Comment letter to the NYSE

Re: Report and Recommendations of the Proxy Working Group

June 27, 2006

Stephen Walsh, Vice President - Operations
Annemarie Tierney, Assistant General Counsel
New York Stock Exchange LLC
11 Wall Street New York, NY 10005
VIA E-MAIL (nyseclientservices@nyse.com)

Re: Report and Recommendations of the Proxy Working Group (June 5, 2006)

Dear Ms. Tierney and Mr. Walsh:

The Society of Corporate Secretaries & Governance Professionals (the Society) is a professional association founded in 1946, serving approximately 2,600 issuers. Job responsibilities of our members include working with corporate boards of directors (and their audit, compensation and governance committees) and senior management regarding corporate governance and disclosure. Our members provide expertise to their corporations in securities laws, corporate governance and stockholder communication and voting. As corporate secretaries we have the principal responsibility in dealing with stockholders, transfer agents and related service providers.

We appreciate the opportunity to have reviewed the Report and Recommendations of the Proxy Working Group (June 5, 2006) (the "Report"). The Society commends the Exchange for conducting this thoughtful study and for taking the initiative in this matter. We request that the Exchange consider our comments and proposals with regard to the recommendations before taking any further action. As noted in the Report, we agree that NYSE's rules must be reviewed in the context of "the broader framework of the proxy voting system."

We believe that most of our issuer members, and most U.S. public companies, have experienced issues of concern with regard to the current stockholder communications and voting system (such as, e.g., lack of owner identity data, resultant lack of ability for direct contact, transaction costs embedded in a multi-level and indirect process, and concerns with regard to voting-data reliability). We believe that revisions to the current system can and should be put in place to remedy these matters and improve the system generally, while balancing the interests of the several interested parties.

Our concerns as issuers derive from the fact that U.S. public companies do not know who their owners are; in an age of transparency and disclosure most of the ownership of a U.S. public company is unknown to the company. The result of the current process is substantial "social waste" as firms pay substantial sums to seek to identify and communicate with their owners; and it fosters and shields assorted undisclosed practices which decouple voting from economic interest. When all votes were 99-1 the imperfections of this system did not matter; now this all matters very much for all affected parties. We believe that the system can be revised to take into account legitimate considerations such as confidentiality and trade secrecy. At the same time, the system could be streamlined making it more cost-efficient, enhancing the opportunities for stockholder communications and voting, and reducing the opportunities for fraudulent and unethical conduct.

Issuers cannot be in contact with their investors because issuers are prevented from knowing their identities. This lack of knowledge is maintained by regulations and practices such as NOBO-OBO at the retail level and growing gaps in coverage for the Securities Exchange Act 13D/13G/13F series of rules. The brokerage community discourages the NOBO choice by retail customers, and the Exchange's Survey accompanying the Report shows that customers have little actual understanding or interest in the NOBO-OBO system, and similarly have little understanding of the implications of NOBO-OBO or Rule 452 with regard to their votes. Expanding the Rule 452 "non-routine" category will simply serve to dramatically reduce the retail vote and may threaten even the receipt of a quorum for some issuers. Issuers and others seeking to increase the retail vote will remain forced to work through an expensive, multi-layered process. The implications of changing Rule 452 in isolation will be profoundly negative and expensive to retail stockholders and issuers. We suggest that the default position be NOBO rather than OBO, a practice currently employed when an individual opens a brokerage account at a bank.

Some of the effects of the current system include both over-voting and "empty voting" via timed stock borrowing and swaps and short positions. The integrity of voting results in close contests is called into question when it cannot be confirmed if votes per share were tallied once and only once, as opposed to twice or not at all. Tools to deal with over-voting are not employed uniformly and may rely on the solution of arbitrarily cutting off the vote count when the 100%-of-position amount is reached. Stockholders do not have reasonable assurance that their votes will be routinely and accurately recorded for each vote event. In the case of "empty voting", as noted by academic literature and other commentary, the tools and techniques for temporary vote acquisition are becoming refined and more common. One solution may be for the vote to remain with the beneficial owner when the shares are lent.

Related to this state of affairs is the significant growth and significant voting power of the proxy advisory services such as Institutional Shareholder Services (ISS). These firms affect more votes than does broker voting under Rule 452.

For many issuers, it is the proxy voting recommendation/action of ISS and its competitors which decide the results at the Annual Stockholders' Meeting. The power of these organizations has been substantially expanded due to the ERISA and mutual fund voting disclosure rules. Institutions are outsourcing the vote to others. The proxy advisory services remain basically unregulated and without the market oversight that comes from relevant disclosure of conflicts of interest and business practices and processes. We commend NYSE for acknowledging these issues and concerns in the Report's Recommendation 6, especially since the proxy advisory business is a new force in the proxy process and a profit-making enterprise. This business did not exist at the time the current communications/proxy regulatory framework was put into place.

The Society notes that the proxy advisory services exist to support institutional investors who vote regularly and electronically; it is the retail customers of the NYSE member firms who vote at much lower rates and whose votes are affected by Rule 452. Your Recommendations 1 and 4 will simply serve to remove large portions of the small-stockholder retail vote and concurrently shift that voting power to the voting institutional investors. That will be an extraordinarily significant development for U.S. public companies, and we believe that such action should be taken only in the context of a broader public policy, substantive and process review.

We believe that the discussion in the Report with regard to Recommendations 3 and 6 support the position that single-point changes to the current system, such as revisions to Rule 452, will de-stabilize the current system and that all changes should be carefully considered and implemented together within a new regulatory framework that has taken into account all significant related topics and processes. As noted in a statement to the SEC, the Society supports the general views of the Business Roundtable Petition filed with the SEC in 2003, which advocated a fresh look at the entire communications/voting process and consideration of a complete overhauling of the NOBO-OBO rules. One year ago the Society, the BRT, the National Investor Relations Institute and the Securities Transfer Association urged the SEC to commence the review project advocated in the BRT Petition and we would do so again in connection with Recommendation 1.

Much of what ails the current system had little practical consequence, except in the rare takeover contest, until 5-10 years ago. However, the advent of proposals such as e-Proxy, mandatory majority vote, binding bylaws proposals, and the like, have completely changed the environment; votes are becoming closer. We believe that a thorough review will show that over-voting, vote-buying and other practices tip the balance thereby distorting the will of the true beneficial owner. All of these developments demand that the system be reviewed in an all-encompassing manner rather than in a piecemeal fashion.

We believe that current events and practices are overtaking the current system and moving it from "good enough" to a pre-scandal stage. We support the Report's Recommendations 3 and 6 as important steps in moving forward to remedy this situation, and believe it is inappropriate to implement Recommendations 1 and 4 in isolation.

Even when looking at Rule 452 in isolation, we note that there are many commentators with many ideas for significantly revamping the Rule, or creating a successor, as the alternative to simply adding more topics to the "non-routine" list. The Report discusses Proportional Voting, which is one alternative, and some commentators have advocated a system for beneficial owners to proactively choose how to deal with their votes in the absence of specific per-item instruction (e.g., broker shall vote in its discretion, broker shall not vote, broker shall vote For in all uncontested elections, etc.). Any isolated or broader review of Rule 452 should fully consider all such proffered alternatives, and the better course will be to consider them in the context of a review of the complete system.

As with Rule 452, we believe that NYSE's role in rate-setting through Rule 465 between issuers and ADP should be considered anew as a portion of the topic of intermediary selection, retention and fees within a broader project.

In summary, we strenuously object to Recommendations 1 and 4, relating to amendments to Rule 452; the proposed action should not be taken in isolation without consideration of the entire system. We strongly support Recommendations 3 and 6 and believe that the arguments in the Report in favor of Recommendations 3 and 6 are also clear arguments in opposition to Recommendations 1 and 4. We and others advocate that the Securities and Exchange Commission undertake a significant project to review and revamp the regulatory environment with regard to the stockholder communications and voting process. In that light we propose that no action be taken on Recommendation 2 at this time. We also believe that Rule 465 (as discussed in Recommendation 5) should be closely reviewed and dealt with as a portion of the process review and reform rather than through the use of an "independent third party".

Thank you for the opportunity to comment on this proposal. Please do not hesitate to contact us if you have any questions.

Sincerely yours,

Society of Corporate Secretaries & Governance Professionals

Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005

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