From: Bruce Herbert [bh@newground.net] Sent: Thursday, December 05, 2002 6:13 PM To: rule-comments@sec.gov Subject: Support for SEC File Numbers S7-36-02 and S7-38-02 Thursday, December 5, 2002 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, NW Washington, DC 20549-0609 Re: Support for File Numbers S7-36-02 and S7-38-02 Disclosure of Proxy Voting Policies and Proxy Voting Records Dear Mr. Katz: I write as president of Newground Investment Services, a Registered Investment Advisor in Seattle, Washington, to formally support the proposed proxy voting disclosure rules contained in File Numbers S7-36-02 and S7-38-02. We applaud the Commission's initiative on behalf of appropriately open disclosure - which helps ensure secure and well-functioning markets that can inspire investor confidence. A recent national survey of independent investment advisors conducted by Schwab Institutional (a division of Charles Schwab & Co., Inc.) reports that 82 percent of institutional advisors rate "corporate scandals" as being the principal factor impacting the stock market in 2002. Scandal can erupt whenever there are not appropriate safeguards, and a principal safeguard should be transparency and open disclosure of the type put forward in the proposed new rules. . No interest is served by secret voting, other than the possible conflicts-of-interest of mutual fund and investment adviser managers. These managers have a fiduciary duty to serve their clients, and the sole source of their potential influence in the markets and with corporate managements derives from their clients' money. Therefore it is natural, right, and appropriate that that investment and fund managers be required to disclose to clients their actions related to voting share proxies. We authored an op-ed on the topic, versions of which were published in the Seattle Post-Intelligencer and in the Puget Sound Business Journal. These further enumerate the reasons why open disclosure is beneficial and they also rebut the major arguments put forward by opponents of the proposed rules. They may be accessed via the following links, and the text of the Seattle Post-Intelligencer article is also copied below. I thank the Commissioners for the strength and wisdom of these new rules, and for their unanimous vote in proposing them. It is important to the functioning of the markets and to the trust and confidence of investors in this country and abroad for these proposed rules to be affirmed and finalized. Sincerely, Bruce T. Herbert President Newground Investment Services info@newground.net ======= [ Links to two op-ed pieces written on this topic: ] Seattle Post-Intelligencer: http://seattlepi.nwsource.com/opinion/97692_invest29.shtml Puget Sound Business Journal: http://www.bizjournals.com/seattle/stories/2002/12/02/editorial3.html ======= [ Text of the Seattle Post-Intelligencer op-ed: ] Opinion, Seattle Post-Intelligencer Friday, November 29, 2002 SEC Transparency Rule Deserves Support by BRUCE HERBERT and LARRY DOHRS GUEST COLUMNISTS In September SEC commissioners unanimously supported two rules that would mandate disclosure by mutual funds of their proxy voting policies and voting records. Against the backdrop of financial market turmoil, it is clear that such transparency and accountability are imperative. As newswires have crackled with revelations of corporate malfeasance, the nation's financial watchdog - the Securities & Exchange Commission - has been in disarray. Nevertheless, important new proposals are afoot at the SEC. In September SEC commissioners unanimously supported two rules that would mandate disclosure by mutual funds of their proxy voting policies and voting records. Against the backdrop of financial market turmoil, it is clear that such transparency and accountability are imperative. Because mutual funds are some of the world's largest investors, this action represents a major step forward. Especially now, increased disclosure is necessary to stem a debilitating lack of investor confidence brought on by such corporate scandals as Enron, WorldCom and Tyco. Because half of all households hold investments in the market, economists see the confidence of ordinary investors as an essential prerequisite to any economic recovery. Many, if not most, investors use mutual funds as a vehicle for achieving financial goals. Since mutual funds own shares in publicly traded companies, mutual fund managers assume responsibility for casting votes related to directors, auditors and other matters of corporate governance. It is well established that proxy voting is a fiduciary duty to be exercised in the best interests of shareholders, and it is clear that disclosure to fund shareholders - to whom this fiduciary duty is owed - is an absolute necessity. However, such disclosures are not now required. Several important fund families have for years routinely disclosed proxy voting information, demonstrating that the process envisioned by the SEC is entirely viable. Domini Social Investments first disclosed its proxy voting guidelines a decade ago and has posted actual proxy votes to its Web site since 1999. The California Public Employees Retirement System (CalPERS) was the first public system to disclose its votes, and many other entities including the Calvert Group, Pax World Funds and the University of Wisconsin have also initiated their own open disclosure policies. American investors applaud the new SEC proposal because it would enable them to determine whether fund managers are indeed serving investors' interests. In light of the ongoing spate of corporate scandals, there is little doubt that the tired assurance "Trust us, we're experts" is no longer palatable to investors of any size - individuals or institutions. The SEC's unanimous vote surprised many large funds and institutional investors, and some are quietly attempting to block permanent adoption of the new proxy disclosure proposals. While these groups typically prefer back-room lobbying to public debate, they suggest three reasons why "the public" would be ill served by transparency: First, they claim the rules would be expensive to implement. Second, they suggest that the proposals would violate the democratic principle of secret ballots. Third, they say ordinary investors simply don't care. Given that a number of mutual funds and institutional investors already provide disclosure and have testified that the process is neither burdensome nor costly, the expense assertion simply doesn't hold water. To claim that open disclosure undermines a so-called democratic principle of secret ballots is fallacious because there is no such principle. Secrecy, in fact, is the foremost enemy of democratic principles. Would we applaud a suggestion that elected representatives keep all legislative policies and votes secret? Of course not, and we should with equal clarity reject the idea of secret proxy voting. The back-room boys have had their chance with secret ballots and used the privilege to create the mess we're witnessing today. Now is the time for the more enlightened approach proposed by the SEC. The third claim, that individual investors don't care, seems offensive and condescending. Unlike the nation's power elite, some of whom appear to treat these matters like a game, the investing public cares intensely about their hard-earned money and the severe damage that corporate wrongdoing is having on their account values. It is essential that people write during the SEC's public comment period (which closes Dec. 6) to support making the proposed rules permanent. Send comments via e-mail to rule-comments@sec.gov. Messages and their subject lines should both refer to "File Numbers S7-36-02 and S7-38-02." Traditional mail should be sent in triplicate to: SEC, 450 Fifth St. N.W., Washington, D.C. 20549-0609, again referencing File Numbers S7-36-02 and S7-38-02. Despite spectacular economic and market weakness brought on by scandal, powerful economic players and their political intermediaries are at work to stifle meaningful market reform. While those whose pockets are lined by a business-as-usual approach to regulation are content with the status quo, those who understand that increased transparency fosters integrity, inspires confidence and serves a larger public interest should act now to support the SEC's proposed rules on proxy voting. http://seattlepi.nwsource.com/opinion/97692_invest29.shtml ©1999-2002 Seattle Post-Intelligencer ----------------- BRUCE HERBERT is founder and President of Newground Investment Services, co-founder of the NW Coalition for Responsible Investment, and a past Governing Boardmember of the Interfaith Center on Corporate Responsibility (ICCR) in New York. LARRY DOHRS is Vice-President of Newground Investment Services in Seattle, and co-founder of Global Source Education. They can be reached at , (206) 522-1944, or . Newground Investment Services provides individual and institutional investors with socially conscious money management, financial coaching, and consultation on the strategic use of shareholder advocacy.