The Social Investment Forum, the national trade association for the socially responsible investing (SRI) industry, is calling on the U.S. Securities and Exchange Commission (SEC) to go beyond the limited corporate governance reforms approved last week by the New York Stock Exchange (NYSE). In particular, the nonprofit Forum is urging the SEC and NYSE to embrace major new social and environmental disclosure requirements, the democratic election of boards, and limits on excessive CEO pay. Offered in the midst of falling stock markets and investor confidence brought on by corporate scandals, the recommendations for more comprehensive corporate reform are set out in a comment letter issued jointly by the Social Investment Forum and its Shareholder Action Network (SAN).
As leaders in ethical investing, Forum members have been major shareholder advocates for more than 30 years. Socially responsible investors, which represent over $2.3 trillion in assets under management in the U.S., also have supported the overhauling of traditional corporate governance standards for the last two decades. In recent weeks, Walden Asset Management, Pax World Fund Family, Harrington Investments, Calvert Group, Domini Social Investments, Trillium Asset Management, the Corporate Governance Network, Citizens Funds, and other major forces in the SRI world have submitted related comment letters to the NYSE.

Even though the New York Stock Exchange already has approved its own corporate governance reform proposal, the package still must be approved by the SEC, which is the regulatory body overseeing the NYSE and other U.S. stock exchanges. The Social Investment Forum is urging the SEC to exercise its authority to amend the proposed NYSE rules along the lines of the more sweeping reforms outlined in the Forums recent response. The Social Investment Forums letter to the NYSE is located on the Web at www.socialinvest.org/nyseletter.html .

Shareholders, individual and institutional, are standing up to be counted, challenging the underlying issues behind the wave of scandals, said Tim Smith, president of the Social Investment Forum and senior vice president of socially responsive investing at Walden Asset Management . We applaud the changes wrought by Sen. Paul Sarbanes (D -MD) accounting bill and the initial reforms adopted by the NYSE. At the same time, socially concerned investors are profoundly aware that deeper reforms are needed–from expanded corporate disclosure of social and environmental risks, to corporations changing sweatshop practices in their operations overseas, to expensing stock options. The work to change Corporate America has just begun, and we’re urging the SEC to move the process forward.

Congress and our regulatory bodies are busy passing laws and proposing regulations to reform our system, but the new rules only go so far, said Conrad MacKerron, SAN chair and senior social researcher for U.S. Bancorp Piper Jaffray Philanthropic and Social Investment Consulting. As socially responsible investment professionals, we know that the strongest response must come from corporations themselves. Companies must take an active and leading role in rooting out the mindset and culture that allowed fraud on this scale to be perpetrated on investors.

Key areas of reform sought by ethical investment leaders include:

· Greater social and environmental reporting and disclosure . The Forum notes investors in the U.S. currently face a significant disadvantage by their companies not adequately disclosing material social and environmental risks. The letter urges the NYSE to support principles that would encourage companies to better disclose, in an aggregate manner, material risks, liabilities, and impairments. The Forums recommendations for the New York Stock Exchange parallel similar steps it has already urged the SEC to undertake.

· The democratic elections of Directors. The Forum’s letter states that the election of directors is currently NOT a democratic process for shareholders. This is problematic, as directors represent shareholders, not upper management. Only in the rare circumstances of a proxy fight do shareholders get to vote in competitive Board elections. The Forum therefore recommends additional consideration into how Boards can better represent shareholders, and how investors can be presented with more options for the slate of Directors. A good start to democratizing elections for investors would be to have two nominees minimum per Board seat, and a process for shareholder-nominated candidates.

· Halting excessive executive compensation, disproportionate stock options, and golden parachutes. Incentives for corporate executives are at the heart of the current crisis of investor confidence, notes the Forum. The SEC and NYSE could partially solve this problem by suggesting a formula for capping executive compensation, and curbing executive pay during times of downsizing.

· Stock options expensing. The Forum is optimistic about Coca-Colas recent decision to expense options—joining the likes of Boeing, the Washington Post Co., and Bank One. Pension giant TIAA-CREF also supports this principle, as do many labor pension funds.

· Charging CEOs to sign codes of conduct. According to the Forum, CEOs should take greater responsibility for Codes of Business Conduct by endorsing them with their signature—just like financial statements. The Forum recommends that issues of Corporate Social Responsibility and conflict-of-interest safeguards be included in such Codes.

The vast array of corporate scandals this year, from Enron and WorldCom to Adelphia and Tyco, have sent both markets and investor trust spiraling downward, said Shareholder Action Network Director Tracey Rembert. What’s essential to restoring investor confidence is more than what shareholders, pensioners, and consumers have seen thus far.