Manifest's e-mail to Valerie Jarrett

June 17, 2010 to

Good morning Ms Jarrett;

My name is Sarah Wilson, I am CEO of Manifest, a European proxy voting agency based in the United Kingdom. We act on behalf of a range of international investors ranging in size from small public pension funds to major European Sovereign Wealth Funds, in total a a community of investors representing assets in excess of US$3.trillion. Our clients take their responsibilities as long-term, diligent share-owners very seriously. We like they, are members of bodies such as the International Corporate Governance Network and the UN Principles for Responsible Investment. Manifest has significant experience in the proxy field, our firm has been operating since 1995, and we have actively participated in regulatory reforms in the UK and Europe with one view: to facilitate informed and responsible share ownership.

With this in mind we feel compelled to write to you and your colleagues to encourage the Obama Administration not to implement a 5% ownership threshold and a two-year holding
period for investors to nominate board directors on corporate proxies. We share the view of the ICGN that this would be extremely detrimental to the attractiveness of the US market from overseas investors. Furthermore, at a time when investors are being asked to step up to the plate and exercise diligent ownership oversight on their equity holdings, it would represent a retrograde step for US and global corporate governance.

Manifest is not as an activist with a short-term outlook, we speak as an organisation with long-standing practical experience of the mechanics of share ownership that believes that there should be a strong linkage between the economic and democratic process. With this experience, we see a number of practical problems with the proposals as currently drafted. We would therefore like to bring a number of points against these proposals to your attention for your active consideration.

1. The Ownership Threshold is Too High
Let me be clear, Manifest is no advocate of gadfly shareholders with single issue agendas to pursue. That would indeed be a reasonable basis for setting a high ownership threshold. However, the proposed threshold is being set too high to be remotely useful, particularly for larger companies, by the informed and thoughtful investing community which we work for. Ownership thresholds have been debated at length by the SEC and the arguments for the lower threshold thoroughly reviewed and understood. We therefore strongly encourage a lower ownership threshold, such as 3% for all companies, and in particular with market caps greater than $10 billion. It is also essential that shareholders should be able to work collectively as owners, it is therefore imperative that the ownership threshold can be met by multiple owners, not merely one.

2. The Ownership Period is Too Long
The right to vote is a fundamental human right which we tinker with at our peril. Would we suggest that the right to vote or be involved in democratic processes would only every be granted to individuals that have lived in a particular constituency for two years or that have an income above a certain threshold? Hopefully not. The right to vote, to representation and to holding those representatives to account is surely core to the concept of all democracies?

As the credit crisis has show us, boards that are left unaccountable can wreak havoc. Ineffective boards are not just a tax on shareholders, they are a tax on global economies. At the heart of the rift between the UK and the Thirteen Colonies was the concept of “no taxation without representation”.  If shareholders are to be taxed by agency costs then it is only reasonable for them to request representation. Without effective and accountable representation, shareholders rights are diminished and our economies pay a steep price.

3. Proof of Ownership is Tortuous to the Point of Impractical
We would also like to highlight the operational difficulties that the owners of US companies face in both proving their ownership and exercising their franchise. Two recent cases in your courts, Apache vs. Chevveden and Kurz v Holbrook, demonstrate that the property rights of investors (i.e. share ownership and voting of proxies), are heavily curtailed by a proxy plumbing process that is no longer fit for purpose in a internet-enabled investing world. Valuable time, effort and opportunity cost will be lost by market participants who will find themselves drawn in to protracted debates about who is or is not an owner/entitled to act. We encourage you to give weight to the SEC’s efforts to overcome these obstacles and bring about reforms which allow more timely and effective proxy voting and investor/issuer dialogue.

4. International Investors are Responsible Investors
Proxy access may represent a step into the unknown for many corporations. It is understandable that they would be concerned about being held hostage to special interest groups. These fears are based on fear itself and not on the real world experiences of global public markets which offer proxy access. International investors now own close to one fifth of the share capital of US listed companies, they are also active owners in other global trading markets. In the overwhelming majority of cases, shareholders are very supportive of their investee companies in which they have invested significant amounts of capital. They see significant responsibility associated with their ownership rights. Indeed in a market such as the UK, which has very permissive shareholder rights, these rights are rarely exercised in a negative way and both proxy battles and shareholder resolutions are extremely rare. Under UK company law, for example, 100 shareholders holding shares in a company with an average sum, per shareholder, of not less than GBP100 par value, can requisition a motion at the company’s annual general meeting (without any qualifying holding period). The number of such motions (resolutions) in the UK this year has been under 6, interestingly two of which were resolutions related to the environmental impact of exploration activities of two oil companies, Shell and BP.

Your Government stands at a major crossroads in financial reform and both the markets, as well as ordinary voters, will look to you to set the highest possible standards of probity in the financial industry. We urge you to grasp this opportunity to let investors play their part in ensuring the continued success of global capital markets.

Thank you for your time and consideration of our views, it is much appreciated.


Sarah Wilson, Chief Executive
FN Top 100 Most Influential Women in Finance 2009
Manifest | 9 Freebournes Court | Newland Street| Witham, Essex| CM8 2BL | England


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