BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AJR 79
                                                                  Page  1

          ASSEMBLY THIRD READING
          AJR 79 (Chu)
          As Introduced April 12, 2004
          Majority vote 

           BANKING AND FINANCE             11-0                              
                              
           
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          |Ayes:|Wiggins, Bogh, Calderon,  |     |                          |
          |     |Chavez, Corbett, Correa,  |     |                          |
          |     |Cox, Houston, Montanez,   |     |                          |
          |     |Negrete McLeod, Vargas    |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
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           SUMMARY :  Requests the Securities and Exchange Commission (SEC)  
          to implement its proposed shareholder participation rules in  
          order to address the need for reform in corporate transparency  
          and give shareholders access to proxy.  

           EXISTING LAW  establishes General Corporations Law which sets  
          certain rules for corporate governance; however, it does not  
          specifically establish procedures or requirements for direct  
          corporate elections. 

           FISCAL EFFECT  :  None
           
          COMMENTS  :  Recently, SEC proposed Exchange Act Rule 14a-11 for  
          Security Holder Director Nominations that requires, under  
          certain circumstances, companies to include in their proxy  
          materials security holder nominees for election as director.   
          Under the proposed rules, if 35% of shareholders withhold a vote  
          against directors, a process is triggered that would give a  
          large investor or group of shareholders the right to place a  
          director on a company's proxy.

          According to SEC, "These proposed rules are intended to improve  
          disclosure to security holders to enhance their ability to  
          participate meaningfully in the proxy process for the nomination  
          and election of directors."

          The author would like these rules adopted because "shareholder  
          access to proxy statements is an important incentive for  
          improving director performance and accountability to the  








                                                                  AJR 79
                                                                  Page  2

          shareholders that elect them." 

          The United States Chamber of Commerce opposes the proposed  
          rules, arguing that regulators should "give all of the new rules  
          enacted over the past two years, such as Sarbanes Oxley Act of  
          2002, more time to work before instituting new reforms . . . ."   
          The national Business Roundtable argues that certain  
          shareholders might put forward an agenda that does not serve the  
          interest of all investors.

          However, Secretary of State Kevin Shelley, this bill's sponsor,  
          and the author argue that "the best way of achieving meaningful  
          reform of corporate elections and providing shareholders with  
          greater access to the nomination process for directors is to  
          support the passage of the SEC's Exchange Act Rules for Security  
          Holder Director Nominations." 
           

          Analysis Prepared by  :    Chitwan Kaur / B. & F. / (916) 319-3081  

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