Archives: November 2000

LENS Files Complaint at Metromedia
Shareholder activist, Lens Investment Management, LLC, filed a formal complaint, under Section 220 of Delaware General Corporation Law, against Metromedia International Group, Inc. (Amex: MMG), a diversified global media company. Lens is seeking to inspect corporate records to determine whether top execs have breached their fiduciary duties by engaging in related party transactions or by otherwise unfairly profiting from Metromedia International at the expense of its public shareholders. For more, see Yahoo! and Lens’ campaign.

Disclosure for Fund Fees

The Securities and Exchange Commission will soon release a study on mutual fund fees recommending that funds disclose the amount of expenses paid on a hypothetical $10,000 account, according to Mercer Bullard, CEO of Fund Democracy. In SEC Preparing to Shine a Brighter Light on Fund Fees (, 11/17), Bullard indicates SEC Chairman Arthur Levitt pointed out that fund fees can take a huge bite out of returns. “He used the example of a $1,000 investment in an S&P 500 index tracking fund made in 1950, which should be worth about $500,000 today. But after fees, this total drops to $230,000, and if the fund is not tax efficient it shrivels to $65,000.”

International Shareholder Advocacy

Lauren Compere, of Walden Asset Management, provides guidance to shareholders seeking to advocate abroad in their November issues of Values. Access to company proxies varies, ranging from an ownership threshold of 1% in Germany and Japan to 5% of outstanding shares in France. How can U.S investors influence companies in their international portfolios?

  • Learn the rules of country specific markets.
  • Develop global proxy voting guidelines.
  • Pursue alternatives to shareholder resolutions, such as letter writing and meetings.
  • Develop a network of local partners to gain legal representation at annual general meetings.

Exec Pay Too High

An editorial in the 12/13 edition of Business Week makes the case for CEO churning (Why CEO Churn is Healthy). “They’re flying out of the corner office like quail being flushed out of cover.” Lucent, Xerox, Gillette, Procter & Gamble, Coca-Cola and Aetna have thrown their CEOs out within the last 12 months. According to Challenger, Gray & Christmas Inc., 103 CEOs left their jobs in September, more than twice last year’s rate. “Many CEOs are barely in control of their companies’ fate, much less their own.” “In the transition to the New Economy, it may be that CEOs can be expected to manage only a portion of the change before they fall victim to an unexpected trend or are overwhelmed by inadequate execution.”

While CEO churn may be logical in an era of rapid transitions, should temporary help be paid 500 times their average employee? A recent Hay Group survey found that 85% of institutional investors believe that executive pay at UK firms is insufficiently related to performance and that 100% thought pay incentives covering three or more years should make up a much larger proportion of total reimbursement. Yet, that same survey showed that 91% oppose the introduction of a procedure whereby shareholders could move resolutions on pay issues at the annual meeting and 97% oppose shareholders having to sanction reimbursement packages. (Governance, 9/2000)

Executive pay is much more extreme in the US than in the UK. Voting on exec pay doesn’t appear to translate to shareholder empowerment but too few institutional investors on either side of the Atlantic have really pushed for the long term incentives tied to performance they say they want. Until they do, the paradox will remain.

Back to the topConvergence

Gerald F. Davis and Michael Useem make a convincing case for convergence, not among nations but among firms with higher stock market valuations. To survive global industry consolidations, many such firms will seek a listing on American stock exchanges, and will thereby become subject to US legal standards. In their paper, “Top Management, Company Directors, and Corporate Control,” the authors point to the need for further research in five key areas “if we are to know what works and what does not, and which theories are useful and which are not”:

  1. Boards and directors: What does the decision process inside the boardroom look like? What are the sources of power and influence of inside and outside directors? How are the decision process and director influence contingent on the ‘institutional matrix’ in which a board is embedded? (Example: Pettigrew and McNulty, 1998.)
  2. Comparative governance: What really accounts for the astonishing and remarkably persistent diversity in the national systems of corporate governance? How do national institutions, cultures, and social structures shape and constrain the evolution of corporate governance systems? (Examples: Kogut and Walker, 1999; Bebchuk and Roe, 1999.)
  3. Financial globalization: If the surge of cross-border investing is a major driver of corporate change, what can we expect of financial flows and their regulation in the years ahead? How is the evolving organization of investors and companies likely to affect the internationalization of capital flows? What aspects of corporate governance will affect the attractiveness of a national economy for international investors? How are actions by the International Monetary Fund and World Bank likely to affect national systems of corporate governance? (Example: Evans, 1995; Mizruchi, 2000).
  4. Inequality in a “globalized” world: How do systems of corporate governance affect distributions of wealth within and among nations? What is the likelihood that social movements for change may mobilize in the face of – or to resist – globalization? Does the globalization of finance lead to a leveling up or a leveling down of national standards for labor relations, environmental protection, and income inequality? (Example: Firebaugh, 1999).
  5. Business and Political Leadership: To what extent is a shared leadership style emerging among top company managers and government officials around the world? Are such institutions as the World Economic Forum creating a global network among those who govern the major commercial and political institutions in the leading economies? As worldwide relations among business and political elites do emerge, are they undermining traditional relations among elites within economies? (Examples: Davis and Mizruchi, 1999; Khanna and Palepu, 2000).

eLOT Adopts Model Bylaws 

eLot, a leading web-based retailer of governmental lottery tickets, implemented bylaw amendments requiring two-thirds of the members of the board to be independent. The bylaws establish a strict definition of independence and mandate audit, compensation, nominating and transaction committees, all members of which must be independent. The bylaws also require that independent directors elect a “lead director” at any time when the chairman of the board is also an executive officer. The lead director and the other independent directors must meet in executive session following every meeting of the full Board. (Disclosure: the Editor owns stock in eLot)

CEO Options Under Water

Graef Crystal reports 45% stock option grants out of 1,036 studied were below there strike price. William Schrader at PSINet Inc. is down the most with a decline of 85% but WorldCom’s Bernard Ebbers lost the most money, $51.3 million with a drop of 61%. See U.S. CEOs With the Most Underwater ’99 Options.

LENS Investment Still Active

Founded in 1991 by Robert A.G. Monks as an investment management firm, Lens was among the first to take an active role in corporate governance. Some activists were worried when it ceased operation as an investment manager and took on the role of a specialist in investor activism. Recent action at Metromedia ensures us that Lens continues to be active. SeeShareholder Activist, Lens, Supports Announcement From Metromedia International Group — Global Communications and Media Company Considers Selling Assets, 11/9/00, andMetromedia International Group Response to Lens Investment Management, 11/14/00.

Spread it Around

Stock-based incentive programs pay double dividends, according to a survey of 173 firms by Hewitt Associates, since they also deliver higher returns to shareholders. (WSJ, 11/21/00)

New Era of Shareholder Activism

The Christian Science Monitor notes “the Internet allows individuals like Stoller to air their opinions, marshal support, and put pressure on heretofore unapproachable boards of directors.” The experience of Martin Stoller and Aaron Brown of eRaider and Nell Minow of The Corporate Library are highlighted, as well as Les Greenberg’s current campaign at Luby’s. See “A place at the table,” 11/20/00 and monitortalk.

New Proposal to Ensure Audit Independence

The Corporate Monitoring Project has expanded the field of battle for shareholder activism with a different spin from therecent SEC action on auditor independence. While the new SEC rules require companies that use their accounting firms for both auditing and consulting to jump through new regulatory hoops, the Corporate Monitoring Project proposes to let shareholders decide. Its too bad the SEC didn’t adopt the proposal as an option but the idea is also compatible with the new rules. Under the proposal, shareowners would vote to choose the company’s auditor, instead of just rubber-stamping or rejecting management’s choice. As under its corporate monitoring proposal, auditing firms would self-nominate and shareholders would select from among them. This would encourage auditors to build their reputations in the eyes of investors rather than in the eyes of management, creating new pressure for higher standards. The first resolution to seekauditor independence by shareholder vote will be submitted atSONICblue.

Back to the topShareholders Score

Progress is being made by shareholders. One small measure of success is the recent favorable votes on shareholder sponsored resolutions.  During the 1999-2000 season they garnered an average 22.6% vote, compared to an historical average of 5%.  Governance related proposals won an average of 36.5%. (Strategic Compensation Research Associates, as reported in the November edition of Directorship)

“Vote No” Gets Teeth?

The Court of Chancery of the State of Delaware issued an opinion on 11/8 confirming that directors of Dime Bancorp, Inc. nominated by Dime for re-election at its annual meeting held in July were not re-elected to a new three-year term. The directors must stand for re-election at Dime’s annual meeting of stockholders to be held next year.

Apparently, shareholders rejected Dime’s nominees by more that a two to one margin. North Fork Bancorporation, Inc. intends to nominate several directors to the Dime board of directors at the Dime 2001 annual meeting. See North Fork Announces Victory Over Dime in Delaware Court.

Unfortunately, although this appears to be a groundbreaking case which could lend teeth to “vote no campaigns,” I have not been able to locate a copy of the decision on the Internet or any real analysis. Any additional information readers have on this case would be appreciated. Please send it along or post to

CalPERS Sets International Investing Standards

California Public Employees’ Retirement System, the nation’s largest public pension, approved a standards for human rights, labor and the environment for overseas investments. State Treasurer Phil Angelides appears to have spearheaded the move, while State Controller Kathleen Connell opposed the move. (Calpers sets new standards for emerging markets, Reuters, 11/14, Yahoo!)

Microsoft Political Contributions Under Fire

A resolution calling for Microsoft to report its political contributions was filed by Trillium Asset Management Corporation and three members of Responsible Wealth last year and received a 7.6% yes vote. The resolution may be introduced again at the 2001 meeting. Common Cause reports that Microsoft’s soft money contributions went from $77,000 in the 1996-1997 election year cycle to approximately $1.8 million in the first eighteen months of the 1999-2000 election year cycle. (, 11/13)

Standard and Poor’s Rates Russian Firms

Companies wanting to attract investments can use their benchmarks to improve corporate governance practices in four key areas: ownership structure, financial shareholder relations, financial transparency and information disclosure, and board structure and process. Performance is against codes and Organization for Economic Cooperation and Development, World Bank and European Bank for Reconstruction and Development guidelines and principles. Ten firms have reported signed up so far. (see World standards to rate Russia business practice, ITAR/TASS News Agency, 11/14 via Northernlight and Russian firms choose transparency or taxman-S&P, Yahoo! 11/14)

IMF Calls for Competition in Hong Kong

The International Monetary Fund urged creation of a legal framework to crack down on anti-competitive behavior but Stephen Ip Shu-kwan, Secretary for Financial Services, indicated that, “all-embracing competition legislation could have profound implications for our market efficiency and flexibility, particularly given that Hong Kong is a small and open economy.” (see IMF pushes for competition law, South China Morning Post, 11/15)

China to Tighten Disclosure

China is tightening disclosure rules for financial companies. Public banking, insurance and securities will be required to disclose information on asset quality as well as non-performing assets. Financial statements would be audited by foreign accountants under international accounting rules. (seeDisclosure rules tighten up for financial listings, South China Morning Post, 11/15)

UK Pension Funds Respond to New Disclosure Law

UK pension fund trustees are now required to disclose how they account for social responsibility issues in their investment strategies, if at all. A survey by the UK Social Investment Forum reveals that 59 percent of the UK pension funds surveyed, representing 78 percent of total assets, incorporate socially responsible investment into their investment strategies. Only 14 percent of funds, representing 4 percent of total assets, state specifically that social concerns will not be taken into account. (see UK Pension Funds Embrace Social Responsibility,, 10/11)

Back to the topRiot Police at Smirnov Boardroom

As further evidence that Russia is still in need of corporate governance reform, black-masked riot police, wearing body armor and brandishing nightsticks, broke down the doors of a Russian vodka distiller involved in a shareholder dispute. (seeIn Russia, Riot Police Hold the Golden Share, International Herald Tribune, 11/8)

India’s the Place

Gary Wendt, CEO of Conseco, an Indiana based financial holding company, argues there is an oversupply of money chasing Asian investment opportunities. Taiwan, Singapore and Australia are overpriced. Indonesia, the Philippines, Malaysia, Burma and Thailand remain high risk countries, as does China. Japan is facing debt overload; the average firm’s debt-to-equity ratio is 90%.

Wendt’s “dark horse” candidate is India, which has the largest quantity of today’s most important resource: people. While wage rates for educated workers are high in other English speaking countries, India’s still have a long way to catch up. What was previously done in Indianapolis can now be done in India with the same efficiency. As reported earlier, CLSAranked emerging market companies in terms of corporate governance. Three of the top ten are based in India: Infosys,Hindustan Lever, and Wipro.

An edited version of Gary Wendt’s speech at the Conference Board’s Global Leadership Forum appears in Across the Board’s 11-12/00 edition. In the interest of disclosure, it should be noted that the editor of CorpGov.Net, James McRitchie, recently purchased Wipro ADRs.

$259 million PSLRA Settlement at 3Com

3Com Corporation has agreed to pay $259 million to settle a securities class action filed by the Louisiana School Employees’ Retirement System and the Louisiana Municipal Police Employees’ Retirement System on behalf of 3Com shareholders. The Funds were appointed to the role of principal lead plaintiffs by the United States District Court for the Northern District of California pursuant to the Private Securities Litigation Reform Act in March 1998 and were represented by Bernstein Litowitz Berger & Grossmann LLP.

The settlement is the second largest ever obtained from a corporate defendant in a securities class action, next to that obtained against Cendant Corporation. The settlement also requires the 3Com Audit Committee to include at least three directors, all of whom must be independent and at least one of whom has accounting or financial management expertise. Newsalert, 11/8, Louisiana Pension Funds Announce $259 Million Class Action Settlement With 3Com

Southeast Asian Markets Endangered

The Wall Street Journal warns that “Unless companies start paying more attention to corporate governance, emerging markets could remain stuck in the backwaters of global finance for years to come.” Poor corporate governance has led some funds, such as activist Julian Robertson’s Tiger Management, to close up shop. CLSA Emerging Markets found that during the 1997-1998 financial crisis, a basket of 108 emerging-market stocks fell 10.5%, whereas the 10 companies that scored best on corporate governance criteria gained 133%. The top five rated firms included: TSMC, Infosys, HSBC Holdings, Hindustan Lever, and Wipro. CLSA also ranked 25 emerging market countries based on environments that are good for corporate-governance practices. The survey placed Singapore and Hong Kong number one and two, but most Southeast Asian markets didn’t fare well. Thailand, Indonesia, Philippines, and Malaysia all placed in the bottom ten. (WSJ, 11/8, Corporate-Governance Issues Hamper Emerging Markets)

Proxy Contest Central

Anticipation mounts for the upcoming debut of Investors’ Bullhorn. If it works as planned, will empower investors by dramatically reducing the cost and complexity of proxy solicitations. Creative software, knowledgeable monitors and the Internet will allow shareholders to communicate and take collective action, all within the boundaries of SEC rules. Some of the site’s features, as described by Kristy Kaepplein,’s founder and president, are as follows:

  • share with others, either anonymously or publicly, how they plan to vote, and view others’ planned votes
  • read research from independent proxy research services on proxy voting items
  • suggest nominees for the Board of Directors, and even “nominate” them if they choose to solicit proxies from other shareowners
  • communicate with each other, management and the board, anonymously if they wish
  • feel more confident that others posting to the site actually own shares in the company, because iBullhorn validates their positions
  • initiate shareholder proposals by selecting from iBullhorn’s library or craft their own; iBullhorn transmits electronically
  • solicit and grant proxies from/to other shareowners (as permitted by state and federal law)

The site may give every investor the opportunity to become a “relational investor,” even those who’s shares are held by mutual or pensions funds. Fiduciaries are likely to learn that providing fundholders and beneficiaries with the tools to communicate and act collaboratively may be one of the most important ways to build customer loyalty. A fund’s corporate governance rating could become increasingly important and may be dependent on attracting and keeping those who are knowledgeable and active.

If Kaepplein and associate David Sensenich have their way it will be underperforming managers who do the “Wall Street Walk,” not shareholders. To get the whole story, read “Democracy for capitalists” in Governance, October 2000.

Back to the topMalaysian Audit Committees

The 2000 National Conference on Internal Auditing in Kuala Lumpur brought reflections by on the Malaysian Code which is expected to be adopted by the KLSE as part of its listing rules. Last year’s US Blue Ribbon committee on improving audit committee effectiveness and the Malaysian Code on Corporate Governance issued last March have created more focus on auditing. Boards should be aware of the risks the organization faces, the systems of internal control and should ensure they are adequate. The KLSE is likely to require boards to include a statement in company annual reports on internal controls. (Life gets difficult for audit committees, 11/6) (see also, Update on Malaysian Code on Corporate Governance)

Demonstration at TIAA-CREF November 14th

Social Choice for Social Change, a campaign to have the largest nongovernmental pension fund in the world invest 5-10% of its assets ($200-400 million) in community development institutions and companies that are models of social and environmental responsibility, will be protesting outside their annual shareholder meeting and establishing a presence inside. Where: 730 Third Avenue in Manhattan, between 45th and 46th Streets. When: 11/14, 9-12 noon. Contact: Paul Sheridan, Brooklyn College (718) 951-5359 (office) (718) 783-4196 (home).

Social Choice will supply fliers and signs, as well as graduation caps and gowns for those who choose to wear them (for a visual effect–a number of prominent national media plan to attend or will otherwise be covering the story). You can also bring a gap/gown or sign of your own. TIAA-CREFprotesters will be joined by people associated with a number of community organizing groups in NYC who are working for increased low-income housing. Also joining them will be other protesters calling for TIAA-CREF to divest from Philip Morris tobacco and from Unocal Oil, which has operations tied to the brutal dictatorship in Burma. Together, they are telling TIAA-CREF to “Get out of the bad and into the good.”

Norms and Corporate Law Symposium

A symposium on the choice between law and non-legally enforceable norms in the governance of business organizations will be held at the University of Pennsylvania on December 8th and 9th. Here’s a real bargain. Advance registration is required but the fee is only $100 and that includes continental breakfasts, lunches, and dinners on both days. Contact Bonnie T. Clause. Presentations include:

Bernard S. Black, Stanford Law School
“Do Corporate Governance Norms Matter? A Crude Test Using Russian Data”
Commentator: John C. Coffee, Jr., Columbia Law School

Margaret Blair and Lynn Stout, Georgetown University Law School
“Trust, Trustworthiness, and the Behavioral Foundations of Corporate Law”
Commentator: John C. Coates, Harvard Law School

Robert D. Cooter and Melvin A. Eisenberg, Boalt Hall
“Norms and Organizations”
Commentator: Lisa Bernstein, University of Chicago Law School

Oliver Hart, Dept. Economics, Harvard University
“Norms, Corporate Law and the Theory of the Firm”

Marcel Kahan, New York University School of Law
“Economics and Law, Networks and Norms: An Analysis of the Incentive Structure of the Corporation”
Commentator: Henry B. Hansmann, Yale Law School

Saul Levmore, University of Chicago Law School
“Compensation Norms”
Commentator: David M. Schizer, Columbia Law School

Paul G. Mahoney and Chris Sanchirico, Univ. Virginia School of Law
“The Self-Contradictory Nature of Norms and the Belief-Stabilizing Role of Law”
Commentator: Jack Knight, Dept. Political Science, Washington Univ.

Curtis Milhaupt, Columbia Law School
“On the Evolution of Japanese Corporate Norms”
Commentator: Reinier H. Kraakman, Harvard Law School

Edward B. Rock and Michael L. Wachter, Univ. Pennsylvania Law School
“Islands of Conscious Power: Laws, Norms and the Self-Governing Corporation”
Commentator: Jeffrey Gordon, Columbia Law School

Mark Roe, Columbia Law School
“The Shareholder Wealth Maximization Norm and Industrial Organization”
Commentator: Ian Ayres, Yale Law School

David Skeel, University of Pennsylvania Law School
“On the Role of Shame in Corporate Law”
Commentator: William T. Allen, New York University School of Law

Eric L. Talley, University of Southern California
“Disclosure Norms”
Commentator: Eric Posner, University of Chicago Law

Institute For International Corporate Governance and Accountability

Capital markets, dominated by multinational institutional investors, and product markets, rather than governments, are defining corporate behavior. The Institute, with the help of a grant from the Ford Foundation, will attempt to create an international umbrella organization bringing together scholars, practitioners and policymakers who are willing to question the American influence on the corporate governance systems and consider structural approaches to corporate accountability.

The Institute will open up a dialog that crosses disciplinary boundaries including law, economics, sociology, psychology, philosophy, political science, history, anthropology, ethics, and business, among others. They start from the premise that “responsible corporate behavior — rather than stockholder-centered corporate behavior — ought to be the norm.” The Institute aims to reconcile the compatibility of wealth creation with economic and environmental justice. To learn more, viewECGN posting.or contact Tanya McCain.

Unsavory Backgrounds Disproportionate Among Internet Execs
Kroll Associates reports that Internet executives are four times more likely to have “unsavory backgrounds” than those of other industries. Of the 70 background investigations, 39% were found to have problems such as insurance fraud, undisclosed bankruptcies, securities violations and even links to organized crime. Apparently, moving at Internet speed doesn’t allow for careful checks on employees, internal auditing or security. Financial Times, 10/25

Economic Professors Rate Gore Above Bush

According to a survey by The Economist of economics professors, less than 60% rated Gore’s proposed economic policies a B or better, while less than 40% gave a B or better to Bush’s policies. Clinton’s record scored a B with 90%. Most of the economists agree with Greenspan that projected surpluses are best used to pay down the debt. Gore’s plans call for going further in that direction than Bush’s and so, should be better for the economy. (Poor Grades for Al and George, 9/30)

Back to the topExec Pay

America leads that pack by miles. While our bosses take home 475 times more than workers, our closest rivals are Venezuela, Brazil and Mexico where they earn almost 50 times more than their underlings. In Europe, the ratio runs 11 to 24 times. In Canada its about 20 times and in Japan around 11, according to a study by Towers Perrin.

Levitt’s Legacy

His boat, named Full Disclosure, may soon get more use. Arthur Levitt is likely to step down as chairman of the Securities and Exchange Commission (SEC) near the end of the Clinton administration. The Economist review his legacy in Shining light on the markets, 10/26. One of his greatest accomplishments was the October 23rd Regulation FD (for fair disclosure), which requires companies to provide the public with information at the same time as security analysts and portfolio managers. He is still working on prohibiting accounting firms that audit a company’s books from selling the same company other services. Sunlight and integrity, not a bad record.

Buy Means Sell

The Economist recommends shareholders take a closer look at share buybacks. When pioneered by Henry Singleton of Teledyne, repurchases cut the number of outstanding shares by 85% while increasing profitability and stockmarket value by buying shares when they were cheap. Today, many are overpaying. “Worse, companies may be buying only because their managers are selling.” Those who have made repurchases above current prices to provide shares for options exercised by staff include Dell Computer, Adobe, Chiron, Autodesk, and KLA-Tencor. (Buy Means Sell, 10/7)

Pension Funds Ignore Voting Responsibilities

Years ago the Department of Labor (DOL) set ruled that, since proxy voting can add value, voting rights are subject to the same fiduciary standards as other plan assets (see “Avon” letter). According to a recent article in Institutional Investor Magazine (10/1) pension funds are Passing the Buck on their responsibilities.

“More than one third say they believe that voting doesn’t make a difference.” “Only 4.2 percent of funds polled say that they have ever tried to place an issue on a proxy ballot, and just 1.6 percent indicate that they have ever voted in favor of a social issue.” According to Institutional Investor Magazine, pension funds could “find themselves liable if a socially motivated action proved costly. Respondents unanimously say that social issues are not a shareholder’s responsibility.”

Directors Should Go Back to School

The State of Wisconsin Investment Board will advocates that directors of corporate boards take continuing education classes, much as attorneys are required to do. SWIB will contact 140 companies where the $65 billion fund holds at least a 5% stake and will gauge future actions on their response, according to aDow Jones report.

Our opinion? It is a great idea that we hope most directors will embrace. Much has changed in the last few years. Directors would benefit from learning from others knowledgeable in such areas as the changing role of the audit committee, best practices in corporate governance, recent legal developments such as the SEC’s “Fair Disclosure” rules, and the growing role of shareholder activists, such as SWIB.

Investigate Directors

The Corporate Library’s new beta Director Screening Toolhelps you analyze individual directors of the 1,500 companies in the S&P supercomposite (essentially the 1,500 largest public companies). Fields include number of shares held, attendance record, inside or outside director, and the text of the director’s proxy profile.

For example, I queried the database to identify all directors with poor attendance and got 150 names. How many female directors? (912) How many males? (11972) How many males had a poor attendance record? (137) How many females had a poor attendance record? (13) How many directors served on 13 boards? (two, Robert E. Foss and Mark D. Groban, M.D.) How many board members are age 30 or under? (seven) How many own 100 shares or less in the company whose board they serve on? (589)

You get the picture…another useful tool from the great folks at The Corporate Library. Be careful though. Remember this is a test model. The data may need confirmation. It is hard for me to believe, for example, that three members of the Adobe Systems Board hold no stock in the firm.

Update 1: After this item was posted, Ric Marshall, Chief Executive Officer of The Corporate Library did a little more digging on Adobe. It appears that two out of the three Adobe Directors they listed as having 0 shares hold exercisable options (5,000 and 7,500 shares each), but “as of the most recent proxy filing neither is a shareholder of the company!!! On the third, Mr. Geschke, we were way off, though the 886,077 shares over which he has voting and investment power (and which are now shown in our database) are held in a family trust.”

Marshall points out the “correlation between lagging company performance and outside director shareholdings represents one of the very few demonstrable links between corporate governance and performance. That’s somewhat the case here, as Adobe is currently underperforming their peer group, though it is still outperforming the S&P500. But if the Directors of the firm don’t believe in the company enough to risk their own money why should anyone else?”

I’ve written to the investor relations department at Adobe (e-mail: to seek confirmation that directors Delbert W. Yocam and Carol Mills Baldwin hold exercisable options but no stock in the company. I also asked for an explanation. I’ll let you know how they respond.

The Corporate Library is to be congratulated for offering the most powerful tool to date on the Internet for holding corporate directors accountable. Keep up the great work!

Update 2: I received the following response from Mike Saviage, Sr. Director of Adobe Investor Relations concerning the fact that two of their directors lacked sufficient confidence in Adobe to invest any money in it:

In regard to your question about director ownership of our stock, individuals make investment decisions based on their own personal circumstances (tax and otherwise). Section 16 reporting persons in particular have significant limitations on their ability to trade in the stock of companies for which they are directors or officers. Adobe does not monitor the individual circumstances or the investment choices of its directors and officers.

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