Archives: March 2000

Exec Pay Tied to Luck
Study for the National Bureau of Economic Research by economists Marianne Bertrand of Princeton University and Sendhil Mullainathan of the MIT found three “luck” factors correlated with higher pay: The price of oil, the foreign-exchange rate, and the average performance in specific industries. Representation of large shareholders on a company board reduces the extent of CEO pay arising from luck by as much as a third. (The CEO makes what? The Christian Science Monitor, 3/27/00)

India to Set Up Corporate Governance Center
Dr. P.L. Sanjeev Reddy, Secretary, Department of Company Affairs, sought the cooperation of corporate tyccon Shri Birla in setting up the center. Dr. Reddy also sought cooperation in assisting the Government to work out a provision for adequate representation of women on the Board of Directors of Companies as a measure to remove gender bias and better corporate governance. (M2 PressWIRE via Northern Light)

Peter Brown on Board Trends
Julia Bright interviewed Peter Brown, of Top Pay Research Group, in the 3/2000 edition of Governance. Top Pay advises on all aspects of board nominations and conducts and annual survey of directors. Based on the survey, Brown opines that the volume of regulations governing boards has become burdensome in the UK, especially for small companies. In small firms directors have an important role to play to ensure options are considered, whereas large firms have staff to generate strategic options and the board takes on more of a monitoring role. However, Brown appears to believe the monitoring role of directors has been overemphasized because of failures by auditors. He cites the use of directors as ambassadors as a positive approach and favors moving to a system, like that in many US firms, where directors are paid, in part, with shares or options. Options make it much easier for small firms to attract directors with specified qualifications. With execs retiring earlier, it should be easier to attract those interested in “semi-retirement” on boards; the key is to make sure they don’t expect to serve more than a few years while their ideas and enthusiasm are still fresh.

Raiders Are Back
Kirk Kerkorian, Carl Icahn, leveraged buyouts, and hostile takeovers are back. WSJ’s “Raiders of the Lost Decade: 1980s-Style Mergers Return,” documents the sharp rise in words and graphs. “Jumped” deals (challenged by another company) and hostile takeovers have never been higher. LBOs are climbing back to rates unseen since the late 1980s. “Old economy” companies are cheap. With antitakeover measures in place and the junk-bond market nearly shut, buyers have to be more creative. Steven Lipin steve.lipin@wsj.com, Nikhil Deogunnik.deogun@wsj.com and Kara Scannell kara.scannell @wsj.com discuss the current phenomenon and where it is most likely to hit next.

Investor Activist Sees Hope in Japan
Yoshiaki Murakami lost his bid to gain a board seat and raise dividend payments at Shoei Co. but believes he was supported by holders of about 3 million of 14 million Shoei shares. “Corporate governance has begun to flower in this country,” he said. (WSJ, 3/29/00, peter.landers@wsj.com)

Deutsche Bank Merging to Growth
Michael Useem and John Ross, president and CEO of Deutsche Bank’s American operations, discuss the challenges organizations face in making mega-mergers work across cultural boundaries in Knowledge@Wharton Newsletter, 3/29-4/11/00.

Worldwide Internet Use to Climb
The number of active users worldwide is predicted to climb to 361.9 million by 2003, a 178% increase from the 130.6 million people who were actively using the net at year-end 1999. By year-end 2000, only 42% of active users will come from the U.S. Content and language will become more diverse but there is likely to be a convergence of styles, tastes, and products with a more homogenous global marketplace. e-commerce revenues will increase from $233 billion at year-end 2000 to $1.4 trillion in 2003. (eGlobal March 2000 Report)

Stock Options for Hourly Workers
Labor Secretary Alexis Herman joined in advocating legislation to encourage companies to grant stock options to hourly workers. A recent study by the Employment Policy Foundation estimated that as many as 26 million hourly workers are now covered. The move could increase that number and the amount of grants. (WSJ, 3/29/00, p. A4)

Funds Resist Urge to Divest Tobacco
Six states, 10 major municipalities and 15 universities have set policies to restrict or divest tobacco stocks but most funds and endowments are still holding tobacco stocks, despite their mounting legal problems and poor showing on Wall Street, according to a new study by IRRC. Institutions are reluctant because tobacco stocks were very profitable before the 1990s, they’re still found in all of the major indexes, funds wan to avoid the ‘slippery slope’ where social concerns come before their duty to maximize returns for beneficiaries. For a copy of Tobacco Divestment and Fiduciary Responsibility contact Heidi Salkeld at 202-833-0700 (phone) or emailheidi.salkeld@irrc.org.

Missing Link Down Under
Research in the U.S. has found that executive pay is higher and corporate performance is better where boards are independent. However, Geof Stapledon reports his own study, with Jeffrey Lawrence, in Australia found no evidence in support of the CEO influence hypothesis. One possible explanation is the common practice in Australia of using external consultants to provide advice on pay. (Governance, 3/2000)

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NYTimes Profiles Charles Elson
The leader who built his reputation on director compensation and engineering Al Dunlap’s ouster from Sunbeam explains how he got interested in corporate governance. “If every director was like Charles, I could go into another line of work,” says Nell Minow. Elson will soon be heading a new center in Deleware which will provide a forum for debate on exactly what the laws on corporate governance should be. (A Scholarly Shareholder Activist, NYTimes, 3/28/00)

IBM Employees Win CalPERS Support
CalPERs will vote its 9.2 million IBM shares in favor of a resolution which allows employees to stay with IBM’s defined benefit plan. “Withdrawing promised benefits for any employee is not only morally reprehensible, but bad business,” said board president William Crist. (Calpers To Vote 9.2M IBM Shares For Employee Resolution, WSJ, 3/28/00)

Audit of Corporate Governance Practices
Sempra Energy has quietly reached agreement with John Chevedden of Redondo Beach. Sempra has agreed to an outside audit of its corporate governance practices by Batchelder & Partners, in exchange for withdrawal of Mr. Chevedden’s proposal that would have allowed shareholders to vote for all directors each year, instead of 1/3. Another Chevedden proposal remains to be taken up. It would allow approval of key changes by a simple majority vote by shareholders, instead of the currently required two-thirds, which Chevedden says puts excessive control in the hands of the board. The company is expected to face stiff questioning and criticism at its annual meeting because of a stagnant stock price and recently cut dividend. (Shareholder proposals for Sempra on hold for now, San Diego Union-Tribune, 3/24/00)

New Disclosure Rules
Ontario Securities Commission is proposing new disclosure rules. “Clearly defined and effective corporate governance principles can make Canadian companies more accountable and more competitive,” OSC chairman David Brown said. “In fact, the quality of corporate governance is becoming a valuable asset in global competition for capital.” The new rules would require companies to:

• include in interim financial statements an income statement and a cash flow statement for the quarter and the year to date;
• Provide an interim balance sheet and explanatory notes to quarterly statements;
• Provide a quarterly discussion and analysis.
• Board review of interim financial statements before they are released.

According to David Brown, “Continuous trading demands continuous disclosure.” “The next big step is a national system of integrated disclosure…Essentially, integrated disclosure will permit issuers to do public offerings of securities merely by issuing a term sheet to prospective investors. To qualify, an issuer will have to commit to maintaining a continuous flow of prospectus-quality disclosure to the marketplace.” SeeCredibility and Confidence of the Investment Community: A topical update on new reporting and financial market requirements.

Director Pay Inches Up to $1,000/Hour
InvestmentNews survey of the 50 largest fund firms found average pay rose about 2.5% over 1999 to $234,420. Since most directors log about 200 hours a year of work, according to Management Practice Inc., that equates to about $1,000/hour. Dreyfus Funds director Joseph DiMartino led with a rise of 7.5% to $642,177. Investor returns were in single digits at all but one of the companies on the list. Dreyfus domestic equity funds, for example, were up an average of 2.62% in the three years ended Feb. 29, while Franklin Templeton’s gained 8.84%, far below the 21.76% average annual gain of Standard & Poor’s 500 stock index. The article points out that “the nifty 50 aren’t just overpaid compared to the average Joe. It seems that they’re are raking it in compared to corporate directors. Microsoft Corp., for example, paid its typical director $134,094 in 1998 while Intel Corp. paid out $168,333. Philip Morris Cos. Inc. paid an average of $118,928.” see Fund pay: $1,000 an hour

Friends-and-Family Stock
IPO prospectus must disclosure the total number of shares set aside, but not who get them. CEOs are free to quietly hand out directed shares to whomever they choose, including companies they have business dealings with who will then sing their praises. Fortune writer Melanie Warner tells how Sycamore Networks had one of those astounding Internet IPOs. The optical networking firm, with just $11 million in annual revenue and one customer, was worth $15 billion due to the hype generated. See Misadventures in the Me-first Economy, Part 2, Fortune, 3/20/00.

In the same issue see The New Role of Directors. Small insider boards help dot-coms move fast but don’t provide much oversight. “These companies are breaking the rules, remember–such as how to handle emerging revenue-recognition issues like barter transacti ons, and whether a fast-growing Internet company is diluting shareholders excessively by issuing too many options. A dot-com that makes a misstep on one of these fronts–and subsequently stumbles in the market–will soon be facing both SEC questions and a very old-fashioned slew of shareholder lawsuits.”

Trustees Responsible for Making Boards Accountable
The message is just as strong “down under” where Joe Hockey, Australia’s Minister for Financial Services, said mutual fund managers were “lazy” because they did not agitate enough for boardroom accountability. “If a board or directors are not acting in the best interests of the company or making decisions that they should be held accountable for, it is not good enough for funds managers to run away and not face up to the tough task of holding those directors accountable for their decisions.” Funds trustees hold more than 50% of shares in publicly-listed companies in Australia yet only 30% of votes were exercised at annual meetings – a lower ratio than in the United States and the United Kingdom. The Sydney Morning Herald, Hockey swipes at ‘lazy’ funds bosses, 3/24/00.

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Survey Results
We surveyed readers for a week on the question of including an option to “vote with management’s recommendations” on the internet proxy. Does this discourage independent analysis and voting by shareholders? We used a cheap survey vehicle (free) and it showed. 27 readers said yes, the option discouraged; 31 said no it didn’t; and 5 said it makes no difference. However, 30 of the 31 votes came in within a few minutes of each other. I guess someone thought is was important enough to vote 30 times.

Broker Votes
While we’re on the topic of stuffing the ballot box, Patrick McGurn’s editorial in the February ISSue Alert is worthy of note. McGurn traces the practice of letting member brokers vote proxies on certain uncontroversial matters for their clients if they fail to vote (the “ten-day rule”). It originated because many investors “considered the corporate franchise to be a joke.” So many, in fact, threw away their ballots that companies couldn’t get a quorum.

McGurn writes that CII called repeatedly for the elimination of broker voting for all purposes other than making a quorum but the SEC, NYSE and AMEX didn’t budge. Now the NASDR, the self-regulatory arm of NASDAQ, has asked the SEC to extend discretionary voting to its members who aren’t already covered by the NYSE or AMEX. According to the editorial, “by allowing brokers to legally stuff the ballot box, management can inflate their margin of victory or even swing the outcome of close elections.”

“Just vote no” campaigns to protest poor performance by boards and/or individual directors or to voice displeasure for failure adopt shareholder proposals with majority votes are distorted by broker votes. Under stock exchange definitions “dissidents must foot the bill for delivering their proxy materials to all shareholders if they want to remove broker votes from the process” in contested elections. Yet, election of directors “pales in comparison to the widespread use of broker votes to fix votes on stock option plans.” Broker votes can be used on proposals that seek to add 5% or less of outstanding shares to existing or new stock option plans. It isn’t a coincidence that most plans come under that limit.

McGurn calls on exchanges to repair the broker vote process. “Adding more issues to the list of matters on which brokers can’t vote isn’t enough.” He points out that even selection of the audit firm can cross the line, given recent revelations of independence violations. Broker voting “threatens to undermine investor’s confidence in the entire voting system.” It appears it may be too late to have an impact on this rulemaking since comments on Release No. 34-42238; File No. SR-NASD-99-63 were due to the SEC Secretary Jonathan G. Katz by January 12, 2000. (see Federal Register: December 22, 1999 (Volume 64, Number 245) [Page 71836-71839]).

I obtained a copy of CII’s comments, dated 1/3/2000, urging rejection of NASD’s proposal. CII represents funds with more than $1 trillion invested. Yet the battle they have waged in this area makes them look like a powerless worm. The issue was brought up in 1989 by one of their members, CalPERS. In 1994, CII reiterated the request and on 5/20/99 they again advised against allowing brokers to vote shareholder proxies without instructions.

Amazingly, the 5/20/99 letter from CII indicates that they have been told, but could not verify that “the service provider that transmits over 99% of NYSE company proxies routinely votes uninstructed proxies, even without broker direction. More staggeringly, we are told these votes are, in all cases, cast for management.”

The comment period for the NASD rulemaking may be officially closed but that shouldn’t stop readers from protesting to SEC Chairman Arthur Levitt. If enough of us raise a hell, maybe the SEC will finally put a stop to a system which is riddled with conflicts of interest and which results in ballot stuffing in favor of management at the expense of shareholders.

Bottom Line
ASCS plans annual conference for San Francisco on “Taking Corporate Governance to the Bottom Line.” Mayor Willie Brown, Jr., who recently joined the CalPERS board, will open the conference to be held 6/28-7/2. Other featured speakers include Frank McCourt, Paul Carey, Joseph Grundfest andRichard Koppes.

AFSCME Steps Up Governance Efforts
AFSCME has begun a new, multifaceted program to increase public employee influence in the shareholder arena. Funds maintained for the retirement benefits of AFSCME members total over $1 trillion in assets. Activities will be coordinated by the union’s newly formed Office of Corporate Affairs. Shareholder resolutions at the Bank of New York (redeem or vote poison pill), Baxter International (declassify board), Conseco (declassify board), Great Lakes Chemical (declassify board) and Mattel (redeem or vote poison pill) are the first-ever from AFSCME’s $500 million staff retirement fund. The Office also plans to intensify efforts to gain trustee seats for employees at key funds where currently there is no employee representation. Currently 48 of the top 100 public employee pensions have no worker-elected trustees. (see February 14, 2000 press release)

Stock Swaps Up
In 1988 less than 2% of M&A deals were paid for entirely in stock; by 1998 the figure was 50% and it has continued to grow. While a cash offer places risks and rewards with the acquirer, the acquirer shares more risk in a stock swaps. The authors offer advice on how to choose a payment method. (Stock or Cash? The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions, by Alfred Rappaport and Mark L. Sirower, Harvard Business Review, 11-12/99)

Clueless? I Disagree
Pensions & Investments (3/20/00), which usually runs insightful editorials, ran one entitled “Clueless in California” railing against legislation which calls on CalPERS and CalSTRS to divest of tobacco stocks. They even included a clever cartoon with 3 investment rating services: Moody’s alphabetical system, Monrningstar’s stars and the California Legislature’s weather vane (a chicken) to determine which way the political winds are blowing.

The editorial makes good points: investment decisions should be left to investment professionals; the funds are largely indexed and divesting tobacco stocks would reduce the benefits of indexing; the market has already discounted tobacco stocks (“selling the stocks now could simply lock in all of the losses”); it would set a bad precedent.

The news this morning on National Public Radio noted that tobacco companies are now starting to retain bankruptcy attorneys. That should make both the fund fiduciaries and the Legislature take notice. However, more important is the fact that with over a million members, the CalPERS health benefits program is the second largest purchaser of health care in the nation. While other health care providers a fraction the size of CalPERS are suing tobacco companies to recover the cost of damages, I doubt this is much of an option for CalPERS, as long as they own so much tobacco stock.

Yes, legislation requiring divestment would set a bad precedent. Unfortunately the CalPERS Board has had years to take action on its own but has failed to do so. Common sense dictates that a fund which is spending millions on tobacco related illnesses and smoking prevention programs shouldn’t also be investing in the same companies they might want to sue.

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Online Class Offered
ICMA Retirement offers “Making Sense of Investment Choices,” as the 1st of an 8 part course for public sector employees. Users register their e-mail address and take a test on investments. Then, based on their incorrect answers, they are led to the portion of a digitized instructional video. The program remembers where the user left off if they log off. (Pensions & Investments, 3/6/00, p. 8)

Securities and Exchange Board of India
IRRC CG Highlights (3/10/00) reports the SEBI announced it will tie governance measures to exchange listing rules. Measures, to be drawn from Report of the Kumar Mangalam Birla Committee on Corporate Governance, mandate all elements of a director’s renumeration, including salary, benefits, bonuses, stock options, pension contributions, severance pay and the price of stock options. Companies seeking a new listing must comply right away. For those already listed, adoption will be spread out over 3 years.

NACD Director Compensation Survey
1999-2000 Director Compensation Survey released. NACDsurveyed 1,200 companies and found the vast majority use annual retainers but separate attendance fees are also common with about 80%. There is also a strong shift toward NACD’s own recommendation that companies pay at least 50% in equity. The survey offers a comprehensive picture of compensation practices in public companies ranging in revenues from $200 million to $6.6 billion.

Rio Tinto, Broadest International Proxy Contest to Date
According to ISS Friday Report, this is the first joint shareholder initiative sponsored by unions in several countries. The coalition has a web site with the complete text of resolutions and supporting statements at http://www.rio-tinto-shareholders.com. (3/10/00)

Big Changes at CalPERS
Michael Flaherman, a pricing economist for the Bay Area Rapid Transit and graduate of Harvard and MIT, was elected to replace Charles Valdes, a CalTrans attorney, as chairman of the powerful investment committee at CalPERS. Sean Harrigan, a member of the State Personnel Board and International Vice President of the Food and Commercial Workers International Union, replaces board president William Crist as vice chair of the committee. Rob Feckner, elected by school members and who is also a board member of the California School Employees Association, was elected to chair the board’s policy making Benefits and Program Administration Committee, replacing Michael Flaherman.

In a further effort to disperse power among more board members, Flaherman announced he would resign as board vice president, a position he was elected to just last month. San Francisco Mayor Willie Brown took part in the power shift during his first meetings as part of the governing board of the $170 billion pension fund which has been a leader in corporate governance since 1984. (Sacramento Bee, 3/14/2000)

TIAA-CREF‘s Corporate Governance Policy Goes Global
New policy states that every company should: provide a clear explanation of its compensation program in its proxy statement; provide compensation that is linked to performance, and is reasonable based on prevailing industry standards; seek shareholder approval for all stock-based compensation; clearly disclose “soft” elements of executive compensation, such as pension plans; and place its program under the direction and oversight of a board committee completely independent of management and knowledgeable about executive compensation. Global standards are “are important to encourage investments in countries and companies in a global economy where gaining access to capital markets is increasingly seen as very much in each nation’s self-interest.” (full text)

AFL-CIO Weighs in Against Petro China IPO
Letter sent to 100 investment managers arguing that risk factors include lack of transparency and inability to exit through liquid market, engage in shareholder activism or litigate. Of course, there is also the issue of alleged human rights abuses in Sudan and tibet by PetroChina‘s parent company and the expected layoffs of 1 million workers in China. (see also, ISS Friday Report, 3/3/00; IRRC CG Highlights, 3/10/00)

Indexed Options
Despite support Alan Greenspan and a few institutional investors, only one major company, Level 3 Communications currently uses them. Since indexed options only pay off when the company outperforms its peers, they will always be unpopular with CEOs. BusinessWeek notes “the Financial Accounting Standards Board (FASB) allows traditional options to avoid any charge to earnings–a free ride that has contributed mightily to the popularity of options over cash. Why the difference? Because the exercise price of indexed options fluctuates depending on the value of the index it’s tied to. The FASB has ruled that indexed options must be charged to earnings every quarter so that investors can see the current option- related liabilities.” However, as I recall, this accounting problem arose out of pressure placed on the FASB to give options a free ride — not because it made sense. Some, such as Ira Millstein, argue that a downturn is likely to bring indexed options because if the stock heads south CEOs will still get a payoff if they can beat their peers. (Commentary: An Options Plan Your CEO Hates, BusinessWeek, 2/28/00) The article speculates on how much various CEOs would earn under indexing.

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Executive Pay Trends
SCA Consulting says executive pay will break records this year; less linkage with operating performance but more with stock; greater use of stock options. Trends in part driven by dot-com economy. (ISS Friday Report, 2/25/2000)

MEDEF Slams Governance Legislation
Ernest-Antoine Seilliere, chairman of the French business leaders’ group spoke at a press conference opposing legislation aimed at improving corporate governance by separating the functions of chairman and CEO, and requiring further disclosures on issues such as shareholder pacts and takeover bids. (WSJ, 3/14/2000)

Barbariams at the Gate, Again
Carl Icahn is locked in his 4th proxy battle in 5 years to take control of Nabisco Group Holdings. SEC filing says his group aims to elect a slate of directors who will “better enhance stockholders value.” Nabisco responded with a poison pill. Icahn built his reputation, in part, as a corporate raider in the 1980s by proposing to divide RJR Nabisco’s food and tobacco operations. (WSJ, 3/14/2000)

Coming in April
Ralph D. Ward’s Improving Corporate Boards: The Boardroom Insider Guidebook will be published by John Wiley & Sons. Finally, a clear guide to solving the most common problems facing boards. Each chapter provides a concise overview of a problem or focus area, several real life examples, internet resources, advice from various experts and a checklist summary. Perhaps CalPERS should be sending Mr. Ward’s book to each board member of the companies on its focus list.

Allied Owners Action Fund
Years ago, I wrote of a mutual fund that would derive value from encouraging good corporate governance. Unlike theLENS fund, it wouldn’t cost $10 million to join. It’s finally here, a corporate governance fund for the rest of us! The Fund will buy up to 5% in companies with lax management, under-used assets, passive boards or other problems. Then it will attempt to “open deaf mangement’s ear.” The basic idea is that active, knowledgeable shareholders can add value. The Fund will have its own investment staff and analysts but will also look to a separate company, eRaider, for ideas. eRaider operates as an internet confederation where paid moderators help to keep bulletin board discussions concerning potential investments and ownership strategies on track. Take a look. Join the discussions. I moderate a board on corporate governance; I’m also an investor.

Internet Voting, A Revolution?
Not. I’ve had several reporters calling to get my opinion on internet voting. Far from being a democratizing revolution, internet and telephone voting appear likely to increase the hold management has over shareholders. Go to proxyvote.com to vote your shares and the first choice you have is to “vote my shares per directors’ recommendations.” It’s even worse by telephone where the “vote with management’s recommendations” option has long been the first choice offered to telephonic voters. Industry insiders tell me that about 9 out of 10 take this first option and hang up. Who can blame them? We’ve all been stuck in menu-driven voice mail Hell. The internet option is more benign but why should either electronic proxy offer an option that is not on the paper proxy? Tell me what you think about the issue through the survey above or by e-mailing jm@corpgov.net.

It’s not internet voting that will make a difference, it’s internet information, conversation, and communities that will dramatically increase shareholder democracy over time. Some important landmarks: SEC filings through EDGAR beginning around 1994; Corporate Governance puts up the proxy voting guidelines of TIAA-CREF, CalPERS and others in 1995; Bell & Howell broadcast its 1996 annual meeting; CalPERS solicits support for shareholder proposals at Archer Daniels Midland Company in 1996; LENS and others explain their strategies and seek support for their positions; CII and CalPERS start forums; various proxy fights arise out of chatrooms and bulletin boards; AFL-CIO’s Executive Paywatch; disclosure of votes by Domini and CalPERS; World Bank and OECD forums; FOE’s online “Confronting Companies Using Shareholder Power: A Handbook on Socially-Oriented Shareholder Activism”; Mark Latham’s corporate monitoring project, Nell Minow’s effort at the Corporate Library re CEO contracts; eRaider and Allied Owners Action Fund.

For many stock speculators, the internet simply represents “TV with a buy button” for low fee transactions. However, for those of us who view our shares as ownership investments the internet will make a huge difference. In recent decades corporations learned that employee ownership and involvement adds value. Tomorrow, they will learn that active participation by shareholders can add value as well.

Those who seek to extend their control through “shareholder mix” campaigns will find that it is like trying to control a conversation; it can’t be done and still be genuine. The corporations that are successful in the internet age will engage with and learn from their employees, customers, competition and especially their shareholders.

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CalPERS Pressures Maxxam
Pension system prods company to add two independent directors to its five-member board now dominated by chairman and CEO Charles Hurwitz. Maxxam has been widely criticized for its poorly performing, redwood harvesting and labor disputes. (WSJ, 3/8/2000)

Harmonizing Global Standards
Top-level corporate executives, the Big Five, and institutional investors met in London to harmonize global accounting and financial standards. Among topics of discussion: warnings on audited financial statements, ethical standards and independence among auditors. (Executives, Investors Address Global Rift In Reporting Rules, WSJ, 3/8/2000)

Poison-Pill Duels In New Jersey and Deleware 
The battle is over who has the power to prescribe a pill, the board or shareholders. In New Jersey it’s between the Chubb Corp. and its shareholders. In Delaware, the SEC issued a “no action” letter to Novell Inc., allowing the company to deny a call for shareholder input into its pill. The Chubb move could end up as an important test case in court. In the Novell case, the proponent may be appealing to the chat rooms. Commentary: are chat rooms the new people’s court? (see Cases in Two States Illustrate Debate Over Poison Pill Laws,WSJ, 3/2/2000)

Bye Bye Bylaw
A landmark decision, in the case of Chesapeake v Shorewood Packaging, found Shorewood’s supermajority bylaw to be an “unjustified impairment of the Shorewood stockholders’ right to influence their company’s policies through the ballot box.” The opinion also argued against Shorewood’s claim that its stockholders are prohibited from voting to eliminate the company’s classified board structure and subsequently seating a new board, invoking the “plain language” of Delaware law and policy that “stockholders have the authority to determine the governance structure of their corporations in the bylaws.” The decision marks only the 3rd time since 1989 that the Delaware Court of Chancery has found that directors of a Delaware corporation breached their fiduciary duties in responding to a takeover threat. (see “Chesapeake Corp. v. Shore: An Example Of Meaningful Proportionality Review” by J. Travis Laster)

California to Divest Tobacco Stocks?
State Senator Tom Hayden and Assemblyman Wally Knox amended AB 107 to require CalPERS and CalSTRS to divest $900 million in tobacco stocks over an 18-month period. Similar measures have failed in the past but tobacco stock lost 51.5% last year bolstering arguments that investing in such stocks is imprudent. As of Dec. 31, CalPERS had $589 million in tobacco stocks, while CalSTRS had $319 million.

Boardroom Diversity 
May depend on organized pressure, according toBusinessWeek (3/6/00), which reports the number of black directors has increased 57% in six years, in part due to groups like Jesse Jackson’s Operation Rainbow Push. Without such organized pressure, Hispanics have only gained 10%. The number of Fortune 500 companies with at least one woman on their board is up 21% since 1993 when Catalyst Inc. initiated their 1st survey on the subject. The 1999 Catalyst Census of Women Board Directors of the Fortune 1000 found that women hold 11.2% of board seats at the 500 largest publicly traded U.S. companies, compared with 11.1% last year. 96 of the Fortune 100 have at least one woman director, whereas only 54 of the Fortune 1000’s smallest companies do. (Corporate boards still male, CNN, 12/15/99)

Goldman Sachs Advises Japan, Copy Germany
Japan should consider scrapping capital gains tax on the sale of cross-holding shares, says Kathy Matsui, of Goldman Sachs. Although cross-held shares have declined to 39% vs 52% in 1991, adoption of the tax exemption would further encourage liquidation of low-yielding investments and the reinvestment of proceeds in higher-yielding areas. She also noted that Japanese firms with independent external directors had outperformed the market by about 40% during the last year and called for making the appointment of independent directors a stock exchange listing requirement. (Reuters, 3/1/2000)

Barbie’s Software Into Hard Drive?
Ralph Whitworth, of Relational Investors, which holds 4.2 million Mattel shares, has been elected a member of the board of directors of Mattel. (Dow Jones Newswires, 3/1/200)

Canadian Best-of-Sector Fund
Jantzi Social Index becomes Canada’s first index of “socially responsible” firms. Unlike most US SRI funds, they will accept firms with gaming and alcohol interests. (Do Canadian SRI types have more fun or what?) The fund uses a “best-of-sector” approach in order to reach a fairly broad base of 60 firms, given the need to include natural resource companies, which are often “environmental challenged.” The Economist notes that socially responsible indexes have “outperformed their ethically neutral counterparts…Virtue, in other words, can bring more than its own reward.” (The Economist, 2/5/2000)