Archives: December 1996

Spencer Stuart survey of Midwestern companies confirms trend towards alignment of corporate boards and shareholders.

The annual study of board practices at 95 leading Midwestern companies with sales of $500 million or more found the number offering retirement plans to board members fell from 54% in 1995 to 34% due to mounting pressure from shareholder activist groups to eliminate benefits that may compromise director independence.

Compensation is increasingly in stock. Stock options were offered at 38%, 35% offered stock grants, and 21% offered directors the option to receive their annual retainer in cash, stock or a combination of the two. Baxter International, Brunswick Corporation, Chrysler Corporation, McDonnell Douglas, Sears, and the Tribune Company provide 100% director compensation in stock. Last year 13% of companies surveyed required directors to hold stock; this year its 21%.

Meetings between outside directors and institutional shareholders, who hold 60% of the commons stock in surveyed companies, were up from 3% to 19%. The trend to smaller boards continued with average size down 1.5 seats from 1989 to 11.5. The proportion of outside directors also increased slightly. Minorities were reported on 63% of the boards.

Coopers & Lybrand released survey results which showed a large discrepancy between the perceptions of CEOs and employees. Among the findings are the following:

23% think their employees try to work around internal controls that get “in the way,” yet 40% of middle managers say that is what’s going on.

1% believe “the messenger of bad news takes a real risk in my company,” but one-third of middle managers say it’s a fact and nearly half of all non-management employees think so, too.

82% think they’re leading “by personal example in adhering to their firm’s mission and vision,” just 68% of middle managers and 39% of employees agree.

80% of senior executives interviewed affirm that “even though most companies stress internal control, when it comes down to compensation, making the numbers is what really matters.”

Campbell’s Soup has been selected by Wharton School of the University of Pennsylvania and SpencerStuart to receive the second annual “Board of the Year” award. The award “recognizes Campbell’s board for outstanding implementation of best governance practices – particularly in areas such as director compensation, succession planning, pay for performance based on peer-beating standards, and adding value to shareholders,” according to Robert E. Mittelstaedt, Jr; vice dean and director of executive education at Wharton.

The board also requires that all executives (some 300 persons) buy and hold outright Campbell stock valued at one-half to three times base salary (not counting stock options) depending on their positions. Pay is, therefore, dependent on performance. The Board has also developed and published a list of requirements for both management and directors which outlines the accountabilities and expectations of each group.

Campbell first published corporate governance standards in its 1992 proxy. The 20 standards include the requirement that each Director stand for re-election annually, the prohibition of anti-takeover devices, the restriction of interlocking directorships, and the requisite annual evaluation of the CEO. Campbell’s board formally endorses all “Best Practices” of the NACD Commission on Director Compensation.

CalPERS consolidated three alternative and private investment programs into one program called the Alternative Investment Management (AIM) Program. CalPERS expects to commit $500 million to $1 billion a year to new direct investments and $1 to $1.5 billion a year to partnerships. The System returns will be judged against a benchmark that is five percentage points above the 10-year rolling average total return of the Standard & Poor’s 500 Index.

Cost Effectiveness Measures, Inc. (CEM) recently concluded a study which found CalPERS the most cost effective of 89 funds included in their sample which analyzed investment-related expenses and identified whether the expenses resulted in improved performance. For more information on CalPERS contact Brad Pacheco or Pat Macht at 916/326-3991.

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