July 25, 2002

Mr. Gerald M. Levin, Co-Chair
NYSE Corporate Accountability & Listing Standards Committee
New York Stock Exchange
11 Wall Street
New York, NY 10005

Mr. H. Carl McCall
Co-chair, NYSE Corporate Accountability & Listing Standards Committee
Comptroller of the State of New York
633 Third Ave.
31st Floor
New York, NY 10017

Mr. Leon E. Panetta
Co-Chair, NYSE Corporate Accountability & Listing Standards Committee
The Panetta Institute
100 Campus Center, Building 86E
California State University, Monterey Bay
Seaside, California 93955

RE: Comments on NYSE recommended changes to listing standards

Dear Sirs:

I am writing on behalf of the members of the Social Investment Organization, which represents the socially responsible investment community in Canada. We are pleased to support the proposals outlined in the NYSE Corporate Accountability and Listing Standards Report. We support proposals calling for a majority of independent directors, tighter rules on the definition of independence, regular meetings of non-management directors and investor approval of stock-based compensation plans.

However, we also want to point out what we believe are shortcomings in the new governance rules proposed by the NYSE. Specifically, we believe that the new listing requirements should provide for mandatory social and environmental reporting by corporations to encourage management to attend to long-term issues of social responsibility and environmental sustainability.

Our interest in this topic comes from our background as internationally focused, Canadian-based investors with a commitment to social responsibility and environmental sustainability. The SIO has more than 400 members across Canada, including staff and managers of leading socially responsible investment funds, asset managers, financial institutions and investment advisors. Our members manage funds on behalf of more than 200,000 investors. Among our members and others, there is approximately $50 billion in assets in Canada managed with regard to social and environmental guidelines.

Our members are active international investors and are very interested to see strengthened governance requirements at the NYSE. As the lead stock exchange in the world, we feel that far-sighted risk management requirements put in place by the NYSE would have a exemplary effect around the world, causing exchanges worldwide to improve their rules on social and environmental reporting. This would have a lasting effect in reducing social and environmental risk by companies around the world and in enhancing opportunities among companies committed to corporate responsibility.

Our view of corporate governance is that social and environmental risk is a significant, yet largely unrecognized, factor in determining share value. Environmental problems, human rights controversies, product liability issues, employee concerns and other reputational issues all hold the potential to create share price discounts over the short-term and into the future. Likewise, companies that implement sustainability policies, codes of conduct, employee benefits programs and other corporate citizenship practices are more likely to identify market and production opportunities in the future. In short, corporate reporting on social and environmental issues holds the potential to reduce risk and enhance long-term shareholder return. Social and environmental disclosure is increasingly viewed as an element of good corporate governance. This view is not restricted to socially responsible investors. In a national survey of investors conducted by the American Institute of Certified Public Accountants in 2000, 79 per cent of those polled believed that "corporate responsibility" information (such as privacy policies, overseas labour and environmental standards) is necessary. Analysts, institutional investors and retail investors want this information, which is now considered off-balance sheet data. Investors want these types of disclosures to establish a true and accurate picture of the corporation. While less quantifiable, these social and environmental variables capture dimensions of corporate performance and culture not included in conventional financial analysis or even the most advanced concepts of corporate governance now under consideration by the NYSE.

In response, we would like to propose the following suggestions as a means to strengthen the NYSE listing standards:

1. Companies should be encouraged to incorporate principles of corporate responsibility into corporate governance codes. We commend the NYSE on its recognition of the need to formalize standards for Corporate Codes of Conduct and Ethics. However, we also believe that NYSE-listed companies should be encouraged to incorporate principles of corporate responsibility into corporate governance codes. We encourage you to consider the standards already outlined in the Global Reporting Initiative (GRIM), as a starting point to develop these standards. We encourage the NYSE to develop - in collaboration with other organizations - a set of standards that recognize the materiality of social and environmental behavior.

2. The NYSE should mandate Board training that includes social and environmental analysis. As the NYSE proposal indicates, appropriate minimum training for Board and Committee members is essential. The impact of social and environmental issues on company performance, liability and reputation should be included in Board training that familiarizes members with material considerations and thorough risk management.

3. Boards should be mandated to form a Committee or designate an independent Board member with responsibility for corporate responsibility. The Coca-Cola Company, ChevronTexaco, DuPont and McDonald's all have standing Committees to review environmental impacts, safety standards, employment practices, public policy and other issues of corporate responsibility. We ask that the NYSE consider including this type of Committee or designated director in its listing requirements.

4. The NYSE should require issues of a social and environmental nature to be disclosed as material risks. As a model, we commend the rules already in place for LSE-listed companies as a result of reforms put in place by the Turnbull Committee. The document Internal Control: Guidance for Directors on the Combined Code (published by the UK Institute for Chartered Accountants) states that companies need to consider and report on significant risks including those related to "health, safety and environmental, reputation and business probity issues." Under current Turnbull Committee practices, Boards are tasked with ensuring that management has developed appropriate, sensible, internal controls for identifying and mitigating attendant risks. As well, the 2002 King Report on Corporate Governance in South Africa now mandates directors of companies listed on the Johannesburg Stock Exchange to undertake regular Social and Ethical Accounting, Auditing and Reporting (SEAAR) exercises as well as safety, health and environment (SHE) disclosures. By incorporating similar standards into its listing requirements, the NYSE would help to harmonize corporate governance practices worldwide.

5. Audit Committees should be tasked with reviewing other material reporting, ensuring that voluntary reporting is defensible and rooted in data. Similarly, the NYSE proposal to require CEOs to verify "the accuracy and completeness of the information provided to investors" should include social and environmental disclosures.

6. To support good governance, the NYSE should require companies to disclose differences between their governance practices and principles of good governance. Rather than mandating practices, this disclosure model encourages the adoption of specific corporate governance practices. Companies elect to comply with the code except to those few points on which they believe they have strong justification for deviation. This may be an appropriate approach for further incorporating social and environmental issues into corporate governance. Companies that do not comply with some provisions may well assess whether or not shareholders are likely to agree with the justification. Ultimately, shareholders can determine the extent to which the company is prepared to manage these types of risks.

7. The NYSE should consider using its current power to de-list companies "which, in the opinion of the Exchange, are contrary to the public interest" to companies that are egregious social and environmental offenders. The threat of such action would be a potential sanction to companies engaging in particularly noxious social and environmental practices as well as supporting the NYSE's commitment to promote the public interest.

The members of the Social Investment Organization believe that the current crisis of confidence in world capital markets is more than a problem of financial accounting. It is a problem of short-term thinking that externalizes corporate risks to stakeholders. Recent corporate abuses have injured US and international investors in the amount of billions of dollars. But other stakeholders have also been injured by other kinds of non-financial corporate harm. These have resulted in numerous examples of hurt to our social welfare and environmental sustainability. These issues have also created untold erosion of long-term share value.

By requiring listed companies to report their social and environmental risks and opportunities, the NYSE can help to create a more responsible and sustainable world and to enhance share value over time.

Thank you very much for your attention to this letter.

Sincerely,

Eugene Ellmen
Executive Director

CC: Mr. Richard A. Grasso, Chairman & CEO
New York Stock Exchange
11 Wall Street
New York, NY 10005 USA

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