Date: 1988-06-21
Speaker: NANCY M. SMITH (republican)
Chamber: S

Lhington. DC. DEAR Ms. SMITi: Thank. you for taking the time to meet with representatives of the California Public Employees Retirement System (CaIPERS). As you know. CaIPERS is the largest publically funded retirement syttcm in the nation. with current assets having a market value of approximately $48 billion. CaIPERS membership consists of over 560.000 active employees. with an additional 212.000 retirees and beneficiaries. As we discussed. CalPEIS would be pleased to support IH.R. 2172. provided the following issues are addressed: Greenmail: On the Issue of the payment of grecenmail. CalPERS and corporate management are unitedprohibiting the payment of greenmail will protect both businesses and shareholders from unscrupulous raiders. We strongly support this provision. One ShareOne Vote: This is an essential clement of corporate democracy. As with the election of our governmental leaders. the loss of the right to vote is tantamount to the loss of all right to effect ones future. In our discussion. you inquired as to how a federal "one shareone vole" requirement culd be structured without impairing state antitakeover legislation (such as the Indiana state legislation Involved in the CTS v. Dynamics Corp. of America case). Without discussing the wisdom of such state statutes (which we do not support. see below). we believe that a federal provision. such as within H.R. 2172. need not conflict with the states laws. Section 3 of H.R. 2172 merely assures that no corporation may deny equal voting rights to its shareholders. tie right of the states to alter voting rights. in specific takeover situations. is not affected. Access to the Proxy: We applaud this provision which gives shareholders greater and more equal access to proxy statements regarding the election of directors. However. for consistency and to provide shareholders with access to the proxy that is even more comparable to that of corporate management. we recommend that this provision be expanded to all issues (see. c.g.. section 112 of H.R. 2668I.ent/Rlinaldo). Voting Process: In addition. we urge the House to include within this bill provisions %hlch protect the integrity of the proxy voting system. As we discussed. CaIPERS has experienced firsthand the ability of corporate management to unfairly Influence the outcome of the proxy vote. For example. corporate management generally has the power to distribute. collect. and count all proxies. and to do so well before the shareholder meeting In which the voting results are formally tallied. Opposing parties have no ability to accurately monitor management in this process. nor is management subject to any other reliable means of assuring accountability. This procem is analogous to allowing a Congressional candidate to distribute and collect his own ballots. count thore ballots before they are submitted as official votes. and then contact the voters who voted against him/her to persuade them to change their votes. We are sure that you agree that such a system is subject to extreme abuse and would not be tolerated if applicable to our governmental leaders. However. this is the exact system that is allowed to exist and to govern tile businesses upon which dur economic stability and future depend. Enclosed with this correspondence Is a copy of a typical letter that is sent by corporate management when it fears. based upon its preliminary tally of proxies. that it will lose an Issue that has been presented for shareholder vote. As you can see. this letter asks the shareholder to reconsider the vote previously cast. and to submit a second proxy that will revoke the previous proxy and which is cunsistent with managements position. Conversely. the opposing party has no access to the preliminary proxy tally. and thus has no opportunity to rebut these last minute contentions of corporate management. Note that this tactic is not merely used during full proxy contests Involving board directorships. as In the case of the enclosed letter. this "second stage solicitation" involved a shareholdersponsored proposal which sought to challenge the adoption by the company of a poison pill. It has also been our experience that fund managers are often subjected to pressure by corporate management to vote their proxies for commercial or political reasons. unrelated to the interests of the beneficiaries. Also enclosed is a copy of a typical letter that may be sent by corporate management with the goal of Influencing the vote of fund managers. As you know. these managers as fiduciaries. are required to vote their proxies in the sole interest of the beneficiaries for whom they manage the stock. Such tactics by corporate management seek to have the fiduciary violate Its primary legal duty. To remedy this unfair advantage afforded management. we urge the Congress to mandate a confidential system of proxy voting. similar to section 111 of H.R. 2068 (Lent/ Rinaldo). With such a system. in which proxies are kept secret. tallying and auditing would be conducted by independent firms. In recognition of the need for confidentiality to adequately protect the integrity of the voting process. this system has been voluntarily adopted by many companies in which large percentages of stock are held by the corporations employees (e.g.. A.T. & T.). We strongly recommend that such a system be mandated through legislation. National Uniformity: We urge federal preemption of state antitakeover statutes. Current state antitakeover lws. particularly those of the Indiana prototype. disenfranchise shareholders and reduce the value of their investments. In the absence of a willingness to expressly provide national uniformity In takeover legislation. we recommend that HR. 2172 either remain silent on the issue or direct the Securities and Exchange Commission to further study the question. Thank you again for taking the time to meet with us. and for considering our concerns. If we can provide additional Information to you. please feel free to contact me. Very truly yours. RICHAnD II. eeOPPEs. ChicJ COIt71ScI.