a short slate, I think that that's not an 

 19 expense that's going to be prohibitive. 

 20 In fact, I think the original, if I recall the 

 21 original proposal in '03 has a three percent threshold 

 22 representing shareholders of about three percent. Well, if 

 23 that applied to the Bank of America, you'd be talking about 

 24 approximately over 140 million shares of Bank of America 

 25 stock. I submit that anybody who has the money to buy that
 1 amount of shares of Bank of America stock has the money to 

 2 run their own directors slate. 

 3 And finally, in terms of materiality, I think that 

 4 would be difficult to do. I just can't understand how we 

 5 could verbally deal with this issue. I think that you'll 

 6 have a lot more problems at CorpFin trying to define this 

 7 issue and dealing with this issue than you already have. I 

 8 think maybe the best way to do it is to have a proper 

 9 threshold level. 

 10 Thank you. 

 11 MR. SILVERS: Again, like everyone else I express my 

 12 gratitude and thanks to the commission and the staff for 

 13 being here, for inviting me. This discussion is happening 

 14 because there is this long-term question that's been around 

 15 as long as the commission has been around as to how 

 16 shareholders, how investors should be able to participate in 

 17 director elections. 

 18 And this issue took on enormous importance when 

 19 there was a broad understanding in our society after Enron 

 20 and WorldCom that it really, really mattered whether you had 

 21 independent, tough-minded people on boards or you didn't. 

 22 And while it's true that some investors, particularly 

 23 short-term investors with large holdings in companies have a 

 24 history of running short slates, it's also true that the very 

 25 long-term investors, the very people that everyone here
 1 agrees ought to be in the driver's seat so to speak in terms 

 2 of governance and accountability, do not have such a record. 

 3 The reasons for that are complicated and there's no 

 4 time to go into them, but really what we are talking about 

 5 here is creating -- hopefully creating mechanisms so that 

 6 long-term investors can ensure that there are individuals on 

 7 the boards of large corporations that all of our wealth and 

 8 prosperity depend on who are going to really look out for the 

 9 broader interests of those long-term investors. 

 10 Now there are two ways of doing that that I can 

 11 think of. Maybe there's others, but there are two ways 

 12 basically. One is the approach the commission took in 2003, 

 13 which is a mandatory rule for all public companies that tries 

 14 to put that power into the hands of long-term holders, three 

 15 percent, two-year holding period, that kind of thing. The 

 16 other way is to let the corporate governance process through 

 17 the shareholder proposal process work to bring those 

 18 proposals forward and to have them debated and to have 

 19 whatever works come out of that process. 

 20 That's the 14A-8 proposal. In effect the idea of 

 21 allowing all binding proposals to come forward under 14A-8 

 22 facilitates that idea. As I've said earlier investors I 

 23 think are open to either way. It's not -- and there are 

 24 advantages to either way. And different investors depending 

 25 on who they are would tend to lean one way or the other.
 1 It's extremely important that the commission and 

 2 the staff allow one or the other to go forward. And today 

 3 one, the voluntary one is going forward under the AIG 

 4 decision. 

 5 Allowing that to continue or having a different but 

 6 equally viable and real way of doing it is a critical, 

 7 critical task for the commission at this time. But in doing 

 8 so, and this is the last thing I'm going to say, in doing so 

 9 I think the commission has heard from this panel in different 

 10 ways. 

 11 There is no broad support, and there is bitter and 

 12 there would be bitter and serious opposition to undermining 

 13 something somebody said a moment or two ago, which is that in 

 14 our society, under our securities rules a small investor can, 

 15 with a pen and paper, bring a serious and important issue 

 16 before their fellow investors. 

 17 In this respect we are fundamentally different than 

 18 other major capital markets that don't have that, and I would 

 19 submit that if there were a lot of people listening, if we 

 20 filled this room with Americans and if we filled this room 

 21 with Latin people who vote and the people they elect to 

 22 office, they would say that that is a fundamentally positive 

 23 aspect of our system, reflects our core values. 

 24 And I would say that most investors believe that 

 25 although they don't do so exactly with a great deal of -- it
 1 doesn't thrill them, particularly late at night in March, 

 2 that the staff of the commission has done an outstanding job 

 3 over the years in sorting out which of those issues that 

 4 small investors bring forward are really important, serious 

 5 issues that the companies ought to have -- that other 

 6 investors ought to hear about and express an opinion on, and 

 7 those which aren't. 

 8 And the judgment of companies as to what is 

 9 important and what isn't, the judgment of management as to 

 10 what is important and what isn't, the judgment of management 

 11 as to, say, for example, was Bophol important, slave labor 

 12 important, is global warming important? It should not be the 

 13 last word. 

 14 MR. DUNN: Okay. Thank you all very, very much. I 

 15 will say one last thing, which is obviously in the 

 16 shareholder proposal process people have very strongly held 

 17 views across the board and I very much appreciate you all 

 18 willing to come up here and listen to each other and express 

 19 each other's views, and I also want to appreciate everybody 

 20 involved in the process for how well you all treat us during 

 21 the year. 

 22 On the staff side of it, truly we say no to one of 

 23 you every time and you all are very respectful of that and 

 24 you are very good to us and I appreciate that. With that, 

 25 I'll turn it over to the chairman to wrap up.
 1 CHAIRMAN COX: I just want, on behalf of the 

 2 commission, as you can see we are all here because we are all 

 3 intently interested in this subject and we are actually very 

 4 committed to moving on this particular topic this year, so 

 5 your appearance is very timely and very, very helpful to us. 

 6 I want to make a suggestion for the next panel. We 

 7 have scheduled a 15-minute break so that this panel would end 

 8 at 10:15 and the next one would begin at 10:30. We got 

 9 started late, and we appropriately extended the time for this 

 10 panel, but I'd suggest that we move immediately into the 

 11 second panel. 

 12 It is a holiday weekend. I appreciate people being 

 13 here. A lot of people made travel plans to be here and join 

 14 us. So that will help keep us on schedule. 

 15 So to this panel, our very, very heartfelt thanks 

 16 for your exceptional preparation and contribution to our 

 17 thinking on these topics. 

 18 (Break.) 

 19 PANEL TWO - PROMOTING COMMUNICATION BETWEEN 

 20 SHAREHOLDERS AND THE COMPANY 

 21 MR. DUNN: Okay. I think if the commissioners are 

 22 ready I think we'll get started here. As long as that break 

 23 took, I'd hate to imagine how long it would have taken if 

 24 we'd taken a 15-minute break. 

 25 We're going to start with our second panel here and
 1 try to keep moving here because it is, as the chairman said, 

 2 the day before Memorial Day and we'd like to get everybody 

 3 out before rush hour. 

 4 The next panel we're going to talk about is means 

 5 to promote communication between shareholders and the 

 6 company. Before I get into the substance, I'd like to thank 

 7 our panelists, and I'll introduce them. At the far end is 

 8 Evelyn Y. Davis with Highlights and Lowlights. Next to Ms. 

 9 Davis is Russell Read from CalPERS; Amy Goodman at Gibson 

 10 Dunn who was with us earlier this month and was kind enough 

 11 to come back, I appreciate that; Nell Minow from the 

 12 Corporate Library and possibly moviemom.com if I just heard, 

 13 thank you, Nell; Bill Mostyn, who has been kind enough to 

 14 pull double duty today and will have totally different views 

 15 than he had on the last panel; and to my right, Gary Brouse 

 16 with the Interfaith Center on Corporate Responsibility. 

 17 Thank you all very much for being here. The last 

 18 panel was very useful, and this is I'm sure going to be as 

 19 useful on a slightly different topic. 

 20 And what we want to talk about, when we were at the 

 21 last roundtable there was a good bit of discussion about 

 22 nonbinding proposals and the benefits that they can bring to 

 23 effect change and to get shareholder views. And the current 

 24 proxy rules as everyone knows under 14A-8 has the subject 

 25 matter exclusions. And so some of these nonbinding proposals
 1 are required to be included in the proxy and some are not. 

 2 And what we want to discuss today is means by which 

 3 you could use technology to provide shareholders with 

 4 alternative means to communicate their views on these other 

 5 matters or on those matters if they wanted to use the other 

 6 means that way. 

 7 And the term that's been used at the last 

 8 roundtable and we use today is the notion of an electronic 

 9 shareholder forum. Is there a way for companies to 

 10 establish, using the internet, a means by which shareholders 

 11 can raise views and interact amongst each other, God forbid, 

 12 without the proxy process getting in the way, and actually 

 13 raise consciousness about a number of views, both those that 

 14 would go in the proxy and those that wouldn't. 

 15 And so we're going to address the potential for 

 16 that on this panel, and we're going to address what the 

 17 commission would need to do to make that useful, to motivate 

 18 its use and go from there. I'd like to start by asking Nell 

 19 first and then after Nell is finished I'd like to turn to Ms. 

 20 Davis to get the final view on that, but is the notion of an 

 21 electronic shareholder forum something that would bring 

 22 attention to management. Is it something that shareholders 

 23 would use? Could it be effective as an alternative? 

 24 MS. MINOW: No question. I would not use the world 

 25 alternative. I'd use the word supplement. But I think no
 1 question that it could be effective. I think the most 

 2 important way that it could be effective is not as much in 

 3 the shareholder proposal forum because even I do not want to 

 4 have perpetual shareholder proposal day for the entire year. 

 5 But perhaps with regard to contested elections where we could 

 6 say that just the notice to the company would be deemed 

 7 notice to the entire shareholder group for the purposes of 

 8 the broker votes, and then the company would simply in its 

 9 proxy materials refer to the web site of the people with the 

 10 contest or the people with the proposal because of the word 

 11 limit, and I would love to see that involved. 

 12 Some years ago I got a call from an unhappy 

 13 shareholder who said that he and the other shareholders had 

 14 been complaining on the Yahoo! message board about what a 

 15 lousy company it was. And the employees were there giving 

 16 even more information about what a bad company it was. And 

 17 he said, so I asked everybody how much stock do you have, and 

 18 they had 40 percent of the stock on the Yahoo! message board. 

 19 So he said, now what do I do, I've got 40 percent of the 

 20 stock. 

 21 And I said, okay, hang up, call a lawyer, have the 

 22 lawyer explain to you what a 13D filing is, and then call me 

 23 back. And I think that's really going to be the challenge 

 24 for the commission. 

 25 I think that there are electronic shareholder
 1 forums out there. They're called Motley Fool and Yahoo! and 

 2 chat rooms and all of that. The challenge for the commission 

 3 is how you're going to adjust to this new reality and allow 

 4 for this free discussion and encourage participation 

 5 particularly by directors as well as management without 

 6 getting into the kind of mess that triggers these filing 

 7 requirements. 

 8 MR. DUNN: Ms. Davis, if you'd like to follow up on 

 9 that, how do you think people would use it? 

 10 MS. DAVIS: I think it's preposterous. I'm Evelyn 

 11 Y. Davis. I'm editor of Highlights and Lowlights. I have 

 12 been giving shareholder proposals for 40 years, and the 

 13 reason that I am still around while others fall by the 

 14 wayside is I know when to stop. I don't go too far like 

 15 people who want to nominate a director. 

 16 I mean this is preposterous. What you do, you 

 17 don't nominate a director, you work on incumbent directors 

 18 and get them to your viewpoint. That's the way to do it. 

 19 I'm also the one -- the shareholders had more 

 20 proposals in a friendly way. Management has agreed to do it, 

 21 either with bringing a proposal or after discussions with 

 22 management and they say they're going to adopt it. 

 23 Like an example, I gave a proposal on paper stock 

 24 certificates to the New York Stock Exchange, and they took it 

 25 up with the SEC, saying this was ordinary business. And to
 1 everybody's great surprise, including mine, the SEC agreed 

 2 with them. However I gave the same proposal to Federated 

 3 Department Stores. A week later, the chairman, Terry London 

 4 called me and he said, "Evelyn, I think it's a great idea; we 

 5 are going to adopt this." 

 6 So naturally, I said, "fine, Terry, send me a 

 7 letter," and that was what he did. And if you look on page 

 8 77 of the Federated Department Stores proxy statement, you 

 9 see what happened. Very friendly, very nice. This is a 

 10 sensible proposal and a commission, the SEC -- institutional 

 11 investors and unions, let them elect directors and get 

 12 controversial proposals advisory things on the executive 

 13 compensation, which I never would attempt. 

 14 This is dumb. I mean you know that they're going 

 15 to fight back. They have to use a little psychology. Try to 

 16 do it in a nicer way to say you're getting paid too much and 

 17 lower it. And even -- that's right, you can't put a gun to 

 18 their head with those type of resolutions. 

 19 These proposals were -- system and a 

 20 non-controversial thing like a piece of paper, a paper stock 

 21 certificate to which shareholders are entitled to have as 

 22 proof of ownership. You should never be forced to use book 

 23 entry. 

 24 Now most companies have a rule that you can have a 

 25 choice. If you want a book entry, fine, but if you want your
 1 paper certificate you can have it too, and how would you like 

 2 to have your home, your car or your -- or your marriage 

 3 certificate or your divorce papers in book entry? Yet this 

 4 commission here, they wrote this that a paper stock 

 5 certificate is ordinary business while electing a director 

 6 which is extremely controversial that's done by unions and 

 7 large shareholders. 

 8 I mean what's the matter here with the SEC? While 

 9 here, everybody was here last December, last December the 

 10 same commissioners unanimously adopted a parallel issue. I'm 

 11 not a lawyer, but I know what a parallel issue is, 

 12 unanimously adopted that people had the choice of a paper 

 13 proxy. 

 14 Now why doesn't the same SEC then say that a paper 

 15 stock certificate is ordinary business and some members of 

 16 Congress both in the Senate and the House are very upset 

 17 about it? And Chris, you know who I'm talking about. 

 18 MR. DUNN: Ms. Davis. 

 19 MS. DAVIS: You know, I live in Washington. I know 

 20 too when to keep my mouth shut. Okay, I drop my comments 

 21 here. It's before the commission now. I hope that the 

 22 commission will overrule a noncontroversial thing like a 

 23 piece of paper. 

 24 All right. Now we go back to the internet. When 

 25 you let them use electronics you know what's going to happen? 
 1 You don't know what you're in there. You have established a 

 2 legal way for companies to snoop on everything shareholders 

 3 do and say on the internet. The current system is fine 

 4 provided we have the names and addresses of the proponents. 

 5 Now to get the companies something too, what I 

 6 believe in, they should go from 2,000 minimum ownership to 

 7 4,000. And above all, nobody really touched on that, the 

 8 holding period should be four years for any proposal. 

 9 Now the current proxy system is not perfect. I 

 10 know this better than anybody. I have been at this for 40 

 11 years, but I have had more proposals adopted of mine -- in 

 12 the last three years I had 20 proposals adopted of mine. 

 13 Some I had given several years. Some like the one with 

 14 Federated gave, and then immediately they said, "this is a 

 15 great idea." 

 16 You do things in a nice way. You get more with 

 17 honey than with vinegar, but you don't put a gun to the head. 

 18 And then you what's going to happen? 

 19 MR. DUNN: Ms. Davis. 

 20 MS. DAVIS: One more thing, and then I'll stop. 

 21 MR. DUNN: There's five other people up here. There 

 22 are five other people. 

 23 MS. DAVIS: Okay. You know what's going to happen? 

 24 If you're going to allow these binding proposals and director 

 25 elections and this votes on executive compensation, the
 1 companies are going to go private. And now that would kill 

 2 the goose that's laying your golden eggs. The companies go 

 3 private, they don't have to pay attention to anybody. All 

 4 right. 

 5 MR. DUNN: Thank you, Ms. Davis. I was going to 

 6 turn to Russell next, but I kind of forgot what my question 

 7 was, so I'm going to repeat it. 

 8 Russell, if we did this as a supplement, would 

 9 CalPERS use it? 

 10 MR. READ: I think, as a supplement, this is a very 

 11 good idea. You know, what we've heard this morning both in 

 12 the first panel and I think in this one really reflects 

 13 something that's fairly important, that this is not a zero 

 14 sum gain. We are looking -- everyone has an interest in 

 15 increasing share -- the value of the companies involved. 

 16 The tension that arises are really two things. Too 

 17 often you can have long-term share owners who feel 

 18 under-represented in certain issues and certain 

 19 circumstances, much better today than certainly historically. 

 20 And you have companies sometimes that feel 

 21 overburdened by costs. And we look at this as a way to -- if 

 22 we can improve both of those, if we can improve the 

 23 representative nature and also have board members feeling 

 24 more responsible and representative of their share owners, 

 25 that's a good thing. And if we can reduce the burdens and
 1 costs associated with some of the director and company 

 2 communications that would be a good thing. 

 3 So we think as a supplement this is really in the 

 4 right direction on those two dimensions. So again, as a 

 5 replacement for precatory proposals we would not be in favor 

 6 of that at all. We think that could be problematic. But as 

 7 a supplement this actually might accomplish a lot of good 

 8 things. 

 9 MR. DUNN: Gary, I'd like to turn to you next 

 10 because the ICCR is very well known for raising a lot of 

 11 consciousness on social responsibility issues. Do you think 

 12 this would be a good means for that? 

 13 MR. BROUSE: You know, the -- first of all, I'm 

 14 sorry, thank you very much for having me here. I really 

 15 appreciate -- this is really a privilege to be here and have 

 16 a voice. I know it's difficult to sit out there in the 

 17 audience because a lot of people feel very anxious about 

 18 having their input in this and to be up here and have that 

 19 opportunity is a privilege and thank you. 

 20 The answer to your question is I don't know. This 

 21 question, in preparing to come here, was asked in several 

 22 different ways. One was as this as an option. The other was 

 23 an alternative. I think as a possible supplement to what is 

 24 currently in practice, yes, that sounds more likely because 

 25 we really don't know what the impact is on the annual
 1 shareholder meeting, the communications between shareholders 

 2 and the board, between shareholders and shareholders, and 

 3 then shareholders with management. 

 4 Those are all dynamics to take on different 

 5 avenues. And so to have that opportunity you have to 

 6 understand what is the impact on these other processes that 

 7 are going on. 

 8 There is nothing greater -- I remember my first 

 9 annual shareholder meeting, and to be able to get up and 

 10 speak in front of the whole board of directors and the 

 11 management like that, it's such a privilege. You know, the 

 12 process of voting on a particular shareholder resolution is 

 13 one way of voicing your concerns, and then the shareholders 

 14 each have a vote too that they can express their concerns. 

 15 These are all expressions, and this just seems 

 16 another opportunity to do that. The question is how will it 

 17 impact the other processes. 

 18 MR. DUNN: Amy and Bill, I want to ask in whichever 

 19 way you want to go how would companies view this and what 

 20 would be needed to motivate them to move toward it? 

 21 MS. GOODMAN: I'll leave it to Bill to answer the 

 22 individual company response, but I think it's important to 

 23 lay some groundwork here in terms of background when we talk 

 24 about communication between companies and their shareholders, 

 25 boards, management, shareholders, that there really has been
 1 a sea change over the past five or ten years in the level of 

 2 communication that currently goes on. 

 3 Shareholders and boards and management are talking 

 4 quite frequently today. In fact, I've heard from some 

 5 institutional investors that say I wish these companies would 

 6 stop calling me so much. Because I think companies do 

 7 recognize and directors recognize the interest of 

 8 shareholders on a lot of these issues. 

 9 Just over the past couple of years, the Council of 

 10 Institutional Investors and the National Association of 

 11 Corporate Directors as well as the Business Roundtable have 

 12 put out publications on guidelines for enhancing 

 13 communications between directors and boards. The New York 

 14 Stock Exchange listing standards require companies to provide 

 15 a means for interested parties, not just shareholders, but 

 16 clearly shareholders and other interested parties to 

 17 communicate with the independent directors as a group 

 18 or -- and many companies provide a link on their web site for 

 19 direct communications board members and a site from corporate 

 20 secretaries weeding out solicitations and resumes. That 

 21 information goes on to the board. 

 22 Frankly, there's nothing that gets my clients more 

 23 annoyed than receiving a shareholder proposal where the 

 24 proponent has not contacted them before to say what their 

 25 concern is, on the theory that companies want to hear what
 1 the concerns are. CalPERS, for example, several years ago 

 2 was concerned about nonaudit services, more recently 

 3 concerned about compensation consultants doing work for the 

 4 company beyond that of the compensation committee. 

 5 These are concerns that companies want to hear 

 6 about, and many of them get taken care of even before the 

 7 proposal. And then once the proposal is submitted, many are 

 8 withdrawn, as you know, and I think the numbers are 

 9 increasing each year because companies and shareholders have 

 10 that kind of dialogue. 

 11 So, I think there are mechanisms in place for that 

 12 dialogue to take place, and I'm not quite sure what this 

 13 forum would add to that. 

 14 MR. MOSTYN: First of all, for the record, I agree 

 15 with everything that Ms. Davis said. I hope I don't get 

 16 another shareholder proposal next year as a result of that. 

 17 MS. MINNOW: You may get one from me. 

 18 MS. DAVIS: You mentioned my name. I'm a very good 

 19 friend of your CEO, Ken Lewis. 

 20 MR. MOSTYN: Yes, ma'am, I know that. 

 21 MS. DAVIS: Very good friend of mine. So, watch 

 22 what you're saying. 

 23 (Laughter.) 

 24 MR. MOSTYN: You know, some of things that Amy said 

 25 are absolutely correct. There is a growing amount of
 1 communications between companies and their shareholders. I 

 2 think a lot of companies now on an annual basis if not more 

 3 frequently make sure that they at least have meetings with 

 4 their larger shareholders and spend time talking about 

 5 governance issues. 

 6 I think the issue here probably is more of the 

 7 smaller shareholder, the individual shareholder and giving 

 8 them an access to some way of communicating. But they can do 

 9 that anyway. They can write letters to us. And I know when 

 10 we get letters, we pay attention to them. I personally 

 11 respond to every shareholder that writes to me, writes to our 

 12 company. And if it's an issue that I think I need to run by 

 13 the board, I'll do that. So, I think it's already there. 

 14 My concern, and I'm getting more concerned now as I 

 15 hear other members of the panel talk about this issue is that 

 16 it's going to be viewed as a supplement, and basically I look 

 17 at this as a parallel operation, which is going to tie up 

 18 more of my resources maybe all year long dealing with this 

 19 issue. 

 20 So I just -- and I think that -- I suspect that the 

 21 individual shareholders will probably not accept this as an 

 22 alternative unless there's some clout to it, there's some 

 23 meaning to it. You know, it has to get heard, there's going 

 24 to be a vote on it or something. And in that case, it does 

 25 become a parallel system, and I'm very concerned about that.
 1 MR. DUNN: Let me ask one specific thing then. If 

 2 there was some notion in this that this was truly set up by 

 3 the company but not something that the company monitored or 

 4 was responsible for, that may impact the extent to which 

 5 shareholders wanted to use it, but would that put your mind 

 6 more at ease about the resources point? 

 7 MR. MOSTYN: Well, in that case, would the purpose 

 8 be to communicate with the company? 

 9 MR. DUNN: Well, it would be to communicate amongst 

 10 shareholders, and to the extent that it rises to the 

 11 company's level of interest, then yeah. 

 12 MR. MOSTYN: Okay. Well, if there's communication 

 13 among shareholders and a significant number of shareholders 

 14 have an interest in an issue then bring that to the company, 

 15 I think that's a good system. I have no problem with that. 

 16 If I was CORPFIN, I'd be concerned about this, though, 

 17 because you're going to end up with a lot of stuff out there 

 18 that's potentially misleading. And, you know, you're going 

 19 to have a lot of issues to deal with I think if that occurs. 

 20 MR. DUNN: That was actually my next question that 

 21 I wanted to ask everyone. Would there need to be something 

 22 in this that made very clear -- and give you some 

 23 alternatives and everybody can jump in -- would it have to 

 24 say you can't talk about stuff that's on the proxy because 

 25 then it might be a solicitation? Would it have to be that
 1 anything on there is not a solicitation ever regardless of 

 2 what you're talking about? Everybody realizes what it is and 

 3 what it's for and it sits there. How should we deal with 

 4 exactly the issue that Bill just brought up? 

 5 And since Nell went first and hasn't spoken in a 

 6 while, we'll go to her to start and everybody can jump in. 

 7 MS. MINNOW: Well, first of all, I think it's 

 8 absolutely essential that everybody have to have their 

 9 identity disclosed. I understand that there are some 

 10 advantages in some circumstances to anonymity, but I don't 

 11 think that that would work here. 

 12 But I also want to say that, as I touched on in my 

 13 initial remarks, I think this is one thing the market is 

 14 handling very, very well. And I particularly like the way 

 15 that the Motley Fool approaches it, where participants rate 

 16 each other. And so you know when somebody is a crackpot or 

 17 you know when somebody is a pump-and-dump guy because nobody 

 18 ever listens to him, and so you have immediate credibility 

 19 for the people who are posting. 

 20 Now as for your proposal that we just say, by the 

 21 way, no matter what I say here, it's not a solicitation. You 

 22 know, Abraham Lincoln used to say how many legs does a cow 

 23 have if you call a tail a leg? And the answer is four, 

 24 because calling a tail a leg doesn't make it one. And you 

 25 can say it's not a solicitation, but if you're saying I know
 1 it's not a solicitation, but by the way, I really want you to 

 2 support my proposal, it doesn't really do any good. 

 3 So I think the main thing here is you want to look 

 4 to what is already happening out there in the marketplace. I 

 5 think that, as I said, the system of creating credibility for 

 6 particular posters has been very, very -- the SEC should do 

 7 something near and dear to the heart, and that is making all 

 8 the public disclosures Internet friendly in such a way that 

 9 they can be imported easily and looked at and discussed and 

 10 benchmarked so that that will provide a good basis for the 

 11 conversation. 

 12 CHAIRMAN COX: I just wondered, on your anonymity 

 13 point, if you could explain your thinking. 

 14 MS. MINNOW: Sure. I think there is a lot of 

 15 appeal to the idea of anonymity in order to encourage 

 16 frankness and freedom from reprisals. On the other hand, 

 17 there are a lot of nasty people out there who are not clear 

 18 about their motives and who I would not want a hedge fund 

 19 manager to hide behind anonymity when -- as he was, you know, 

 20 shorting the stock. 

 21 And I think it is important for -- and one thing 

 22 that bothers me right now about the current SEC rules is that 

 23 companies need not disclose the name of the proponent in the 

 24 proxy. They have to tell you if you call, but they don't 

 25 have to put it in the proxy. And it infuriates me. I once
 1 had a proposal and they left my name out. I wanted my name 

 2 on the proposal because I know people in the shareholder 

 3 community and I think my name adds a lot of credibility to my 

 4 proposals. 

 5 So I think that in the -- because of the 

 6 sensitivity of the material and because of the motivation of 

 7 bad actors out there, I think that outweighs the appeal of 

 8 the protection of anonymity. 

 9 CHAIRMAN COX: And so you're not motivated by a 

 10 concern for restricting the conversation to shareholders, 

 11 even if it were restricted to shareholders, you would still 

 12 want there to be a -- 

 13 MS. MINNOW: Yes. I thought about that a lot, 

 14 because I knew that was one of the issues that was going to 

 15 come up today, and it is not -- it's not an easy and obvious 

 16 answer. But I've decided that in my opinion, it does 

 17 outweigh the benefits of anonymity. 

 18 MS. DAVIS: Okay. On this proposal here, if you're 

 19 going to use the Internet it's like taking a shower in 

 20 public. Anybody can know what you're going to do. All the 

 21 companies are going to -- don't think anybody cannot get into 

 22 your computer. Hackers and even terrorists, anybody, they 

 23 can get even in the most sophisticated government computers. 

 24 They know everything you're doing. Everything you're doing. 

 25 Now I have given report, but the thing is, they
 1 have the names of the shareholders and the addresses in the 

 2 proxy statement. I get about 40 stockholder proposals each 

 3 year, and many years ago, many left my name out, you know. 

 4 Now it's only one place, Pfizer, where they don't have my 

 5 name but they said they'll get the name of the proponent, you 

 6 know, and the address upon request. Okay. That can be done, 

 7 all right. 

 8 But even where the name is not used, then the name 

 9 they can get -- of course, it's much better if they use it 

 10 like they do, you know, it's why not? What's the secrecy? 

 11 And then by telephone, all right. I got many phone calls 

 12 about my proposal. So you know what I do? I say, well, you 

 13 don't know who is calling you. A lot of employee 

 14 shareholders call, and they want to know just what are you, 

 15 you know, particular about my political contributions, 

 16 resolutions and some other, I say, well, I thank you very 

 17 much, I said, you can send me a letter with your particular 

 18 questions with your name and address, I said, but I cannot 

 19 say anything else about my proposal except what's in the 

 20 proposal, so that nobody ever can say that I'm trying to 

 21 solicit proxies. I've never asked anybody to vote for my 

 22 proposal. 

 23 Sometimes when I lecture at universities or other 

 24 places or recently before my neighbors, I always say read 

 25 your proxy statement, read the proposals, vote yes or no, but
 1 don't abstain or in some cases it would be voted against. 

 2 But I don't even ask anybody ever to vote for my proposal, 

 3 even my own neighbors. I said just read it, do what you want 

 4 to, but read it, and don't abstain. Vote for or against. 

 5 The education thing, I said. But no way ever -- I've been at 

 6 this for 40 years, so I know what I'm doing. If anybody 

 7 thought I was soliciting, I'm sure they would have heard 

 8 about at the SEC. Nobody considered. 

 9 But like I say, this is just a means for the 

 10 companies to see everything you are doing when you have 

 11 anonymity. I don't use e-mail either. I tell you why, 

 12 because remember Spitzer, you know -- 

 13 MR. WHITE: Ms. Davis, can let Gary make a comment 

 14 here? 

 15 MS. DAVIS: Yeah, yeah, yeah. Yeah, yeah. Just 

 16 let me finish here. And the same thing, I don't use a word 

 17 processor. I'm not a perfect typist. If I have to have 

 18 something done, I have somebody do it for me if it has to 

 19 look real neat. But my typewriter, nobody can get into. 

 20 MR. WHITE: Ms. Davis -- 

 21 MS. DAVIS: But your word processor, anybody will 

 22 know what you are doing. So this is outrageous. And let me 

 23 tell you another thing, okay. 

 24 MR. WHITE: Ms. Davis -- 

 25 MS. DAVIS: One more thing. One more thing.
 1 MR. DUNN: We need to move. 

 2 MR. WHITE: We need to move. Gary would like to 

 3 make some comments on this. 

 4 MS. DAVIS: Yeah, yeah. But I want to -- may I 

 5 have one more? One comment on this, please, John? 

 6 MR. WHITE: We'll come back to you before we're 

 7 done today. 

 8 MS. DAVIS: All right. All right. 

 9 MR. WHITE: Gary? 

 10 MR. BROUSE: Thank you. I just wanted to add 

 11 something about the Electric Shareholder Forum issue, and I 

 12 still don't know what the impact and the implications are 

 13 going to be on this. But the other thing I was just thinking 

 14 was is that before we go to a company to ask a question or 

 15 address an issue, we spend a lot of time researching it, 

 16 going over the questions, the concerns. And we're not about, 

 17 you know, wasting the company's time, the management time in 

 18 addressing particular issues, this might, you know, with just 

 19 a lot of gab going on. 

 20 I think there needs a component in there where it 

 21 makes whatever questions or whatever you want to address, 

 22 that there's some responsibility behind it, that it is well 

 23 documented and the interest that you have in the company and 

 24 the stockholder's value in it is there, too, in that 

 25 component. And that process we go through to go to a company
 1 and contact them, we take a lot of that under consideration. 

 2 You know, you have to wonder in this process, how 

 3 is that going to ensure that the questions and the 

 4 conversation are going to be quality and they're not going to 

 5 be a lot of wasted time? Thank you. 

 6 MR. DUNN: Russell is next, and we'll get to Bill 

 7 after that. 

 8 MR. READ: Thank you. I think there is a bright 

 9 line standard here that actually could and should emerge. 

 10 There's a principle involved regarding a share owner forum, 

 11 and that is, you know, you're looking for the directors for 

 12 the company to be responsive to the interests of the share 

 13 owners. I think -- I'm definitely in the camp that for a 

 14 share owner forum, that it should not be anonymous. That 

 15 would not be -- it does not facilitate the board or the 

 16 company being more responsive if they see something that is 

 17 anonymous. 

 18 If it's a different forum, for instance, if it's a 

 19 public relations forum, an electronic public relations forum, 

 20 a PR forum, which could also be useful, but wouldn't 

 21 necessarily involve share owners, I think that probably could 

 22 and should be anonymous. There are different folks, 

 23 different issues raising issues that could be important from 

 24 a public perspective, that could be another useful type of 

 25 forum for the company. But with regard to -- restricting it
 1 just to the share owner forums, I think that should not be 

 2 anonymous. 

 3 CHAIRMAN COX: Before you pass off of that idea, 

 4 since I want to make sure I apprehend it fully, is there 

 5 anything that would need to be done to the proxy rules to 

 6 have the kind of PR forum that you're talking about, or is 

 7 that something that under existing law and rules you could do 

 8 anyway if you wanted to? 

 9 MR. READ: The interesting question is, you know, a 

 10 lot of this happens already on the Internet with some various 

 11 forums. So those Internet forums themselves are pretty 

 12 useful. What's missing in part can be participation from the 

 13 company and from the directors. And there are probably other 

 14 people who can answer better than I as to what -- as to how 

 15 the companies themselves and the directors would feel 

 16 restricted in those forums. But the forums themselves that 

 17 are out there, such as Motley Fool and others, are actually 

 18 pretty useful. 

 19 MR. MOSTYN: Just a couple of points. Actually, 

 20 your last point, we -- and I think most companies generally 

 21 try to stay away from the chat rooms and the blogs, because 

 22 if we started getting involved in that discussion, we'd be 

 23 tied up in disclosure issues and liabilities and that sort of 

 24 thing. So we try to stay away from that. 

 25 Just getting back --
 1 MS. MINNOW: Could I just ask you something? I'm 

 2 sorry. Can I just ask you, when you say stay away from it, 

 3 you mean you don't read them or you don't respond? 

 4 MR. MOSTYN: We actually probably don't even read 

 5 them, for the most part. There are some people that do, but 

 6 I think that we generally don't read them. Just 

 7 getting -- there was an example actually that is relevant 

 8 here in terms of what might occur. 

 9 When Sarbanes-Oxley was passed, and then the New 

 10 York Stock Exchange listing standards were adopted, the new 

 11 ones, they required a communication vehicle to get to 

 12 companies. And some of the companies that want to get out in 

 13 front of this issue set up web sites for that purpose, and 

 14 some of the experiences that those companies -- and they were 

 15 pretty big companies -- were horrendous. I know one company 

 16 in particular that had to hire a staff of people to sort of 

 17 address these issues. 

 18 And that kind of volume concerns me a lot. And 

 19 even if it was restricted to shareholders, I think that you 

 20 might get -- I'm really anticipating more volume, because 

 21 it's just easier to deal with the stuff when -- on a key on 

 22 your computer than when you write a letter or make a phone 

 23 call to a company. 

 24 MR. DUNN: Amy, if I could -- 

 25 MS. DAVIS: Yeah. No. Okay. This is absolutely a
 1 lot of nonsense, because you have no control as a proponent 

 2 that way, and you don't know -- like I say, you're going to 

 3 get company employees acting like individual shareholders. 

 4 You get special interests and anonymity while otherwise and 

 5 you have the names and addresses of proponents. You get 

 6 letters, fine, so you know who is writing and all that. And 

 7 you can pick up the phone, talk to them or not talk to them, 

 8 and a lot of mail I get from people, too, they just say, 

 9 well, thank you, Mrs. Davis, you're doing a great job. We 

 10 support you in that. 

 11 If they ask specific things why I have a reason to 

 12 get this at a particular company, I don't go. I just say 

 13 this is what is in the proxy statement. This is it. And 

 14 they should be -- nothing is perfect, but the current system 

 15 is working. Just like I say, and you work -- incumbent 

 16 directors, they are not like -- I had in a friendly way, I 

 17 had two years ago a problem with the bank -- 

 18 MR. DUNN: We -- 

 19 MS. DAVIS: Now, look. You didn't interrupt Nell 

 20 either. You're showing favoritism to Nell. 

 21 MR. DUNN: No. You're repeating yourself. That's 

 22 why I interrupted you. 

 23 MS. DAVIS: Well, that's -- I'm not a lawyer. I'm 

 24 sorry. 

 25 MR. DUNN: No, no. It was only -- I only cut in
 1 when you started repeating yourself. 

 2 MS. DAVIS: Well, I'm sorry if I do that. But, 

 3 like I said, the present system, it's not perfect, okay. But 

 4 it is working. But I want to have also that we don't have 

 5 in-and-out traders a four-year holding period for anybody to 

 6 give a proposal and at least a minimum of $4,000 worth of 

 7 shares. 

 8 Now this guy here who works for the Bank of America 

 9 said the average shareholder has 5,000 shares. I have 80,000 

 10 worth of Bank of America, which is also, you know, a lot for 

 11 me, but I'm not a 10-share stockholder either. And we don't 

 12 have, you know, we don't have those kind of people. Four 

 13 thousand minimum. 

 14 And I think that should resolve a lot of the 

 15 problems, but no electronic stuff. And you cannot trust the 

 16 Internet of senior citizens and small shareholders either. 

 17 You have to be a computer wizard and anybody will know who 

 18 contacts you, anybody will know what you are doing. 

 19 MR. DUNN: Okay. We're moving on to the next 

 20 topic. Amy? For the sake of discussion, Bill has said that 

 21 companies don't even look at the sites, or his company 

 22 doesn't, or it might be wise not to. I don't want to put 

 23 words in your mouth, Bill. 

 24 What would we need to do to change the rules to 

 25 give them comfort? What is it in the securities laws that
 1 lead a company legally -- and I know there's a money issue, 

 2 but legally, to feel that it's better off just to ignore? 

 3 MS. GOODMAN: Well, I think there are questions 

 4 relating to uncertainty under the law with respect to duty of 

 5 update and duty to correct and to the extent that the company 

 6 becomes aware, let's say there's unusual trading in their 

 7 stock, I think there are a variety of reasons why companies 

 8 don't want to respond to -- it's the equivalent of responding 

 9 to market rumors, I think. And for all those reasons. 

 10 And as I had mentioned earlier and as Bill 

 11 indicated, there are alternative ways for shareholders to 

 12 make their views known to a company. 

 13 MR. DUNN: Bill, what would you think? What would 

 14 put your mind at ease? 

 15 MR. MOSTYN: I don't think there is any way to do 

 16 it. I mean, actually, honestly have read some blogs, chat 

 17 room conversations, and I'm amazed at some of the allegations 

 18 that they're making about the company. I caution people with 

 19 the company not to get engaged in a communication with them 

 20 about this, because it's -- you're going to go off in some 

 21 issue that we're going to have to issue an 8-K for probably 

 22 or things like that. And so there are lots of things that 

 23 come out there, and it's just not -- it's not the right 

 24 vehicle. It's not reviewed, it's not governed by any rules. 

 25 I'm not sure that, you know, to try to impose a 10b-5 type of
 1 regime on a blog is really going to work. 

 2 MR. DUNN: That was part of my question there. Is 

 3 it wise to say -- to make clear that there isn't a 10b-5 

 4 regime or there isn't a duty to correct or there isn't a duty 

 5 to update or this doesn't result in any company obligation? 

 6 MS. GOODMAN: Well, if the company is speaking, I 

 7 mean, if we're assuming that the company is not speaking, 

 8 then there's no problem. But if you want this to be a 

 9 two-way street and the company is going to use this to speak, 

 10 then I think it would be very hard for the SEC to give a 

 11 total pass to what the company had to say. 

 12 MR. DUNN: Okay. So let's divide the question in 

 13 half, then. If the company -- if it's merely from the 

 14 company view, passive, and the company doesn't have an 

 15 obligation to speak -- obviously, if a company ever chooses 

 16 to speak, it has to speak truthfully and completely. If the 

 17 company doesn't have an obligation to speak, and therefore we 

 18 could find some way to come up with saying the company has no 

 19 responsibility for whatever gets said on there. That's one 

 20 issue. How would -- would that be reasonable? 

 21 And then the other is, if the company was speaking, 

 22 what would it need? 

 23 MS. GOODMAN: Are you assuming that the company 

 24 would be maintaining this forum? I mean, I think that's the 

 25 problem. I think to the extent that the company doesn't
 1 maintain the forum, then it doesn't have or feel any 

 2 obligation to monitor it. On the other hand, if the company 

 3 is maintaining this forum pursuant to an SEC rule, for 

 4 example, it becomes hard I think both from the company 

 5 standpoint and from the SEC standpoint not for the company to 

 6 have some monitoring obligation and want to correct false and 

 7 misleading information. 

 8 CHAIRMAN COX: I think the question that Marty's 

 9 asking is ought there be a rule that makes clear there is no 

 10 such obligation? I mean, in the early days of the Internet 

 11 back when we had CompuServe and Prodigy, the New York Supreme 

 12 Court, the trial court in New York, ruled in a libel case 

 13 that someone who had said something about an investment bank, 

 14 and we couldn't trade down who that person was, triggered 

 15 liability at Prodigy. 

 16 And so now-Senator Wyden, Representative Wyden and 

 17 I wrote a law that overturned that decision, and that's been 

 18 the rule on the Internet ever since. We would do the same 

 19 thing in this space so that the maintenance of the site would 

 20 not in any way subject the maintainer, if it were the company 

 21 or anyone else, to that kind of monitoring obligation. 

 22 MS. GOODMAN: I guess I'm concerned that you would 

 23 still, as Professor Newhauser talked about on the May 7th 

 24 roundtable, create a Wild West atmosphere where if 

 25 there's -- that you would end up then in a situation where
 1 nobody would really use the forum because it would become an 

 2 open Wild West where there -- I mean, I question what the 

 3 value of it would be at that point. 

 4 MR. DUNN: Rusty, do you want to -- go ahead. 

 5 MR. READ: Love to. I actually think that 

 6 protections that you could provide from the SEC in an 

 7 electronic forum would be very important. Our view is that 

 8 things that materially facilitate communication between the 

 9 share owners and the company and the directors is generally 

 10 cost effective and good, something that is -- should be 

 11 promoted. And without those protections, it's going to be 

 12 difficult to have an effective dialogue. 

 13 So I would say that if you want to have the 

 14 electronic forum be -- have effect at all and have it not 

 15 simply be a conversation among the investors, then I think 

 16 you probably need to provide that -- some measure of 

 17 protection to the company and to the directors. 

 18 MR. DUNN: Thanks. We are -- we're coming down to 

 19 the closing remarks point, so I was going to turn it over to 

 20 Ms. Davis to go first. Everybody has a minute or two, and 

 21 we'll go. Ms Davis. 

 22 MS. DAVIS: All right. I'm just -- I'm trying to 

 23 say that this whole -- I am not a lawyer, but I know darn 

 24 well if you're going to use the Internet, some company or 

 25 somebody could make a subpoena and find out who the ones were
 1 who had these different things on the web. While if you 

 2 write to a director personally or you write to a stockholder 

 3 or a proponent or whoever, nobody but the proponent knows. 

 4 You have the mail. You don't know -- I don't give out who 

 5 writes to me, who calls me. But I'm trying to say this is 

 6 open to litigation. I'm not a lawyer. But they can use 

 7 that. And also at some point, the companies might -- now 

 8 like I say, I've been at this for 40 years, I have seen them, 

 9 the companies try to say you had to have 1 percent of the 

 10 stock before you could give any proposal and that stuff. But 

 11 this is not good. They could even try to eliminate the 

 12 annual meeting and use these forums and then take the things 

 13 they want to. And if that gets to that, I tell you one 

 14 thing. I am not a young woman anymore, but I am rich. I 

 15 would take it up to court, even to the Supreme Court. I have 

 16 nothing to lose. If they were to try to stop annual 

 17 meetings, okay, they tried to force this Internet stuff, you 

 18 can't force senior citizens and small shareholders who are 

 19 not computer experts. 

 20 Sure, the institutional investors have big stocks 

 21 and all that, but people, if they're dumb enough to use it 

 22 and get themselves -- they can find out who you are even if 

 23 you think it's anonymous. Are you kidding? They can find 

 24 out anything about everything you do on the Internet. Don't 

 25 kid yourself. That's why I say, I don't use a word
 1 processor. I don't use e-mail. I use my typewriter. I do 

 2 what I want to. I pick up the phone. Sure, people can tap 

 3 your phone, but not as much as, you know, and in other ways, 

 4 and you are in control as the proponent, and that way you 

 5 will not be -- and the directors are listed in the proxy 

 6 statement. If people want to talk to the individual 

 7 directors -- 

 8 MR. DUNN: Ms. Davis -- 

 9 MS. DAVIS: -- they can find out. 

 10 MR. DUNN: Ms. Davis -- 

 11 MS. DAVIS: They can find out the names and 

 12 addresses -- 

 13 MR. DUNN: I'm clearly not in control. I'm clearly 

 14 not in control as the moderator. 

 15 MS. DAVIS: Yeah, but you favor -- you favor Nell. 

 16 MR. DUNN: Oh, stop that. Stop that. 

 17 MS. DAVIS: I am prettier than she is. 

 18 MR. DUNN: Nobody -- oh, jeez. 

 19 (Laughter.) 

 20 MR. DUNN: Thank you so much. Russell? 

 21 MR. READ: I think this is an important opportunity 

 22 which is going to take years to figure how to do effectively. 

 23 From our standpoint at CalPERS, all of our -- well, our 

 24 approach to voting proxies is all based on principles, 

 25 principles which we believe will benefit -- in fact, the way
 1 we look at principles, we only establish them if we think 

 2 they will benefit companies. If they think they will add 

 3 value. We think that's a proper and good way to formulate 

 4 principles. 

 5 We do believe that there is -- the most important 

 6 principle of all is the alignment of interests between the 

 7 share owners and the companies that they are investing in. 

 8 So that alignment of interest, anything that facilitates 

 9 that, better communication is, you know, is generally a good 

 10 thing. We view this as something that's supplemental, not as 

 11 a replacement, I think for many of the reasons that were just 

 12 previously mentioned, but as an addition, as a supplement, we 

 13 think that there are some promising aspects here to improve 

 14 the alignment of interests, to potentially I think actually 

 15 reduce the costs to companies. 

 16 You know, although theoretically I think there were 

 17 some costs that you could see increasing, I think in general, 

 18 you know, that better communication would forestall a number 

 19 of precatory proposals, frankly. I think we see that in 

 20 general when we come out with our focus list of companies 

 21 that we believe are troubled and not reflecting share owner 

 22 interests. We engage companies very heavily. In fact, most 

 23 of the companies that could be potential focus list companies 

 24 end up not making the final list because we engage them and 

 25 the companies respond.
 1 So, I think the engagement process is important. 

 2 This is another type of engagement process. So anything that 

 3 you could do to help make this meaningful and effective I 

 4 think would be a good thing. 

 5 MR. DUNN: Amy? 

 6 MS. GOODMAN: Thank you. I think what Russ just 

 7 said is so important that the level of communication that is 

 8 going on today between companies and their shareholders is at 

 9 an incredibly high level on proxy proposal issues, an area 

 10 where I don't think there's been as much communication as I 

 11 think there could be, and this gets at the issue that was 

 12 discussed at the previous panel relating to the director 

 13 election process is communication with, for example, board 

 14 criteria. 

 15 Boards under the New York Stock Exchange listing 

 16 standards and under the SEC rules are now required to put in 

 17 their proxy statements and their corporate governance 

 18 guidelines up on their web site, lots of information about 

 19 the criteria that they apply in picking out director 

 20 candidates. In addition, there's a required disclosure about 

 21 procedures for shareholders to recommend candidates to the 

 22 governance and nominating committee. And under the new 

 23 listing standards in the SEC rules, the independence of the 

 24 governance committee and their whole role in the nominating 

 25 process is much greater than it ever was.
 1 But if you talk to, and I'd welcome Bill's 

 2 thoughts, but if you talk to a lot of companies, they get 

 3 very little input from shareholders or even large 

 4 shareholders about the criteria that they have in their proxy 

 5 statements about board candidates and about the people that 

 6 they nominate for the board, and that's an area where I'd 

 7 like to see greater communication. 

 8 MS. MINNOW: I think the great conundrum, Marty, is 

 9 the one that you raised a moment ago, which is that we want 

 10 companies to be fully accurate and fully responsive in all of 

 11 their communications, and yet we also want to encourage them 

 12 to participate in what really is the Wild, Wild West out 

 13 there on the Internet. And I just don't think that we're 

 14 going to be resolving that one today. That's a very tough 

 15 one. 

 16 I am usually extremely happy to take up the time of 

 17 corporate executives with what I think are very important 

 18 shareholder concerns, and even I take pity on the idea that 

 19 they would have to be surfing the net all day long to read 

 20 what a blogger has to say and respond to every single thing. 

 21 Because if they didn't respond to this one and they did 

 22 respond to that one, it would be like conceding. I think 

 23 that that's a nightmare. 

 24 I think the best thing that the SEC could do right 

 25 now is focus on using the technology that's out there, as I
 1 said before, to strengthen and make more robust the process 

 2 for director nomination and contested elections and to look 

 3 and monitor closely what the market is providing out there in 

 4 terms of online forums for shareholder interchange and make 

 5 sure that the required disclosures are very compatible with 

 6 that, so that they can make that a richer experience. 

 7 MS. DAVIS: Okay. I have actually two more -- 

 8 MR. DUNN: Ms. Davis, we're finishing. We're going 

 9 to end. We've got to end. We're on to the lovely and 

 10 talented Bill Mostyn now. Bill? 

 11 MR. MOSTYN: Thank you. I think the objective of 

 12 this idea very laudable if it was to siphon off what would 

 13 have been precatory proposals and put them into a different 

 14 forum and basically simply the normal proxy statement process 

 15 each year for a company. 

 16 But my sense is, and especially listening to the 

 17 panelists today, that we're talking about a supplemental 

 18 system, that we're just going to have to devote more 

 19 resources to. And in that context, I don't think it's a good 

 20 idea. I think it would have to be the alternative to it. 

 21 Otherwise, we'd be spending a lot of time on it. 

 22 MR. WHITE: Gary, you get -- 

 23 MR. DUNN: Gary gets the last word here. 

 24 MS. DAVIS: What about me? 

 25 MR. DUNN: You went first.
 1 MS. DAVIS: Well, wait a minute. 

 2 MR. DUNN: Gary, do you want to give us your 

 3 comments? 

 4 MR. WHITE: Gary's getting the last word, Ms. 

 5 Davis. We've got to end. We're past time. 

 6 MS. DAVIS: No. Well, wait a minute. 

 7 MR. DUNN: Gary, do you want to give us your 

 8 comments?: 

 9 MS. DAVIS: I mean, my last words, brief last 

 10 words. 

 11 MR. DUNN: I get the last word. Go ahead, Gary. 

 12 MR. BROUSE: What I wanted to do is again thank you 

 13 for allowing us to be here and to be able to express 

 14 ourselves on this issue. I wanted to say that I also 

 15 represent the American Indigenous Coalition on Institutional 

 16 Accountability, and we're sort of newcomers into the 

 17 investment market. 

 18 And the one thing great about ICCR is, we have a 

 19 great reputation with corporations. We don't always agree on 

 20 things. We start out with letters or communications or we 

 21 dialogue with the company. We go to annual meetings. And 

 22 it's interesting. Sometimes we don't always agree in those 

 23 dialogues, or maybe we don't have a dialogue, maybe it's a 

 24 resolution that gets those dialogues started. 

 25 But the great thing is, is that I think we've
 1 actually helped companies in heading off potential problems 

 2 in the future. We've been helpful that way. Sometimes 

 3 corporations even call us for assistance in particular areas 

 4 and information. And that's why I think it's so important, 

 5 no matter what process is in place, that the quality of the 

 6 communications that takes place is really important, because 

 7 we don't want to waste our time. When we do bring up an 

 8 issue, we want to be taken seriously. 

 9 And it's one of the things that the American Indian 

 10 community, as we get into this investment market, are looking 

 11 at that model and knowing that we don't get that many 

 12 opportunities to participate in a place like this or go to an 

 13 annual meeting. So our opportunities are pretty limited. 

 14 And we know that when we do get those opportunities, we have 

 15 to make the most of them. 

 16 And I think in this particular area, people of 

 17 color, you know, their opportunities are not as great as 

 18 other people to be able to voice our concerns, our opinions, 

 19 and to share our comments with the business leaders of this 

 20 country. And we've been very fortunate in the relationships 

 21 that we've been able to build with corporations as investors, 

 22 as a group of people. And we appreciate that opportunity, 

 23 and we would not like to see that quality of communications 

 24 deteriorate in any way. 

 25 And so, you know, again, I would say that, you
 1 know, we still have a lot of questions about this process, 

 2 and we hope we're able to continue to participate and to 

 3 contribute in how to make this a good process for everyone. 

 4 Thank you. 

 5 MR. DUNN: Thank you very much. With that, we're 

 6 going to, to use the chairman's phrase, move immediately to 

 7 the next panel, which I guess means ten or fifteen minutes. 

 8 We're going to start at 11:45. I'll -- I just want 

 9 to thank everyone, Evelyn, Russ, Amy, Nell, Bill, for pulling 

 10 double duty, Gary. I'm emotionally and physically spent, so 

 11 I'm done. 

 12 CHAIRMAN COX: Thank you very much to the entire 

 13 panel. And on Marty's last point, I really did intend that 

 14 we'd move seamlessly into the second panel, which did not 

 15 happen, so let's try and do that with the third panel so that 

 16 we can get people on their way. 

 17 Thank you very much. 

 18 (A brief recess was taken.) 

 19 PANEL THREE - REVISTING THE RELATIONSHIP BETWEEN 

 20 STATE LAW RIGHTS AND THE FEDRAL PROXY RULES 

 21 MR. WHITE: Okay. We'd like to get started on our 

 22 tenth and final panel for this -- for our roundtable series. 

 23 First I should just check. Joe, can you hear us? Joe 

 24 Grundfest. 

 25 MR. GRUNDFEST: I can hear you loud and clear.
 1 MR. WHITE: Okay. Just checking. We can see you. 

 2 MR. GRUNDFEST: I can hear you loud and clear. 

 3 MR. WHITE: But we just wanted to make sure you 

 4 could hear us. 

 5 CHAIRMAN COX: Could we turn Joe's volume up, 

 6 though? 

 7 MR. WHITE: Okay. Whoever handles the volume, 

 8 we're going to need to turn Joe's volume up. So as I say, 

 9 welcome back to our final panel. Our goal here is to build 

 10 off of our first roundtable on May 7 and come back to some of 

 11 the fundamental issues and look at those again in light of 

 12 what we've heard in the interim. 

 13 We're very fortunate to have back four of the 

 14 panelists from our first day, plus Stan Gold. But let me 

 15 introduce everyone just down the line here. Jill Fisch, 

 16 Professor of Business Law at Fordham University School of Law 

 17 and currently visiting at Pennsylvania Law School. 

 18 Stan Gold, President and CEO of Shamrock Holdings. 

 19 Joe Grundfest, who is connected by video, Professor 

 20 of Law and Business at Stanford Law School. Joe, do you want 

 21 to speak to us now so we can see how you sound? 

 22 MR. GRUNDFEST: Well, good morning, everyone. 

 23 MR. WHITE: That is perfect. Thank you. Don 

 24 Langevoort, Professor of Law at Georgetown University Law 

 25 Center; and Leo Strine, Vice Chancellor of the Delaware Court
 1 of Chancery. 

 2 I'd like to just, you know, dive right in here in 

 3 terms of where we're at. We obviously, you can tell from 

 4 some of the things that were being discussed this morning, 

 5 and the questions we've provided to the panelists, mulling 

 6 over the idea that binding proposals that are permitted under 

 7 state law should be included in proxy statements, perhaps 

 8 with certain requirements. And we've obviously heard a lot 

 9 of back-and-forth on that. 

 10 So, Jill, I guess we'd like to start with you and 

 11 hear what your reaction to that is in light of all the things 

 12 that we've heard. 

 13 MS. FISCH: Thank you. In light of the questions 

 14 that you circulated, there were a couple of points that I was 

 15 concerned about. One, I think you're absolutely right in 

 16 focusing on the relationship to state law. But I wonder if 

 17 that relationship isn't a little bit more complicated than 

 18 our previous discussion really highlighted. 

 19 I mean, first of all, shareholders -- we've been 

 20 focusing on Delaware, and in Delaware, shareholder voting 

 21 rights are pretty well defined. A number of cases say that 

 22 shareholders have the right to nominate directors, and 

 23 shareholders clearly have the non-divestible right to amend 

 24 the bylaws. But that's not true in every state. In fact, 

 25 there are at least a couple of states where shareholders
 1 don't have the right to amend the bylaws at all. That power 

 2 resides exclusively in the board. 

 3 And I wonder what shareholder proposals or 

 4 shareholder resolutions look like under such a system. And I 

 5 also wonder what the sort of implied or residual shareholder 

 6 resolution right is in a state in which shareholders don't 

 7 have the power to amend the bylaws, and where that residual 

 8 right comes from. 

 9 I went back and I looked at the TransAmerica case 

 10 where we really kind of, where the 3rd Circuit kind of came 

 11 up with this idea that shareholders of course have the right 

 12 to introduce and vote on resolutions. But when you look at 

 13 the state statute, it's not entirely clear to me where that 

 14 right comes from, and whether states, or to what extent 

 15 states have the right to eliminate that. So if that's true, 

 16 then I'm a little bit confused about the relationship of this 

 17 federal right with the underlying state law. 

 18 Related to that, there's this issue of what's a 

 19 proper subject. And I'm not sure you get away from that 

 20 with -- by restricting shareholders to binding or to bylaw 

 21 amendments. There's still the residual question of the 

 22 interplay in Delaware, the interplay between Section 109 and 

 23 Section 141. Just because something is in the form of a 

 24 bylaw amendment doesn't automatically make it a proper 

 25 subject for a shareholder vote. And state law has not
 1 addressed that question. I assume that it will. It may not 

 2 resolve that question in the same way in every state. And 

 3 then you've got an additional complication with respect to 

 4 the effect of these rules. 

 5 Third question. Interplay between the federal 

 6 right and issuer-specific rules, issuer-specific limits on 

 7 shareholders' right to amend the bylaws. Would a federal 

 8 rule prevent an issuer from having a bylaw that said you need 

 9 5 percent of the outstanding shares to amend the bylaws, or 

 10 introducing a different time period or a different holding 

 11 requirement? I think there's a lot of value in 

 12 issuer-specific experimentation. 

 13 But I assume that if there were a general federal 

 14 proxy right to introduce binding bylaw resolution, that that 

 15 would conflict, or at least some courts would perceive that 

 16 as conflicting, with issuer-specific freedom. 

 17 I don't want to take too long, so I'll stop there. 

 18 MR. WHITE: I don't even think that was playing by 

 19 the rules. I mean, you're the professor and you're just 

 20 asking questions. We were looking for answers, but thank 

 21 you. 

 22 Don, maybe you can give us some answers, as well as 

 23 your observations. 

 24 MR. LANGEVOORT. A couple of more questions, 

 25 actually.
 1 MR. WHITE: Oh, great. 

 2 MR. LANGEVOORT. No. I agree with everything Jill 

 3 said. In addition, and one thing that is clear I think in 

 4 every state that I know of is the bylaws cannot be 

 5 inconsistent with the charter or articles of incorporation. 

 6 And I have to believe the Commission would set in motion a 

 7 great degree of experimentation in charters, especially 

 8 adopted pursuant to IPOs, that people buy into that will add 

 9 to the difficultly of the questions of what's -- where are 

 10 the shareholders going too far, given the charter that was 

 11 adopted, things like that. 

 12 So, I think the Commission and its staff would 

 13 inevitably be drawn into the creation of law on the subject. 

 14 And we would see what we saw with precatory amendments for 

 15 the last 40 years, which is the Commission supplanting state 

 16 sources of authority, because it's far more actively and 

 17 constantly involved in answering these questions, and it 

 18 won't get answered. I mean, Jill and I can't answer your 

 19 questions. We've looked at the body of law. I don't think 

 20 the body of state law is going to ripen quickly, so that it's 

 21 easy for you guys. 

 22 MR. DUNN: If I could weigh in on one thing. And 

 23 for anyone. At the last roundtable when you all were here, 

 24 Leo, you had mentioned that nonbinding proposals aren't 

 25 provided for in state law, I think was the phrase you used. 
 1 And -- I didn't go back and read it. I made that up. But I 

 2 think that's what you said. And the notion, though, that, 

 3 you know, so it's permissive, it doesn't disallow it. You 

 4 know, I've never seen any company ever write in with a 

 5 nonbinding proposal and argue it's invalid under state law. 

 6 So while I think it's a fair question, and of 

 7 course state law could be changed to make it not permissive 

 8 -- not permitted, it's fair to say that, although it's an 

 9 open question, it's kind of an open secret that it's fine. 

 10 Would that be fair? 

 11 MR. STRINE: I think what I said the last time is 

 12 this. Delaware is not -- I mean, I am not John C. Calhoun. 

 13 I hope that's obvious to everybody, interposition and 

 14 nullification, not my thing, not my state's thing, and it's a 

 15 federally mandated process. 

 16 What the statute says is that you can come before 

 17 an annual meeting and you can bring up anything that's 

 18 proper. Right. Yeah. You can go to the annual meeting, 

 19 hopefully it's not on the Internet, it won't be traceable. 

 20 I'm a little concerned that my remarks are traceable now 

 21 because of the Internet connection I saw. But I'm proceeding 

 22 nonetheless in the assurance that it won't be. 

 23 But the idea of the mandated vote on a matter 

 24 that's not binding, no one -- where is there a court case 

 25 that says I stood up at the annual meeting and I demanded a
 1 vote. The chairman said I could make my remarks, but I'm not 

 2 having a vote on it because it's not a bylaw. And then went 

 3 to a state court, and the state court says as a matter of 

 4 corporate law, yes, you have to put it to a shareholder vote. 

 5 The shareholder vote on these nonbinding things is 

 6 a result of federal action. We're not John C. Calhoun. We 

 7 don't care. You're regulating the proxies. As a matter of 

 8 the proxy rules, you have created something. And that was 

 9 one of my points about your proposal. You're not vindicating 

 10 a state law right. 

 11 The difficult thing for the Commission that you're 

 12 grappling with is a history of -- and it may be a 

 13 Machiavellian kind of conservative idea here, which is to 

 14 diffuse energy around social issues into a forum dominated by 

 15 capital, right? Which is, we're going to diffuse energy that 

 16 might be directed to Congress into a forum where capitalists 

 17 have the vote. And I say that kind of whimsically, but 

 18 there's a certain amount of truth to that, right, which is 

 19 that nobody under business statutes ever invented this 

 20 process. It's an outlet. 

 21 It's not clear to me as a normative matter, for 

 22 example, why with respect to a lot of the issues that Damon 

 23 talked about, which are issues that are close to my heart, 

 24 you know, that I can't really express in my current job, why 

 25 workers wouldn't be able to make such proposals about the
 1 employment, you know, practices of an American public 

 2 corporation. The idea that you have to buy shares in order 

 3 to open the gateway to federally mandated communication is an 

 4 odd thing, or community, for example, people who live in a 

 5 community affected by the environmental practices of a 

 6 corporation. 

 7 Why is that they would not get -- if this is what 

 8 this is about, it's a conversation about larger issues of 

 9 social responsibility, the question -- the nexus to security 

 10 ownership seems to me to be an exceedingly trivial basis as a 

 11 gateway. And so what I'm saying, Marty, is, I think under 

 12 state law, you can go to a meeting. The annual meeting has 

 13 an outlet purpose, and you can stand up and say something. 

 14 And you have to -- it's like what we have to do as judges 

 15 with most pro se litigation, right? Some of it's useful. 

 16 Some of it's just the medicine you take as part of the job. 

 17 But this idea that you get a vote on it is a federal 

 18 creation. There is not a body of state law. 

 19 Now I'll finish with this about the real issue, 

 20 which is the bylaws. What I heard this morning a little bit, 

 21 and I think what we need to talk about, a very difficult 

 22 political issue for the Commission to shut down something 50 

 23 years old. I heard institutional investors saying they 

 24 wanted more of the real stuff, but no reduction in the stuff 

 25 that's less business-oriented and less meaningful. I heard
 1 the business community say, we'd like to get rid of the 

 2 imaginary stuff but no more of the real stuff. 

 3 And I think the real conversation we need to have 

 4 is what is the balance? Who is going to strike the real 

 5 balance for the ordinary investor? Which is, what is the 

 6 right mix here? And that involves some give-and-take on both 

 7 sides. And I think that the business community's desire to 

 8 gag bylaws about the election process to me doesn't have the 

 9 ring of credibility, but nor does this idea that we want on 

 10 the investor side to have more influence over who is a 

 11 director and over bylaws, but we're not willing to give up 

 12 anything on the other side of the equation and allow the 

 13 people that we've now elected to face some of these choices 

 14 without a flurry of precatory proposals. 

 15 MR. WHITE: So, Joe, you're here on the big screen. 

 16 Everybody can see you throughout the auditorium. Would you 

 17 like to give us some comments? 

 18 MR. GRUNDFEST: Thank you very much. I promise no 

 19 special effects from Silicon Valley. Let me agree violently 

 20 with the comments of all of the panelists to this point and 

 21 suggest that, at least in my view, they point in a consistent 

 22 direction. 

 23 First, let's call a spade a spade here. What we 

 24 have is a set of federally mandated communications. And in 

 25 addition, these federally mandated communications are subject
 1 to federal content regulation. We have employees of the 

 2 federal government looking at the content and deciding what 

 3 goes in on a content base and what does not go in on a 

 4 content base. 

 5 Putting aside for the moment whatever 

 6 constitutional issues might be implicated by that fact, it is 

 7 from my perspective not the best place for the federal 

 8 government to be, to simultaneously be compelling speech, 

 9 compelling the use of corporate resources with regard to the 

 10 making of any speech. And here I speak without any view with 

 11 regard to the substance whatsoever -- and then having the 

 12 government in the middle of the situation acting as though 

 13 they're the editor of an op ed page, saying we'll accept this 

 14 piece, we won't accept this piece. And very often, it has 

 15 nothing to do with, you know, the number of shares you hold, 

 16 how long you've held them. It's we don't like the way it's 

 17 written or we don't think that what it says is appropriate. 

 18 A highly questionable role I think for the federal government 

 19 to be in. 

 20 And then with regard to all of the excellent 

 21 technical questions that have been raised by my colleagues, 

 22 it's clear that the Commission is not in the best place to 

 23 resolve those issues, and it's also clear that if the 

 24 Commission were to attempt to resolve those issues, it would 

 25 become ensnared in a wide range of difficult questions where
 1 it has no comparative institutional advantage, and would be 

 2 certain to come up with a set of principles that are 

 3 simultaneously over-inclusive and under-inclusive and 

 4 unlikely to really achieve the best objectives of a large 

 5 number of corporations. 

 6 So, you know, for that reason, I think the 

 7 suggestion by Professor Fisch, which is very simpatico with 

 8 my own, which is, let's figure out some strategy for 

 9 devolution of this authority to individual corporations so 

 10 that the corporations and the shareholders that have to live 

 11 with the rules that are adopted are actually the ones that 

 12 adopt the rules governing access to their proxies and 

 13 defining the material that will actually be on the proxy. 

 14 In other words, I think the Commission needs to 

 15 come up with a strategy that gets the Commission out of the 

 16 14a-8 business and puts the individual corporations and their 

 17 shareholders in the business of defining what will and won't 

 18 go on the proxy, and to the extent that there are questions 

 19 of state law rights of access, aren't the state 

 20 laws -- aren't the state courts the appropriate venue for the 

 21 resolution of those issues? 

 22 I don't know that I want people in the Division of 

 23 Corporation Finance wearing Justice Strine's robes and 

 24 opining on matters of Delaware law. That's it. 

 25 MR. DUNN: Well, I wouldn't fit in Leo's robes,
 1 but -- 

 2 (Laughter.) 

 3 MR. DUNN: It's a very tough spot, I agree with you 

 4 on a lot of those things. Stan, you were going to speak for 

 5 a second. How do you view this whole thing? 

 6 MR. GOLD: First of all, let me thank you for, one, 

 7 inviting me to be a part of the panel. I've read the earlier 

 8 transcript, and it's an illustrious panel, and I'm happy to 

 9 be here. Thanks to the chairman and the Commission for 

 10 inviting me. 

 11 Let me -- I think I do agree with most of the 

 12 remarks this morning, but let me approach it at a different 

 13 way and share with you some of my experiences, because I 

 14 don't know, as all the professors do, all of the rules and 

 15 regulations of various states and even the SEC rules. 

 16 In the end, it seems to me that the Commission 

 17 wants to have the best companies, the most efficient and 

 18 effective companies. We have a series of state laws, and 

 19 there may be some exceptions, that say we give great latitude 

 20 to directors who can take some risks, can do lots of things. 

 21 Don't have personal liability. Can't bring a business 

 22 judgment rule, unless you're in real bad faith, you don't do 

 23 it. Because we think that encourages corporations to do well 

 24 in America, which in the end of the day is all of our job. 

 25 The one thing that has been missing here is when
 1 you do make a mistake. We're not talking about bad faith. 

 2 We're talking about mistake, bad business dealing, not paying 

 3 attention to the compensation of the CEO, not having the 

 4 right mix of businesses, keeping too much corporate booty. 

 5 I've never met a CEO who doesn't want a huge war chest. 

 6 So, when those decisions go wrong, there needs to 

 7 be some accountability. The way to do it, in my mind, is 

 8 somewhat guided by the AIG case, to allow each company to go 

 9 and change its bylaws. I wouldn't try to decide one size 

 10 fits all. You've got to hold the shares for three years. 

 11 You've got to have 1 percent, 5 percent, ten years. Let the 

 12 companies -- we have companies out there, good companies, 

 13 that are $100 million companies, and we have companies that 

 14 are $100 billion companies. If you're going to try to make a 

 15 rule that fits, it won't work. 

 16 And so let the shareholders decide what that 

 17 amendment to their bylaw ought to include or not include. 

 18 Shareholders are pretty smart. And you've got to give some 

 19 access to the shareholders for accountability of the 

 20 directors. 

 21 Let me just give you some of my experiences. 

 22 Disney. No surprise. We ran a rather well known, extensive 

 23 Vote No campaign against Michael Eisner and George Mitchell. 

 24 Let me tell you, that campaign cost us 10 to 12 million 

 25 dollars. Most shareholders in America couldn't do that if
 1 you didn't belong to a wealthy family. I don't know, but a 

 2 pretty educated guess, I believe the company spent between 30 

 3 to 40 million dollars to retain those two individuals 

 4 basically as directors. 

 5 We need to have some ability -- a mailing, a 

 6 mailing at Disney. And Disney has got the most shareholders 

 7 of any company in America -- it was more than $2 million. 

 8 I'm not talking lawyers. I'm not talking printing. I'm 

 9 talking postage, U.S. postage, was in excess of $2 million 

 10 and going up. So, if you don't help the shareholders get 

 11 some ability to have accountability of the directors and be 

 12 able to replace them when they don't do a good job, you're I 

 13 think missing the boat. So I'd encourage you to do that. 

 14 One other observation and then I'll stop. And that 

 15 is, we run about a billion dollar activist fund. On any 

 16 given day, we have 12, 15 positions of companies, relatively 

 17 small companies, $1.5 billion. Two-thirds of those companies 

 18 engage with us by nothing more than a phone call. You call, 

 19 say we own 2, 3, 4, 5 percent. We'd like to come see you. 

 20 We've got a couple of ideas. Two-thirds of those people 

 21 listen, and for the most part engage constructively and adopt 

 22 some or all of our proposals. About a third. Put it in 

 23 writing. We'll get back to you. And they never do. Put it 

 24 in writing. Don't call. We know. We know this company 

 25 better.
 1 So there is about -- my experience is, about a 

 2 third of the companies give you the stiff arm. Don't want to 

 3 hear from you. They know better. Hard to engage with them. 

 4 And there you need some mechanism, not an immediate one. I 

 5 like the idea of the amendment because it's really a two-year 

 6 cycle. You've got to amend the bylaw first, and then a year 

 7 later come back to decide on a director, and then it's a 

 8 short slate because it's not going to be a majority of 

 9 directors probably, is a good process. 

 10 So if you're going there, I want to encourage you 

 11 to keep going. Thank you for the opportunity. 

 12 MR. DUNN: The next thing -- I would like to weigh 

 13 in and I was going to ask Leo a question and I think he wants 

 14 to respond anyhow. And Joe brought this up and a lot of 

 15 folks have brought it up is, you have to have the question of 

 16 state law. You're going to have issues come up. You know, 

 17 we have 450 issues a year that we've got to resolve in a very 

 18 short period of time. And so the real question is, if you're 

 19 going by state law, does it become a two-year process? 

 20 Because it's not ripe until it doesn't happen. Or is there 

 21 some way to go about doing it? So I'd like, if you don't 

 22 mind, Leo, I'd like you to start with that, everybody weigh 

 23 in, and I won't ask you to weigh in on your view in short 

 24 slates, because I've already heard how you feel about that. 

 25 MR. STRINE: I love short slates. Being short
 1 myself, I feel like it's a tribute to my class. The very 

 2 interesting and I think creative thing that was done between 

 3 the Securities and Exchange Commission and the state of 

 4 Delaware recently which allows the Commission to ask -- to 

 5 actually promulgate a certified question of law to the 

 6 Delaware Supreme Court. 

 7 I actually think there's a juris potential 

 8 implication to that that is useful in this dynamic, which is 

 9 as a matter of judicial conservatism, Vice Chancellor Lamb, 

 10 who is an excellent judge, you know, declined actually to 

 11 rule on the validity of a bylaw until there was a vote. That 

 12 was judicial conservatism, which is to say, is it real or 

 13 not? And then I'm going to decline to do it. 

 14 I actually think when the Delaware constitution has 

 15 now been amended to contemplate that sort of advisory ruling 

 16 by the Delaware Supreme Court, I don't want to prejudge it, 

 17 but it becomes more difficult I think for a judge on the 

 18 Delaware Court of Chancery asked by an issuer or a proponent 

 19 to render a declaratory judgment to say it's not ripe, 

 20 because somebody might chuckle and say, well, see your 

 21 constitution. And so this constitutional amendment may have 

 22 another sort of implication. 

 23 I think what we may be talking about his the 

 24 maturity of -- and I mean this more in the sense of contrast 

 25 -- adolescents like me with mature people. We often say
 1 mature people should act in a seasonable way, which is don't 

 2 decide on the eve of proxy season to do something novel and 

 3 expect that we're going to turn over the universe and make a 

 4 decision that will last for ten years in an instant. 

 5 I think if a stockholder has something serious, 

 6 they can propose it early enough in the season that maybe at 

 7 the, you know, in the summer, late summer, and say this is 

 8 the thing, talk to the company, and then get a declaratory 

 9 judgment now in a way where you know. I think in general, 

 10 though, the Commission, one way for the Commission is to just 

 11 simply say this. If it's clearly decided under state law 

 12 that this is not a viable bylaw, we're not going to make you 

 13 put it on. But if it's not clearly decided and it's in the 

 14 form of a bylaw, we're going to allow states to deal with 

 15 this. 

 16 Now, will that put some pressure on state decision- 

 17 makers? Sure it will. But that's -- with responsibility 

 18 ought to come accountability. And I think if you actually 

 19 look at the things that animate people, like proposals around 

 20 takeover defenses, proposals around compensation, proposals 

 21 around the election process, there will tend to be a common 

 22 set of issues in which some -- you know, the decision of some 

 23 cases will provide guidance that will help resolve a lot more 

 24 cases. 

 25 And so I'm not convinced that you will have, you'll
 1 need 500 cases, for example, to deal with what's okay in the 

 2 takeover area in terms of a bylaw; what's okay in the 

 3 election area. You know, five to ten decisions out of state 

 4 courts could provide an awful lot of guidance. And so I 

 5 think this new interaction with the Commission is a useful 

 6 thing. 

 7 I will reiterate that there is an area I think 

 8 specially creates a federal problem, and it's one that we all 

 9 ought to be very sensitive to, is this what do you do to 

 10 facilitate meetings in a fair and equitable way when there's 

 11 a corporate meltdown and you can't file seasonable financial 

 12 statements? I don't want to lose that. 

 13 Because I think when you look at what brought about 

 14 Sarbanes-Oxley, you know, Enron, WorldCom, HealthSouth, it is 

 15 an unintended consequence of a well-intended federal 

 16 regulation that stockholders' ability to exercise voice is 

 17 compromised at precisely the time in the life of a 

 18 corporation when it's probably most needed. 

 19 And so I hope we don't lose that flavor in anything 

 20 that you do this year. Because that really is an important 

 21 intersection of federal and state law. I think we all kind 

 22 of agree on that. 

 23 MR. WHITE: Before we call on any more of the 

 24 panelists, I just wanted to make sure that -- is there 

 25 anywhere any of the Commissioners would like to take this
 1 conversation? 

 2 CHAIRMAN COX: I think I like where it's going. 

 3 I'm learning a lot, so, I don't want to -- 

 4 MR. DUNN: I'll jump in. Judge, do you want to 

 5 follow up on the state law point, or do you have anything 

 6 that you want to add? 

 7 MR. GRUNDFEST: No. I think, you know, lots of 

 8 Leo's points were, you know, right spot on. And, you know, 

 9 the only observation that I would share is the judge observed 

 10 there are certain situations where the Commission might have 

 11 to decide whether matters have been clearly decided or not. 

 12 As we all know, we can have a good faith debate about whether 

 13 a matter is clearly decided or not. And as practiced 

 14 lawyers, we all know how to take established decisional law 

 15 and write a proposal in the shadow of the decisions that's 

 16 designed to emphasize the ambiguities or the fissures in the 

 17 established doctrine. 

 18 So, to assume that the Commission can easily 

 19 determine which matters are clearly established under state 

 20 law and which are not I think is to assume that the future 

 21 will not look like the past. 

 22 MS. FISCH: Just to follow up on the concern about 

 23 it being a two-year process, I think that there is some value 

 24 to proceeding slowly and allowing some room for 

 25 experimentation. I think the Commission has been struggling
 1 with the issue particularly with respect to bylaws that 

 2 relate to the director nomination process for some time. And 

 3 I don't see a real disadvantage if we have to go through the 

 4 bylaw stage first in order to get there. 

 5 A small point related to that, if we're going to 

 6 use bylaws to address things like the director nomination 

 7 process, you might want to think a little bit more carefully 

 8 about the word limits. I was just looking at Apria 

 9 Healthcare's director nomination policy, which allows 

 10 shareholders to nominate directors, deals with a lot of the 

 11 issues that the Commission has been considering for a number 

 12 of years, such as the percent of shareholders, re-proposal, 

 13 director qualifications, disclosure, all of that. It's two 

 14 pages on the web. 

 15 You know, it's a very careful, thoughtful policy. 

 16 I can imagine a lot of experimentation on a lot of the 

 17 different fronts. But if you want that kind of responsible 

 18 proposal and debate process, I think there needs to be a 

 19 little bit more room to do that as well. 

 20 MR. WHITE: Commissioner Campos? 

 21 MR. GRUNDFEST: If I -- just one other small point 

 22 about this two-year cycle, which I really do think is an 

 23 important detail. As a practical matter, it's likely to come 

 24 up early in the process with regard to any new change. 

 25 So the first time that you have a new change and a
 1 new policy, you might run into a two-year cycle, but as Judge 

 2 Strine points out in Delaware, it might be a shorter cycle 

 3 now. But once you've resolved it by going through the 

 4 process the first time, you should have it resolved with 

 5 regard to most similar issues. 

 6 Of course, the system is going to respond and then 

 7 try to come up with other issues around the edge. So we 

 8 should understand that the two-year process is the equivalent 

 9 of a one-time startup cost that we're going to encounter as 

 10 each new innovation works its way through the system, but 

 11 once you've got it through the system, it should be 

 12 relatively cookie cutter in terms of applying it. 

 13 COMMISSIONER CAMPOS: I'm hearing, you know, with a 

 14 lot of interest, all of the cautions about the items that are 

 15 unresolved under state law, the potential problems if we 

 16 send, if that were to be the route we go, send binding 

 17 proposals for the states to deal with. It's not the same 

 18 thing in every state. You know, what is the fundamental 

 19 situation with, you know, given rights to shareholder votes 

 20 and so forth? 

 21 What would you say about keeping the current system 

 22 we have? In other words, not doing anything in terms of 

 23 letting essentially the world that exists after the AFSCME 

 24 AIG's situation continue? Which is essentially a, you know, 

 25 a shareholder one-on-one situation, corporation and
 1 issuer-by-issuer? You know, is that the better part of 

 2 valor, you know, in this particular time? 

 3 MR. STRINE: I'll take a shot at that. I mean, I 

 4 think it's not intolerable at all, and I think it's more 

 5 credible than it used to be. I think the question I guess I 

 6 have about it is this, which is whether it's sort of only 

 7 addressing part of the issue. I mean, I think if you're 

 8 going to continue to have federally mandated proxy voting on 

 9 precatory proposals, it's really -- it is unavoidably a duty 

 10 I think of the Commission to consider thresholds that might 

 11 be -- strike a little bit better cost benefit 

 12 analysis -- benefit balance for investors. 

 13 COMMISSIONER CAMPOS: On precatory? 

 14 MR. STRINE: Yes. Because that will be an aspect 

 15 -- because what you're going to have is if the AIG decision, 

 16 which, you know, frankly -- I mean, the AFSCME decision, I'm 

 17 sorry -- it makes sense to me. I mean, the idea that 

 18 you -- it's a little bit perverse. We've all talked about 

 19 it. The idea that a bylaw dealing with the election process 

 20 that might well have been viable under state law was kept off 

 21 the ballot when you could have something that was precatory 

 22 mandated to be on the ballot. 

 23 You're amplifying stockholder influence, and we've 

 24 talked about at earlier stages who you might be amplifying 

 25 the voice of. There's that concern about who it is. But
 1 it's the election process. That makes sense. There's going 

 2 to be more voice then. That means they're going to have more 

 3 influence on whoever sits on the board, and it's going to be 

 4 -- it be some more costs attendant to that. 

 5 If you're still going to have a federally mandated 

 6 process dealing with precatory nonbinding proposals, then I 

 7 think the Commission has to then take on the burden of 

 8 thinking what are the thresholds that have to be met for 

 9 someone to actually generate costs for other investors by 

 10 using that? And they probably have to be, you know, 

 11 tailored. 

 12 I also think there's an interesting question, which 

 13 is, if the precatory proposal process in that world is really 

 14 mostly this historical idea that there ought to be sort of a 

 15 voice about corporate social responsibility once a year, even 

 16 if it's nonbinding, should we have a kind of admixture, which 

 17 is where investors get to propose things that deal with real 

 18 governance measures in the form of binding bylaws and put 

 19 them on the proxy, but they choose tactically to phrase them 

 20 in precatory terms, if you see what I mean. Which is, I 

 21 could have done this as a real binding proposal about the 

 22 election process, but I think I'll get more votes if I 

 23 actually call it nonbinding. 

 24 And so that you have the corporate social 

 25 responsibility bucket. You have the stuff that could have
 1 been a bylaw, and then you have the stuff that is a bylaw, 

 2 and we haven't changed any of the thresholds, and, frankly, 

 3 from the corporate governance industry's perspective, that's 

 4 great, because it creates the most motion. It's not clear 

 5 from the individual investor standpoint that that is the best 

 6 balance. 

 7 So I think if you're going to do the two, 

 8 Commissioner Campos, if you're going to go forward with the 

 9 election stuff, I do think you've got to look at the cost 

 10 side of the other. That would be my only comment. 

 11 MR. DUNN: Stan if I could follow up with a 

 12 question for you. You said that you've done some proposals, 

 13 and what I wasn't clear on was whether you've just gone to 

 14 meet with them about the proposals or whether you've gone the 

 15 formal 14a-8 process. Have you done both, or how does that 

 16 work? And if I could -- one follow-up is, what about the 

 17 14a-8 system if you've used it would you fix? 

 18 MR. GOLD: Yeah. My comment was going to, talking 

 19 to them about their business and their proposals. These were 

 20 not discussions about putting things on the ballot either 

 21 binding or precatory. These were really trying to get them 

 22 to focus on how to make the company better without having to 

 23 remove directors or change bylaws or anything. 

 24 And in two-thirds of the cases, we get a receptive 

 25 audience. What we have done in the ones that we haven't is
 1 begin to suggest that they leave us with no other alternative 

 2 but to run a proxy slate, run our own proxy slate and go to 

 3 it. 

 4 There is a lot of -- and I heard it today in the 

 5 other panels, there's a lot of sort of hum about these 

 6 precatory, nonbinding. And I don't want to demean any of the 

 7 social causes, because in most cases, on a personal level, I 

 8 agree with them. But the real heart of this is director 

 9 responsibility. 

 10 One of the things that I didn't say in the 

 11 beginning, and it hasn't been said here, I actually think 

 12 that the -- sort of the white elephant in the room that no 

 13 one talks about is executive compensation. And if we had 

 14 some kind of a rule that was like the AIG case, whether we 

 15 just let things stay as the 2nd Circuit suggested, or some 

 16 more formal rule, what you're going to get is directors being 

 17 much more cautious about big pay packages. 

 18 Because what happens is, if they don't work out, 

 19 the company doesn't make money, big embarrassment. Not only 

 20 are those directors susceptible to being removed on this 

 21 particular board, but they probably -- that argument is going 

 22 to follow them when they go on other boards. And there is an 

 23 industry of directorships around here. I actually like this 

 24 idea better than what's being proposed in the House about 

 25 trying to limit in some fashion.
 1 Let the shareholders be able to get and remove 

 2 directors in some kind of a direct form will give you a 

 3 better lid and caution on compensation, especially given the 

 4 transparency the Commission has also already asked. So now 

 5 you've got the transparency, and now you have a mechanism for 

 6 redress. 

 7 MR. DUNN: If I could ask one last question and 

 8 then ask you guys to tie it into your closing statements. We 

 9 have 10 or 15 minutes. That way I don't want to rush you, 

 10 and give you a chance to answer it. We all know the 14a-8 

 11 system we have now and how it interacts, and we know the 

 12 system pretty well now that we've been talking about it for 

 13 the last 15, 17 days, whatever it was since May 7th. 

 14 How would you -- what would -- how would you 

 15 compare the two? Advantages, disadvantages for shareholders 

 16 and companies. Which do you think is better for which? And, 

 17 you know, is it a different mousetrap or a better mousetrap, 

 18 and for whom? And then please tie that into whatever you 

 19 wanted to close with. And we'll go in alphabetical order and 

 20 start with Jill. 

 21 MS. FISCH: Sorry. What are we comparing? 

 22 MR. DUNN: I'd like to just -- I want to get a feel 

 23 for what a system that was -- that all binding went in with 

 24 whatever thresholds, and -- 

 25 MS. FISCH: Oh, the thing in --
 1 MR. DUNN: And the various things there. How would 

 2 that compare with what we have now? Do you find it better or 

 3 worse or just different? 

 4 MS. FISCH: Okay. Well, I think that having a 

 5 system in which serous binding proposals went in and the 

 6 Commission didn't try and play some sort of mediating role, I 

 7 think that would be very valuable. 

 8 I think -- my earlier remarks may have been 

 9 misinterpreted. I don't think it would be a bad idea to have 

 10 state courts and state law more active in resolving some of 

 11 the questions that are currently unresolved. I think the 

 12 reason they've been inactive is because a lot of times the 

 13 issues aren't ripe because of the SEC staff making that 

 14 preliminary determination. 

 15 So to the extent that we think shareholder voting 

 16 rights are important, it's useful to have state law confront 

 17 these questions and define actually what the scope of those 

 18 voting rights are. 

 19 Similarly, I think the issuer-specific innovation 

 20 and experimentation is valuable, and I think right now, 

 21 director nominations are the hot topic, and we've got the 

 22 AFSCME case, but we don't know what the next hot topic is 

 23 going to be. And I think shareholders and issuers should 

 24 have the freedom to respond, you know, before it gets to the 

 25 level of, okay, everybody recognizes that this is kind of the
 1 next wave. 

 2 With respect to precatory proposals, I think that 

 3 the current rules give them too much weight and too much 

 4 support. I think in large part, they're not supported by 

 5 state law voting rights. They take a lot of time and money 

 6 and, you know, yes, they're important social issues, but the 

 7 question is whether shareholder voting is the right tool for 

 8 dealing with those social issues, and I'm not sure it is. 

 9 There are a lot of problems or potential problems 

 10 with the electronic bulletin board system, some of the 

 11 discussion on the last panel about the extent to which the 

 12 anti-fraud rules would apply, the extent to which those 

 13 communications would be proxy solicitations, the extent to 

 14 which, well, if it's anonymous postings, are they reliable? 

 15 Is this even valuable? If it's not anonymous, are you going 

 16 to have retaliation? I'm thinking of like Grady and 

 17 Analytics. And are you going to wind up with those sort of 

 18 problems? Internet fraud and the extent of manipulation 

 19 that's possible. 

 20 So there's a lot of cautionary notes, and if the 

 21 idea is just to provide the shareholders with some sort of 

 22 voice or some sort of forum to replicate their presence at 

 23 the annual meeting in the way that Leo described, why not 

 24 just require that the company distribute or post some sort of 

 25 shareholder remarks of the kind of the nature that a
 1 shareholder would be entitled to make at the annual meeting? 

 2 You can have word limits. You can raise these issues, right, 

 3 both to the other shareholders and to the company management 

 4 directors. But you don't need to tie that communication or 

 5 that voice with the requirement of a formal vote and the cost 

 6 of a proxy solicitation. 

 7 So those are my reactions to the proposal. 

 8 MR. DUNN: Thank you. Stan? 

 9 MR. GOLD: I want to continue to encourage the 

 10 Commission to lower the barriers for shareholders to be able 

 11 to hold boards accountable. I think that the current system 

 12 of federal regulation made it more difficult. So I do like 

 13 going to the state law. I think the state law system is one 

 14 which can divide what are shareholder responsibilities or 

 15 rights and what are directors and management rights. And so 

 16 I would encourage the barriers to come down. I think that's 

 17 part of your question. 

 18 I find myself in keen agreement with the professor. 

 19 It's always hard to say that, but I think that you've heard a 

 20 lot of good ideas. The precatory is a way I think if you 

 21 allow direct action and responsibility in the 

 22 bylaws -- binding is what I'm saying -- you will find that 

 23 there are probably going to be less precatory. I think the 

 24 precatory became a mechanism to let off steam because they 

 25 had no -- the shareholders had no ability to have direct
 1 effect on a binding thing. 

 2 And I think you will see the balance go down as 

 3 you, it's my hope that you will allow more direct and 

 4 binding. 

 5 MR. DUNN: I'm not going to let 3,000 miles make us 

 6 go out of alphabetical order. We'll go to Joe and 

 7 then -- your turn, Professor Grundfest. 

 8 MR. GRUNDFEST: Thank you so much. Thanks so much. 

 9 Look, at root this debate is really about various 

 10 conceptualizations of shareholder democracy, and I think it's 

 11 interesting to frame the question that way and to say 

 12 straightforwardly, look, if you believe in democracy, believe 

 13 in democracy. 

 14 If you think that it's important to hear the views 

 15 of shareholders on all of these questions, whether they are 

 16 mandated under state law or whether they're precatory under 

 17 the federal process, and if you think that the shareholders 

 18 have something intelligent to say and smart to say, that if 

 19 you think they're smart enough to vote on these matters, 

 20 aren't they also smart enough to set the rules by which they 

 21 will or won't vote on many of these matters? 

 22 I think it's very difficult to say that 

 23 shareholders have a selective form of intelligence that makes 

 24 them capable only of voting on the matters that the SEC says 

 25 they should vote on. That I think is intellectually a
 1 difficult line to try to defend. 

 2 And with regard to, you know, the question of 

 3 precatory proposals and the like, I think that at some 

 4 corporations and with some shareholder bases, it makes 

 5 perfect sense to open the floodgates and allow virtually 

 6 anything in. In other situations, I think a reasoned 

 7 approach would be to dramatically constrain the number of 

 8 precatory proposals. But again, the organizations and the 

 9 groups that are best situated to do that are the corporations 

 10 and the shareholders whose proxies are, after all, implicated 

 11 here. 

 12 And the other thing that I think is really obvious 

 13 after all of these sessions is, look, let's face it. Every 

 14 constituency has come before you, and they have pounded their 

 15 own drum. What they're doing in a variety of ways, sometimes 

 16 very obvious, other times a little bit more subtle, is 

 17 they're asking the Commission to write rules in such a way 

 18 that if you were to put the question to the shareholders and 

 19 to the corporation, you might get a different results. 

 20 So, you know, advocates of corporate access, you 

 21 know, the shareholder governance constituency, social rights 

 22 communities, however it is you want to articulate them, will 

 23 of course come to the agency and say we needed the broadest 

 24 14a-8 rights. The agency should never keep anything out. 

 25 And, of course, anything that's mandated under state law
 1 should go in. 

 2 That may well get them a level of access that they 

 3 would never get if they actually went to the shareholders and 

 4 said, you know, what do you think the rules in this situation 

 5 should be? That would be an example of the agency in effect 

 6 overriding the majority. 

 7 By the same token, when the corporate community 

 8 comes to you and says, look, what we need to do is shut down 

 9 everything that is precatory under 14a-8 and at the same time 

 10 make sure that nothing mandatory comes in under 14a-8, too, 

 11 they're simply doing exactly the same thing that the activist 

 12 groups are doing. They're asking the Commission to write a 

 13 rule that at the end of the day may give them an interest and 

 14 an outcome that would be very different from the one that the 

 15 shareholders and the corporation acting as a group would 

 16 actually resolve. 

 17 I don't want to be in the middle of that match. I 

 18 don't know that the Commission should want to be in the 

 19 middle of that match. I think what the Commission should be 

 20 thinking about now is an exit strategy. I think you're in 

 21 the middle of a political battle that you never should have 

 22 gotten into the middle of to begin with. I think this was a 

 23 situation where 50 years ago, for a variety of reasons, it 

 24 seemed like a good idea at the time. But look at how it's 

 25 evolved. Look at where it's taken people to.
 1 Now it may well be that Commissioner Campos' 

 2 observation is at the end of the day a pragmatically sound 

 3 one; that the costs of change here are so high that we don't 

 4 want to incur those costs. In other words, better the devil 

 5 we know than the devil we might get by actually going to 

 6 something that looks like democracy and actually having each 

 7 corporation decide on its own rules, or by making any major 

 8 changes at the Commission level, which inevitably will be 

 9 viewed as either being pro-investor or pro-management or 

 10 anti-investor or anti-management. 

 11 So at the end of the day, I think as a pragmatic 

 12 matter, to me it seems like the real choices for the agency 

 13 are you stay where you are, you muddle along, you tinker 

 14 around at the edges, or you say, look, let's reconceptualize 

 15 this entire problem from the ground up, and let's come up 

 16 with an intelligent exit strategy that really devolves 

 17 authority to the locals, and the locals here are the 

 18 corporations and the shareholders. 

 19 MR. DUNN: You get the last word, last professor. 

 20 MR. LANGEVOORT: Last professor. Actually Leo is a 

 21 professor. 

 22 Well, I disagree with Joe actually, finally. Yes, 

 23 it strikes me that Congress put the commission square in the 

 24 middle of shareholder voting and corporate suffrage. And on 

 25 balance what the commission has done in occasionally weighing
 1 in and providing mechanisms for shareholder voice and 

 2 enhanced democracy has been good four our system. 

 3 And I'd hate for the commission to take an exit 

 4 strategy. I don't think the default group will 

 5 necessarily -- states and corporations will necessarily get 

 6 it right. The economics of collective action and information 

 7 deficiencies still work against real corporate governance and 

 8 real democracy. And so I think the commission, continuing 

 9 its role is a good one. 

 10 What does it do? I find myself somewhat 

 11 sympathetic with what Commissioner Campos suggested. I do 

 12 believe that a relatively narrow definition of election for 

 13 purposes of what is excluded with respect to bylaws is 

 14 healthy. I think it's important to give shareholders the 

 15 right voice and the right support. 

 16 I do worry very much about moving to a new system. 

 17 And frankly this may be inherent in the existing system as 

 18 well, if it requires a two step, going to state courts to 

 19 litigate the bylaw question, which is expensive and time 

 20 consuming and can result in endless rounds of bouts, that 

 21 that will by itself discourage some otherwise healthy 

 22 experimentalism in this area. 

 23 It does strike me that for the commission to wisely 

 24 define election for purposes of what's to be excluded may be 

 25 the most sensible strategy in the end rather than trying to
 1 invent something new. 

 2 Okay. Last point and then I'm finished. I share 

 3 the skepticism which grew on me over the last couple of hours 

 4 about the electronic forum as either a substitute or some 

 5 mechanism for letting steam off. At best, I would encourage 

 6 the commission to think about using Reg SK or proxy 

 7 statements to have corporations elaborate on what processes 

 8 they choose to adopt to enhance communication. 

 9 But for many reasons to create this chat room that 

 10 we then lock the door and say non-shareholders, you don't get 

 11 to enter, which I don't think is a good idea, that has us 

 12 getting into questions of what is the corporation's 

 13 responsibility for this federally mandated system. It will 

 14 produce a nightmare of questions and troubles. 

 15 Frankly my belief is we have to look to see where 

 16 the market has failed before we ask for regulatory 

 17 interventions. And as we heard this morning from Nell and 

 18 others, chat rooms and other mechanisms for communication are 

 19 flourishing without the need for regulatory subsidy. 

 20 I'd worry about having the hand of the SEC in on 

 21 this one. And I'll stop there. 

 22 MR. DUNN: Thank you. And Leo, I apologize for 

 23 denigrating your professorship there, I apologize, but you 

 24 get the last word. 

 25 MR. STRINE: A senior fellow or something, an
 1 adjunct something or other at all kinds of places. But let 

 2 me be real pragmatic here, which -- I'm a pragmatist, and I 

 3 think you have to separate out the issues of what is sort of 

 4 really affecting the business governance of American 

 5 corporations from the traditionally precatory proposal 

 6 process dealing with corporate social responsibility to talk 

 7 about and to deal with the real kind of business stuff first. 

 8 I think the idea of the SEC -- and I appreciate 

 9 Joe's point about clearly decided. And because the way it 

 10 has been approved in the past, some law firms essentially 

 11 took decisions and said the decision of the Delaware supreme 

 12 court, striking down dead hand poison pills meant 

 13 stockholders couldn't propose a bylaw to restrict the use of 

 14 takeover defenses. 

 15 And at one point the commission accepted that and 

 16 said it was clearly decided under state law that the bylaw 

 17 was invalid. That ain't want I'm talking about. I'm talking 

 18 about if there's been a decision about a bylaw by the highest 

 19 court of a state and the bylaw is basically on all fours, you 

 20 keep it off. That's where I think you'd have to go to 

 21 because there has to be -- if the Delaware supreme courts 

 22 decided that an identical or basically identical bylaw is 

 23 invalid you keep it off. It can't be the old system, so I 

 24 agree with Joe on that. 

 25 But if you can get it to where if it's genuinely a
 1 jump ball it can be on the ballot, I think you facilitate 

 2 company-specific solutions to business situations, which is a 

 3 good thing. And I think the AIG compensation thing is a good 

 4 example where frankly the stockholders came up with something 

 5 which is different than what is proposed in Congress but 

 6 works for them and they seem to be happy. 

 7 If you had Warren Buffett as your CEO and head of 

 8 your -- I mean as an outside director and head of your comp 

 9 committee, you might want Warren to be able to go find a CEO 

 10 without an annual stockholder vote, you know. If you had a 

 11 different comp committee chair, you might want something 

 12 different. 

 13 But this allows -- and I think in terms of Don's 

 14 point, the only thing I disagree with -- I think a few court 

 15 cases that actually had real guiding effect, yes, they might 

 16 be costly. It might cost $2 million to litigate that case. 

 17 How much does it cost to have decades of tumult and 

 18 indecision at all of these different companies about these 

 19 questions? You've got to look at that. 

 20 And I think we work pretty fast in Delaware and we 

 21 can answer these things. I've tried entire cases in a month 

 22 with a week trial and a decision. 

 23 You know, deciding on the validity of a bylaw after 

 24 a couple weeks of briefing, we can do that kind of thing if 

 25 we have to. So I think it's -- and I think it's also an
 1 elegant way out for the commission of this shareholder access 

 2 thing because you're providing access in the right way, 

 3 because the shareholders get to have a dialogue under state 

 4 law about what they want the system to be and you're not 

 5 having to engineer and entire system, you're facilitating 

 6 their rights. 

 7 And in terms of this -- somebody raised the 

 8 inconsistency of you having thresholds and stuff. There is 

 9 no inconsistency. If you mandate a certain level of access 

 10 under the federal proxy rules and you said that they have to 

 11 have so many shares to have that access, that's the federal 

 12 gateway. You could deny access if under state law, if under 

 13 North Dakota to propose a bylaw you had to be x and this 

 14 person wasn't x. There wouldn't be any inconsistency between 

 15 the federal thresholds and the state things, so there's ways 

 16 to deal with that. 

 17 You can't avoid dealing with some of the issues 

 18 under section 13, thinking about who stockholders are, are 

 19 they really long the company. 

 20 Joe mentioned stockholder democracy. I'm a 

 21 Republican. I believe in the republic. And if you want to 

 22 have direct democracy, that's a different thing than a 

 23 republic. And one of the things we have in this country, 

 24 we're having a debate about immigration. What are the rules 

 25 of citizenship? And I think this will pervade both things.
 1 Under state law there are rules of citizenship, and 

 2 I think the commission out to respect them. When 

 3 you're -- and this will be my final point about covert social 

 4 responsibility, the other dividing line. It's never been a 

 5 big issue. There is a cost factor, and if you're amplifying 

 6 the real stuff, what are the citizenship rules in the domain 

 7 of the polity that the federal government has established? 

 8 And if you're going to have democracy, should transients be 

 9 able to exercise those rights and cost other people money? 

 10 Should there be longer holding periods? Should there be 

 11 materiality? You know, how big is your position with 

 12 respect -- can be proportionate to the market cap of the 

 13 company in order to cost other people money? 

 14 You can't have a democracy or republic without a 

 15 concept of citizenship. And I am actually with Don on this. 

 16 I think it's going to be very difficult for you all to get 

 17 out of this game. I see the bulletin board as a way to do 

 18 it. And here -- I'll finish with this. I think the way this 

 19 is phrased would be the worst possible cost benefit that you 

 20 could have because as I understand it, on a 

 21 company-by-company basis stockholder activists could choose 

 22 to use the proxy materials that they wish or do the bulletin 

 23 board. 

 24 Now think if you're an issuer and your general 

 25 counsel is having to deal with it. You now have to staff up
 1 to handle the bulletin board, when the stockholder advocates 

 2 decide to go that way, or the proxy mechanism when they 

 3 decide to go that way. You can't -- and I appreciate the 

 4 dilemma you are all in. 

 5 I actually think the political constituencies 

 6 around the precatory proposal process are not ones that would 

 7 have scared Lincoln, not ones that would have scared FDR or 

 8 frankly Millard Fillmore. In our society it really 

 9 isn't -- there's a bunch of people in this town who are 

 10 executive directors, and there's a few industries. 

 11 If you actually gulped and swallowed and took it on 

 12 you would survive and the republic would survive. But I 

 13 realize that's difficult because in terms of the voice of the 

 14 constituency you face it's very loud. Ordinary American 

 15 investors saving for retirement and college are not sitting 

 16 around worried about small investors being able to make 

 17 social responsibility proposals. If they're serious about 

 18 social responsibility then they're voting for members of 

 19 Congress who express their beliefs, they're writing their 

 20 congressmen. 

 21 And so I do think it's doable. I'm not saying it's 

 22 easy. It will take guff, but it's manageable guff. 

 23 MR. DUNN: Thank you. I'll wrap up and turn it over 

 24 to John. I just wanted to thank the five of you and also on 

 25 a broader scale I wanted to thank all 17 of the panelists and
 1 all the commissioners for letting me be here today and learn 

 2 from everybody. I appreciate that. 

 3 MR. WHITE: I'm always cautious when I speak for the 

 4 commission, but I think I'm going to choose Professor 

 5 Grundfest over Professor Langevoort this time, and I think 

 6 that we should have an exit strategy today from this topic. 

 7 We've had our three panels and so thank you all for being 

 8 here. 

 9 I did want to extend special thanks to three 

 10 lawyers in corporation finance that are all sitting over 

 11 behind Chairman Cox that have really put together all three 

 12 of these roundtables. They've done it. They obviously set a 

 13 commission record that I hope stands for some time of 

 14 organizing three roundtables in one month. But Lily Brown, 

 15 Tamara Brightwell and Ted Yu, thank you very much for putting 

 16 this all together for us. 

 17 And I'll turn it back to you, Chairman Cox. 

 18 CHAIRMAN COX: Here, here, for that exceptional 

 19 effort. We very much appreciated it. And speaking for the 

 20 commission, which I feel very comfortable doing in this 

 21 context, thanks very much to Jill, Stan, Joe, Don and Leo for 

 22 in all but Stan's case doing double duty and in Stan's case 

 23 for flying across the continent to be here with us right 

 24 before the holiday weekend. 

 25 We have learned a great deal from each of your
 1 contributions. We've also learned a lot from the other 

 2 panels. Your help in synthesizing what we learned from all 

 3 those other panels has been especially valuable. 

 4 So as we go forward ultimately what will come of 

 5 this is a proposal and that proposal will then be exposed to 

 6 further comment and discussion and so on. So in that sense 

 7 we're just beginning, but thank you very, very much for 

 8 getting us this far. 

 9 And to our moderators once again, John and Marty, 

 10 thank you very much for an excellent job of leading us 

 11 through three roundtables. 

 12 (Whereupon, at 12:42 p.m., the roundtable 

 13 was concluded.) 

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