Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 5th Street, N.W.
Washington, D.C. 20549

Ladies and Gentlemen:

On May 22, 2002, the United Brotherhood of Carpenters Pension Fund submitted a proposal to National Semiconductor Corporation requesting that the company's Board of Directors establish a policy and practice of expensing in the company's annual income statement the costs of all future stock options issued to company executives. The company petitioned the SEC to allow it to omit this proposal from its proxy statement pursuant to Rule 14a-8 "because it deals with a matter relating to the Company's ordinary business operations-its choice of accounting methods." On July 19, 2002, the SEC concurred, stating "(t)here appears to be some basis for your view that National Semiconductor may exclude the proposal...as relating to ordinary business matters (i.e., choice of accounting methods)".

On a similar note, TIAA-CREF submitted shareholder proposals requesting shareholder voting of stock option plans to 13 companies in the last proxy season, including Adobe Systems, AutoDesk, Cadence Design Systems, and Synopsys. Earlier this year, the SEC allowed all these companies to exclude this proposal from their proxy statement for the same reason. Although the SEC's staff legal bulletin of July 15 reversed these earlier decisions, the shareholder meetings had already taken place, without the proposals on their proxy statements.

However, the SEC's decision of July 19 to allow National Semiconductor to exclude a shareholder proposal from the United Brotherhood of Carpenters Pension Fund on expensing of executive options is still troubling. On behalf of Calvert Group and Walden Asset Management, we find this decision extraordinary, and we write to express our deep concern that the SEC should take this position, particularly at this moment. Never, in recent history, has the subject of executive compensation been less a matter of "ordinary business." The use and misuse of executive stock options is a matter of intense national policy debate, featuring in lead articles in major business publications such as Fortune and Business Week, and the subject of several legislative proposals before the U.S. Congress (e.g., Stock Option Fairness and Accountability Act, S. 2760; and Ending the Double Standard for Stock Options Act and, H.R. 4075).

That the SEC opted to regard this proposal as a matter of "choice of accounting method" is equally extraordinary, given the accounting abuses and earnings restatements that have characterized so much of the business news over the past three years. Over the past several years, the list of companies that have restated their earnings to correct misleading financial information has grown from 104 in 1997 to 156 in 2000 and 270, according to a report by the Huron Group, in 2001. Restatements have ranged from hundreds of millions to billions of dollars in some of the more spectacular cases. The recent passage of substantial financial reform legislation, and the President's decision to sign this legislation, was aimed primarily at stemming the abuse of financial reporting and accounting rules that has created a crisis of investor confidence that we have not seen since the 1930s.

We strongly urge the SEC to consider the following matters in future deliberations on shareholder proposals regarding the expensing of stock options for executives:

Significant Social Policy vs. Ordinary Business
In the SEC's July 12, 2002 Staff Legal Bulletin No. 14A, the Commission reinforced its commitment to distinguishing between ordinary business and significant social policy:

"As the Commission stated in Exchange Act Release No. 40018, proposals that relate to ordinary business matters but that focus on 'sufficiently significant social policy issues...would not be considered to be excludable because the proposals would transcend the day-to-day business matters."

In that bulletin, the SEC also stated that companies may not rely on rule 14a-8 to exclude from their proxies "proposals that focus on equity compensation plans that may be used to compensate only senior executive officers and directors."

The SEC has drawn similar distinctions many times. For example, in its July 25, 2000 "Current Issues and Rulemaking Projects," the SEC reported that it refused a request by IBM to exclude from its proxy statement a proposal focusing on policy implications of the company's change in its pension plan. According to the document, "the staff was persuaded that the widespread public debate on the significant social and corporate policy issues raised by conversion from defined-benefit to cash-balance retirement plans cause the subject-matter of this particular proposal to fall outside the realm of "ordinary business" matters subject to exclusion under Rule 14a-8(i)(7)."

In the same document, the SEC notes that it did not grant no-action relief to General DataCom Industries, Inc. when the company petitioned to exclude a shareholder proposal mandating a bylaw amendment on stock option repricing from its proxy, stating that "proposals relating to option repricing no longer can be considered matters relating to a registrant's ordinary business."

We find it quite difficult to believe that the SEC regards the current debate over executive compensation and stock options as outside the realm of "significant social and corporate policy." Indeed, executive stock options have been the subject of intense debate for over a decade. The Financial Accounting Standards Board (FASB) had proposed in the early 1990s to require expensing of stock options, and only altered its decision in order to bring closure to what FASB termed an "extraordinarily divisive" debate. FASB's decision to allow companies to choose among the fair value and intrinsic value methods of accounting for stock options was one of political expediency, rather than the force of reason. Since FASB's issuance of SFAS 123 in 1995, the debate has grown far more heated. These developments call into question the SEC's decision to regard these shareholder proposals as simply a choice of accounting method.

Disclosure vs. Action
According to a speech given by then-acting SEC Chairman Laura Unger on June 25, 2001, the increasingly lavish executive compensation packages that were justified during the extended bull market as a device to better align the interests of shareholders with the actions of executives, seemed to have lost their original purpose. At the end of the boom, with stock prices broadly declining, executive compensation has continued to rise. Unger cited several pieces of evidence of extravagant executive compensation in companies that had under-performed the market, and concluded, "If you are offended by this data, then all I can say is that our execution [of] compensation disclosure rules have succeeded. Such is the beauty of disclosure."

Disclosure is only valuable, however, if shareholders are able to act on the information that companies disclose. There is little value to a system that meticulously and vigorously establishes openness and transparency if the company's owners are powerless to use the information to effect changes. By granting to National Semiconductor the ability to exclude shareholder proposals on executive stock option expensing from their proxies, the SEC has compromised the very principles that disclosure was intended to protect.

Principles vs. Rules
We are deeply concerned that the SEC's actions to allow companies to exclude shareholder proposals urging adoption of executive stock option expensing has sacrificed the principle for the rule. In truth, the distinction between rules and principles is only a matter of choice. Rules are made for a reason. The principles, or reasons, for our rules mandating disclosure and corporate governance are straightforward: the proper protection of investors and fair dealing in securities. Fair dealing in securities can only be accomplished if investors are privy to accurate information on companies' earnings, cash flows, and financial status. There is substantial evidence that stock options, particularly those granted to executives, can substantially dilute the earnings available to company shareholders. We believe that shareholders are acting appropriately filing shareholder resolutions requesting that companies expense these options. Companies are, after all, required to disclose in their financial statements all other costs of doing business, including salaries and wages. If stock options are needed, as scores of companies state in their annual reports, to provide incentives to their executives to increase corporate value, they should accordingly be regarded as a cost of business-and reported as such in financial statements. Some evidence shows that expensing stock options would have reduced profit growth of the nation's largest 500 firms from 9 percent to 6 percent per annum [reference the letter of the carpenters fund to the SEC of July 16]. A 33 percent reduction in profits is surely a matter that should concern shareholders, and part of the bedrock of fair dealing in securities.

We understand that the widespread use of stock options for executives was meant, in the past, to better align the interests of shareholders with company management. However, in the past decade, we have seen this tool overused and misused to the point where shareholders can no longer be assured that such an alignment results from executive stock option packages. At a minimum, we agree with the New York Stock Exchange's proposal that companies should be required to obtain shareholder approval of executive stock options plans. While we appreciate the difficulty of assigning monetary values to options that may remain open for many years, we also believe that it is in the best interests of an efficient and equitable financial market that companies also expense these options, as they expense other forms of compensation. We appreciate the SEC's openness to investor concerns about financial disclosure and accounting, and your willingness to consider our views on this set of highly charged topics.

Sincerely,

Julie Fox Gorte Director, Social Research Calvert Group	Tim Smith Senior VicePresident Calvert Group
cc: Harvey L. Pitt, Chairman Cynthia A. Glassman, Commissioner Harvey J. Goldschmid, Commissioner Roel C. Campos, Commissioner Paul S. Atkins, Commissioner