Archives: September 1999

NYSE to consider stricter listing rules, including a much higher hurdle for adopting stock option plans without shareholder approval.ISS Friday Report (9/24/99) contains analysis by Patrick McGurn of a provision which requires adoption of the standard by NASD for the rules to go into effect. McGurn elaborates on why this may be the “kiss of death.”

Business Ethics (7-8/99) offers “A New Vision of the Corporate Board” by Corporate Governance editor, James McRitchie. Based on the writings of Margaret Blair, the board is not just an agent of shareholders but acts as a mediator among all members of the team with firm-specific investments.

Roger Kenny, of Boardroom Consultants, says his top choice for board members: chief financial officers of other companies. “They can ask the right questions of auditors, and they’re accustomed to speaking their minds at the board meetings of their own companies. And, usually, they can devote a lot more time to directorships than their CEOs can.” Summer edition of Corporate Board Member lists “The Next Generation: Ten new faces for your board.”

World Bank released overview of report, “Corporate Governance: A Framework for Implementation.” The report develops a framework for corporate governance reform largely aimed at emerging market economies. The World Bank and OECD also announced their Global Corporate Governance Forum will be supported by a Private Sector Advisory Group (PSAG) chaired by Ira Millstein and includes Mark Mobius (US/Singapore), Boyman Mancama (Zimbabwe), Chumpol NaLamlieng (Thailand), Yoh Kurosawa (Japan), Mervyn King (South Africa) and Michel Albert (France). They will champion reforms and provide technical assistance on best practices. A Consultative Group, to begin in January 2000, will provide a “stakeholders” viewpoint from NGOs, labor, environmentalists and human rights groups.

Report of the NACD Blue Ribbon Commission on Audit Committees: A Practical Guide, has been released. Like previous influential blue ribbon reports by NACD, this one includes specific recommendations. Emphasis is on the committee’s responsibilities (an agency of control but not a guarantee against fraud, tie to performance benchmarks) and make-up (independent, financially literate). Appendices include sample audit committee and internal audit charters, suggested questions for audit committees, a sample audit committee calendar, “red flags” for financial statement review, and an audit committee self-assessment guide.

CalSTRS is considering a gain-sharing program to divide gains above a certain percentage between active employees, retirees and employers. Under such programs some retirees would get extra payments, while employees and employers might get lowered contributions with all adjustments being made on a temporary basis reflecting recent earnings. (Pensions&Investments, 9/20/99)

Coho Energy investors possibly violated securities laws by using an Internet message board at Yahoo! Finance to solicit and collect proxies from 600 shareholders in an attempt to oust CEO Jeff Clarke, in the type of online shareholder revolt that is expected to become much more common in a few years. More than 1,600 message postings were made. One of those collecting proxies indicated that he didn’t solicit them; “they were volunteered to us.” It appears they failed to disclose their identity and agenda as required by SEC rules. The company also alleges the group solicited employees for insider information. (WSJ, 9/27, C1)

Pension Rights Center in Washington helped IBM employees double the number of employees able to opt out of the conversion to a cash balance plan. IBM now allowing 65,000 workers age 40 or older with 10 or more years to stay in the old plan. For more info contact the Center at (202) 296-3776.

IRRC reports 43 mandatory proposals re poison pills were attempted this year. Only 15 were voted on. In eight cases, the proponents received a majority of votes cast, but only four actually passed, due to more stringent requirements for adoption. Dow Jones Newswires, “Investor Activists Await New Legal Test On Binding Votes,” indicates everyone is still waiting on a Delaware case.

Commonwealth Association for Corporate Governance (CACG) “cacg.pdf”>Principles of Best Business Practice for the Commonwealth” has just been added to the ECGN Codes page.

The Corporate Board (9-10/99) included a great article on the OECD “Blueprint” by Joanna Shelton which referenced growing OECD andWorld Bank activities in corporate goverance. Stephen Davis gives a run comparing recent initiatives around the world. For my money, no one in the field can beat Nell Minow for a quotable observations. I can’t resist repeating a couple here from her article on institutional investors:

  • The purpose of good corporate governance is ensuring that the right questions get asked. If they are not asked by the company’s officers, employees and directors, then they must be asked by the shareholders.
  • Like murder suspects, corporate directors need to have both motive and opportunity. Stock ownership provides the motive to act in the interests of shareholders, and meetings without management present provide the opportunity.

Companies are moving toward a new form of leadership, management, and organization in which the emphasis is on teamwork, not hierarchy, according to an article in the 9/20/99 Bergen Record. “Driven by the mergers-of-equals rampage, corporations are rewriting the organizational chart to include not one, but two, super egos at the top.”

Quality Systems Inc. voted, as expected, to replace the board of directors with the exception of company founder and Chief Executive Sheldon Razin. The new board takes corporate governance to a new level. (In the interest of disclosure, it should be noted the editor of this publication invested in Quality Systems shortly after posting the article below re Lawndale Capital Management and their victory at Quality Systems. The share value of Apria Healthcare Group Inc. more than doubled under a new board focused on corporate governance. Perhaps Quality Systems will follow suit.)

Open Fund is “managed live in real time on the Web,” according to its home page. The mutual fund invites investors to discuss strategy on its message boards. Will active ownership add value? BusinessWeek(9/27/99) reports that the Munder NetNet Fund used to post its portfolio daily but suspected that traders were bidding up the stocks, making it more costly for the fund to build a position. Now they report at the end of the month with a 15 day lag. We wish the Open Fund good luck and hope to see a growing trend toward full disclosure and participation by investors.

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Pension funds accounted for 3% of operating income in 1998 at the companies in the S&P 500, according to a study done by Pat McConnell of Bear Stearns, up from 2% in 1997. (WSJ, C1, 9/20/99)

Council of Securities Regulators of the Americas (COSRA) held its Eighth Annual Meeting in Calgary, Alberta, Canada. COSRA will examine corporate governance practices within its member countries with the goal of encouraging adherence to high quality internationally acceptable principles of corporate governance. The areas to be examined include the role of corporate governance in:

  • protecting the rights of shareholders;
  • ensuring the equitable treatment of all shareholders, including minority and foreign shareholders;
  • recognizing the role of stakeholders as established by law;
  • providing timely and accurate disclosure of all material matters regarding the corporation; and
  • defining the responsibilities of the board of directors (including the strategic guidance of the company and the effective monitoring of management) and ensuring the board’s accountability to the company and shareholders.

Australian Companies and Securities Advisory Committee (CASAC) recommends abolishing a current standard that allows a group of 100 shareholders to requisition an extraordinary general meeting, since that number of shareholders may represent less than 1% of a company’s issued shares. Companies shouldn’t have to divert time and resources for an EGM unless shareholders who together represent a minimum proportion of the company’s issued share capital call for it. The committee did not reach agreement on that threshold. Currently it stands at 5%. In their excellent book, Fair Shares: The Future of Shareholder Power and Responsibility, Jonathan Charkham and Anne Simpson address a similar rule in the UK. They point out the difficulties of connecting with another 99 shareholders (eased by the internet), as well as meeting timelines and costs. Charkham and Simpson seem to lean toward an easing, such as adoption of the American standard which allows those with $2,000 in stock to have their shareholder resolution distributed with the company proxy at company expense. (seehttp://www.afr.com.au:80/content/990916/update/update10.html)

Kenneth Bertch, Director of Corporate Governance, explains why TIAA-CREF is taking on dead hand poison pills in September’sDirectorship. These pills (which dilute the acquirer’s holding unless redeemed by the board) have provisions which block redemption even after a successful proxy fight which replaces a majority of the board. The Delaware Supreme Court has ruled that such defensive measures can’t be sustained because they deny the new board’s ability to fulfill their fiduciary duty. About 55% of the 1,830 companies in TIAA-CREF’s internal database have poison pills. A sample of 136 found that 8% had dead hand provisions. TIAA-CREF sees them as a “clear sign of tendencies toward entrenchment and of disregard for non-coercive processes for electing directors.” Sounds like TIAA-CREF has only just begun to fight.

The same issue of Directorship reports the number of women on mutual fund boards grew by 67% between 1997 and 1998. Females now occupy 15% of seats. In another growing trend, about 40% of the largest 350 US companies now offer stock option plans to at least half of their employees.

Nell Minow’s The Movie Mom’s Guide to Family Movies (Avon, 1999) is discussed in the Philadelphia Inquirer. It shows parents how to teach kids about everything from money to honesty through the world of film. The Solid Gold Cadillac, a 1955 film starring Judy Holliday, shows how even the small shareholder can force change. Wall Street, with Michael Douglas, accurately depicts the action in some boardroom.

Time to start writing those shareholder proposals for next year? Check out the Security Lawyer’s Deskbook online.

Former Columbia/HCA shareholder lawsuit dismissed. (CBS MarketWatch, 9/7)

Allied Owners Action Fund, registered by Privateer Asset Management of New York, to take strategy of “aggressive shareholder oversight.” Prospectus indicates it will invest in companies with excessive capital, unresponsive or incompetent management and those with weak directors. After acquiring a 5% stake in a company, it will post the stock and “extensive information and analysis” on its internet discussion board to stir debate. Active, insightful participation on the site is hoped to unlock the stock’s value. (see Investor Relations Business, 9/6/99) Contact Aaron Brown for more information.

Dow Jones is set to launch the world’s first global equity index for companies committed to the protection of the environment, the use of innovative technologies and good corporate governance. Dow Jones Sustainability Group Indexes (DJSGI) will rank thousands of companies from 22 countries and 68 industry groups. The top 50 will be included in the DJSGI benchmark index. According to Dow Jones calculations, over the past five years the DJSGI would have substantially outperformed the world index benchmark since sustainability driven companies had a better financial performance than their peers. (see also SAM Sustainability Group which is to work with Dow Jones on the index) The core of the DJSGI assessment system is a set of industry-specific self-reported corporate assessment questionnaires which can be downloaded/viewed on the Dow Jonessite. The questionnaire, for example, may ask whether product life cycle assessments are conducted, but not ask about the empirical results of those assessments. The assumption is that companies who conduct such assessments will use the information gain to make improvements.

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Lawndale Capital Management’s Andrew Shapiro takes corporate governance to a new level with changes at Tustin California based medical software company Quality Systems Inc. (QSII). A Dow Jones newswire indicated the biggest factor in the shareholders’ ability to effect change at QSII was the company’s articles of incorporation, which allow for cumulative voting. Plan seen as significant by corporate governance experts such as Patrick McGurn of ISS and Rosemary Lally of IRRC.

Four of seven board seats will go to dissident shareholders. The company has also agreed to adopt new corporate governance guidelines into their bylaws and to terminate its poison pill plan. The agreement smooths the way for a graceful transition to chairman of the Board by the current CEO, Sheldon Razin. A lead director will also be appointed to head up separate executive board sessions of the independent directors.

In a filing to the SEC, QSII had argued that “Independent Director’ proposed by Mr. Shapiro and his Affiliates goes far beyond the usual and customary definition of an ‘independent’ or ‘outside’ director, as prescribed by federal laws, the National Association of Corporate Directors, the Council of Institutional Investors (CII), the National Association of Securities Dealers (the ‘NASD’) and the New York Stock Exchange (the ‘NYSE’).”

Lawndale’s proposal was likely the strongest and broadest board independence shareholder proposal ever affirmed by the SEC for inclusion in a public company’s proxy. (For copy of the shareholder proposal, QSI’s no-action request, Lawndale’s response and the SEC decision see QSII 13-D/A #11 Exhibits B-E athttp://www.sec.gov/Archives/edgar/data/708818/0001012870-99-002051.txt) The settlement has incorporated what may be the strongest corporate governance guidelines and bylaws ever put in place by a public company. (see Exhibit 3.1 of QSII 8/5/99 8-K athttp://www.sec.gov/Archives/edgar/data/708818/0000708818-99-000008.txt and Lawndale 8/10/99 13D/A #14 Exhibit B athttp://www.sec.gov/Archives/edgar/data/708818/0001012870-99-002693.txt). Corporate governance provisions added to the bylaws are as follows:

1. At least three-quarters of the members of the board of directors (the “Board”) shall be independent. For purposes of any action of the Board, at least one-half of the directors present and eligible to vote must be independent.

An independent director means a person who:

(a) has never been an employee of the Company or any of its subsidiaries;
(b) provides no services to the Company or to the Chief Executive Officer or senior management of the Company as an adviser, consultant or otherwise;
(c) is not employed by an entity which provides services to the Company or to the Chief Executive Officer or senior management of the Company as an adviser, consultant or otherwise;
(d) is not affiliated with a significant customer or supplier of the Company (“significant” means more than 1% of annual sales);
(e) has not had, during the past two years, any interest in any significant transaction, or any business or financial relationship, with the Company or an affiliate of the Company (other than service as a director) for which the Company has been required to make disclosure under Regulation S-K of the Securities and Exchange Commission;
(f) is not a relative of an executive officer or director of the Company;
(g) receives no compensation from the Company other than director’s fees;
(h) does not personally receive and is not an employee, director, or trustee of a foundation, university, or other institution that receives grants or endowments from the Company that are material to the Company or to either the recipient and/or the foundation, university or institution; or,
(i) is not employed by an entity of which (i) an executive officer of the Company serves as a director or trustee, or (ii) a director of the Company serves in a senior executive capacity.

2. There shall be an Audit Committee of the Board, composed entirely of independent directors, which shall oversee the Company’s financial reporting process and internal controls, review compliance with laws and accounting standards, recommend the appointment of public accountants, and provide a direct channel of communication to the Board for public accountants, internal auditors and finance officers.

3. There shall be a Nominating Committee of the Board, composed entirely of independent directors, which shall be responsible for the evaluation and nomination of Board members.

4. There shall be a Compensation Committee of the Board, composed entirely of independent directors, which shall be responsible for(a) ensuring that senior management will be accountable to the Board through the effective application of compensation policies, and (b) monitoring the effectiveness of both senior management and the Board (including committees thereof). The Compensation Committee shall establish compensation policies applicable to the Company’s executive officers. A fair summary of such policies and the relationship of corporate performance to executive compensation, including the factors and criteria upon which the Chief Executive Officer’s compensation was based, shall be disclosed to shareholders in the Company’s proxy statement for the annual meeting.

5. There shall be a Transaction Committee of the Board, composed entirely of independent directors, which shall be responsible for reviewing all related-party transactions involving the Company, and considering and making recommendations to the full Board with respect to all proposals involving (a) a change in control, or (b) the purchase or sale of assets constituting more than 10% of the
Company’s total assets. Additionally, the Transaction Committee shall be responsible for reviewing all transactions or proposed transactions that trigger the Company’s shareholders’ rights plan, if any.

6. If at any time the Chairman of the Board shall be an executive officer of the Company, or for any other reason shall not be an independent director, a non-executive Lead Director shall be selected by the independent directors. The Lead Director shall be one of the independent directors, shall be a member of the Audit Committee and of the Executive Committee, if there is such a committee, and shall be responsible for coordinating the activities of the independent directors. He shall assist the Board in assuring compliance with these corporate governance procedures and policies, and shall coordinate, develop the agenda for, and moderate executive sessions of the Board’s independent directors. Such executive sessions shall be held immediately following each regular meeting of the Board, and may be held at other times as designated by the Lead Director. The Lead Director shall approve, in consultation with the other independent directors, the retention of consultants who report directly to the Board. If at any time the Chairman of the Board is one of the independent directors, then he or she shall perform the duties of the Lead Director.

7. The foregoing provisions are adopted as part of the Bylaws of the Company and cannot be amended or repealed without either (a) approval by the stockholders of the Company, or (b) approval by a two-thirds majority of all the authorized number of directors of the Company including two-thirds of the independent directors, and cannot be amended or repealed prior to the 1999 Annual Meeting of the Company. Any inconsistent provisions of the Bylaws are hereby modified to be consistent with these provisions. The foregoing provisions, insofar as they establish eligibility to serve as a director or as a committee member, shall not have the effect of removing any director or committee member from office but shall be given effect at the next election of directors and the next selection of committee members, as the case may be, in calendar year 1999 and thereafter. The foregoing provisions shall not be construed to limit or restrict the effective exercise of statutory cumulative voting rights by any shareholder, but the Nominating Committee shall not nominate candidates for election to the Board except as may be consistent with such provisions, and no corporate funds may be expended for the solicitation of proxies which are inconsistent with the foregoing provisions.

Ground-breaking position taken by DOL amicus brief filed in the case of Bragdon V. Telxon Corp. DOL has interpreted the Private Securities Litigation Reform Act (PSLRA) as creating “an affirmative duty to determine whether it would be in the interest of plan participants” to act as a lead plaintiff under the Act. DOL cited authorities recognizing the principle that trustees have a duty to “take reasonable steps to realize on claims held in turst.” This requirement for consideration was noted by Jay W. Eisenhofer and Abbott A. Leban in the 7-8/99 edition of the Corporate Governance Advisor. The authors indicate note that “because DOL’s analysis was based upon trust law principles, the same conclusions would presumably apply to non-ERISA fund fiduciaries.”

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Director’s Monthly (8/99) includes an interview with Sherwood “Woody” Small, portfolio manager for the Undiscovered Managers All Cap Value Fund based in Dallas. Small indicates the fund bases its investments, in part, on the quality of a company’s board of directors, and believes his fund is the only one to take that approach. The same issue discusses the link between merger failures and people issues documented by Right Management Consultants and a study by Russell Reynolds Associates that finds 2/3 of S&P 500, 50% of MicCap and 27% of SmallCap CEOs sit on outside boards. Be sure to check out NACD’s ambitious schedule of seminars athttp://www.nacdonline.org/.

CalPERS rules invalidated. On August 11, 1999, California’s Office of Administrative Law (OAL) issued a determination that CalPERS policies and procedures which require disclosure of solicitations, gifts and contributions are invalid because they should have been, but were not, adopted pursuant to the Administrative Procedure Act (APA).

The rules were put into place early last year after Board actions were heavily criticized by the Sacramento Bee and Los Angeles Times, came under scrutiny by the FBI and were subject to a Senate hearing. Deals involving relatives and former board members, gifts, allegations of high living, extensive travel, and campaign contributions funded by those doing business with CalPERS were disclosed as well as personal bankruptcies by the Chairman of the Investment Committee.

Two days after the policies were adopted, this editor petitioned CalPERS, requesting they be formally adopted as regulations. While I applauded the Board’s action, I expressed my concern they would not be enforceable nor could interested parties offer needed amendments. When the Board rejected my petition, I requested the OAL determination.

Kathleen Connell challenged the prohibition against campaign contributions, in part, as a violation of First Amendment rights. In court, CalPERS counsel argued that her rights were not violated; the resolution could easily be circumvented by donating to the Democratic Party and requesting they provide assistance to Connell’s campaign. A would be contributor could also have their spouse donate or they could solicit friends to donate. None of these activities were prohibited by the polices.

On September 17th, Judge Cecily Bond ruled that restrictions on political contributions imposed by CalPERS were invalid because they failed to adhere to the APA. Board president, William Crist, expressed his hope that regulations would be submitted to OAL and would be in place by the end 1998.

The irony is that when the CalPERS Board found itself heavily criticized for possible legal and ethical violations, where contractors may feel compelled to donate gifts and make political donations, the Board chose to put their house in order by taking action which they should have known was in violation the law. In 1993 the Board’s outside counsel, Joseph L. Wyatt Jr., had clarified that CalPERS was not exempt from the APA.

When I ran for the Board in 1997 and 1998, I criticized incumbents for conflicts of interest and for reducing the State’s contribution level repeatedly while doing little or nothing to significantly improve retirement benefits for CalPERS members. While the Board has recently taken long overdue action to “redress inequities” in retirement benefits, they have done little if anything to address their own conflicts of interest.

It is clear the policies were mere window dressing. When adopted, board president William Crist indicated they had “taken the extreme measure of banning political contributions and requiring the fullest disclosure possible.” However, as CalPERS argued in court, the prohibition against campaign contributions was easily circumvented. In addition, the rules concerning gifts merely required they be reported. Yet, we already knew about the dinners, basketball tickets, golf games, trips and other potentially abusive practices.

Nearly a year after the court ruling, the Board still has not promulgated rules banning campaign contributions. Now the policies requiring disclosure of gifts have been determined invalid. To add insult to injury, the Board recently voted 9-4 to muzzle critics. If enacted, the regulations will prohibit those who run for the CalPERS Board from using their ballot statements to criticize Board members or express opinions on issues of general concern to the membership. To obtain a copy, contact Joe Parillo, CalPERS Operations Support Services Division, PO Box 942702, Sacramento CA 94229-2702 or phone him at 916-326-3484.

IRRC’s Corporate Governance Highlights (9/3) reports that CalPERS is planning to invest $11.25 billion in hedge funds and other hybrids. Corporate governance experts Charles Elson and Terence Gallagher have joined the IRRC board. IRRC also reports on the fact-finding mission of Koji Harada, senior counselor to the Japanese Ministry of Justice who is charged with recommending changes to Japan’s corporate governance laws. He is looking at changing the laws related to corporate spin-offs as well as reducing cross shareholding.

When Mr. Harada stopped in to visit me in Sacramento, I gave him the standard advice about the need for independent directors and auditors being nonexecutives. My primary emphasis was on the need to extend democracy by facilitating voting through greater advance notice of voting agendas, electronic signatures and other means of transmitting votes to custodians electronically. I informed him about the work of Margaret Blair, Mark Latham, Corey Rosen, Peter Kinder and others whose work moves in the direction of making corporate governance more democratic.

IRRC’s Corporate Governance Highlights (8/27) reports the SEC will require greater board oversight of personal trading practices by mutual funds. Amendments, which go into effect 10/29/99 also require disclosure of policies on personal trading and their code of ethics. Let’s see these policies on their internet sites.

Ralph Ward’s Boardroom INSIDER for September offers advice on CEO succession planning, the work of the audit committee, Y2K, and more. Ward also asks if inside directors are an endangered specie. Susan Shultz, of Phoenix, Ariz.-based SS&A Executive Search International indicates she still sees an occasional heir apparent going onto boards but recommends instead that they serve on another company’s board to gain outside seasoning.  “In my experience, there’s nothing to be gained from having insiders on board unless the CEO is looking for another vote.”

New York University and the National Investor Relations Institute’s New York Chapter are offering a 10-week course, “Investor Relations: Issues in Corporate Disclosure, ” to examine structured and unstructured disclosure in light of current SEC regulations and precedent-setting court cases. Program cost is $525. To register or for further information, contact Renee Harris at NYU at 212-790-3212.

TIAA-CREF Resists Heat From Activist Holders’ Group, which describes the continuing effort of Neil Wollman and Abigail Fuller, points to the facade of democracy which surrounds our financial institutions. Wollman and Fuller have been attempting for years to get TIAA-CREF to add a few positive screens to their Social Choice Account fund to supplement the negative screens which currently help direct investments. When surveyed, 81% of fund holders favored such a move whereas only 3% opposed. (Pui Wing, 8/24 WSJ) Funds such as TIAA-CREF and CalPERS need clear mechanisms to allow shareholders/members to put at least precatory measures on their ballots. Read more about Social Choice for Social Change.

Decade of Executive Excess, the sixth annual survey of executive compensation by the Institute for Policy Studies and United for a Fair Economy, finds the ratio of top executive to factory worker pay has exploded this decade to 419 to 1 last year from 42 to 1 in 1980. Stock options accounted for much of the gains. According to the AFL-CIO, executive pay has risen an average of 500% over the past 15 years, a pace 3 times faster than corporate profits and 7 times greater than wages on the factory floor. (Pay Gap Widens Between Worker, Boss;Washington Post, 8/30) The survey discusses the criminal and civil cases often associated with the highest paid CEOs past and present. UFE calls for a

  • Limit to the Deductibility of Executive Salaries (cap the amount of deductible salary to 25 times the lowest paid worker in a firm)
  • Voluntary Corporate Action
  • Support Living Wage Campaigns
  • Strengthen Employee Ownership Plans
  • Broaden the Ownership of Wealth through broad stock options and individual development accounts (IDAs)
  • Shareholder Resolution Campaigns
  • Organize Workers to Control Their Retirement Assets
  • Investors’ Right to Know Campaign (call to the nation’s mutual funds to voluntarily disclose their proxy voting policies and voting records coordinated by Scott Klinger at Responsible Wealth (617-423-2148, [email protected])

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Malaysian ‘s Securities Commission chairman Ali Abdul Kadir says corporate directors will be going back to school if recommendations contained in the Finance Committee Report on Corporate Governance are implemented. The report proposes mandatory accredition for all existing directors of listed companies. He also indicated there will be a statutory clarification of the fact that the primary duty of a nominee director is to act in the best interests of the company, and that his duty to his principal is subject to this duty and not to the person nominating them. (Asia Pulse Pte Ltd, 8/20/99)

Richard Miller is assembling information about centers for corporate governance to enable those at the College of Business and Economics at the University of Delaware to evaluate establishing such a Center. E-mail him at [email protected] with any materials you feel might of interest. Please cc [email protected].

Landmark court order raises the possibility that counsels will mount aggressive campaigns to accumulate the largest groups of “lead plaintiffs,” who will be williing to retain that law firm as lead counsel. These campaigns may include directed mailings to brokerage clients who may be members of the purported class. A copy of the order, Knisley v. Network Associates, Inc., (Docket No.C99-1729 SBA) is available through the Securities Class Action Clearinghouse at:http://securities.stanford.edu/decisions/neta/99cv01729/990816or.html.

NACD Annual Corporate Governance Conference, 10/17/99, Washington, DC will look at Achieving Excellence In Corporate Governance from a practical perspective. Providing best practices, survey results and Blue Ribbon Commission Reports, this nationally acclaimed conference will emphasize opportunities to improve the quality and practice of corporate governance. Register soon.

Clinton administration may support denying federal contracts to chronic violators of labor, environmental, tax, antitrust or employment laws. In July the administration proposed regulations that would clarify federal procurement officers’ duty to ensure that government contractors have a “satisfactory record of integrity and business ethics.” (see Russell Mokhiber and Robert Weissman’s A Law and Order Regulation for Corporations)

Forbes included a blistering article about North American Government Income Fund run by Blackrock Financial Management. Losing money for its investors, the fund is headed by a board of directors which collects $160,000 per person and includes former Vice President Walter Mondale; former Federal Reserve Board Governor Andrew Brimmer; Richard Cavanagh, head of the Conference Board and former executive dean of Harvard’s Kennedy School; and Frank Fabozzi, editor of the Journal of Portfolio Management. None of the outside directors attended the last two board meetings and not one owns more than 100 shares of the Fund. Forbes suggests forcing the closed-end to open-end or a buy back of shares. (Preservation of fees, Forbes, 9/6/99)

Barron’s (Directors’ Cut: Study links corporate performance to boards’ equity stakes, 8/2/99) covered study by Sanjai Bhagat and Charles M. Elson that found that every 1% increase in share ownership by outside director corresponds to a 1.52% rise in operating income.

High Deal Premium, Bad Value? Not Necessarily, profiles a recentBooz·Allen study rating the success of M&A deals by measuring combined shareholder value for a 2-year period after the transaction. Study found premiums have little connection to shareholder value. (ISS Friday Report, 8/20/99)

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