July 2001: Archives

Acutant Shareholder Sought

If you are a Actuant (ATU) shareholder who voted for the shareholder proposal recommending a shareholder vote on poison pills (approved by shareholders at the 2001 annual meeting), the proponent, John Chevedden asks that you contact him immediately at shareholder_v@yahoo.com. He would like to discuss options for encouraging the company to adopt the proposal prior to the Aug. 3, 2001 deadline for resubmittal for the Jan. 2002 annual meeting.

ISS Selling to Proxy Monitor

Financial information group Thomson Corp. announced it is selling its much-respected proxy vote research arm Institutional Shareholder Services to smaller rival Proxy Monitor. Both firms provide proxy research, vote recommendations, and voting agent services to institutional shareholders who use them while deciding on corporate strategies including mergers and restructuring at companies in which they invest.

Privately owned Proxy Monitor is being backed by private equity firm Warburg Pincus and Hermes Pensions Management, a UK-based firm owned by the pension scheme of the British Telecommunications.

ISS did not say give any value on the deal but industry sources said it was around $45 million. The deal will, however, leave money managers with just one major provider of influential advice on how to vote proxies.

The only remaining proxy analyst is Investor Responsibility Research Center, a provider of impartial analyses on shareholder issues that provides analysis but not recommendations.

Tobacco Transition

IRRC reports that more government-owned tobacco companies are falling into private hands, presenting new opportunities and ethical dilemmas for investors. While the privatization trend supports economic reforms advocated by free-trade groups like the World Trade Organization, it also invites more aggressive marketing practices that spread the health risks of smoking. To view the entire press release clickhere.

Labor Standards

IRRC also reports that an analysis of 2001 proxy votes showed an increase in shareholder concern over labor and human rights standards. Of the 28 proposals garnering 10% or more of the shareholder vote, 16 related to fair employment or the adoption of International Labor Organization standards. “These votes reflect that a growing number of shareholders are sending management the message that they don’t want their companies profiting at the expense of workers being discriminated or ruthlessly exploited,” said Meg Voorhes, director of IRRC’s Social Issues Service.

The main benefactors of the ongoing industry consolidation are private sector tobacco companies now dominated by three global players — Philip Morris, British American Tobacco and Japan Tobacco. These companies account for more than 60 percent of tobacco product sales by 99 publicly traded tobacco companies worldwide, according to the just-released tenth edition of IRRC’s Tobacco Industry directory. Besides Japan Tobacco, other large regional players that were until recent years wholly owned government enterprises include Altadis, Korea Tobacco & Ginseng and Austria Tabak. Gallaher Group of the United Kingdom is acquiring the Austrian government’s remaining stake in Austria Tabak, making it the latest government-owned tobacco company to be fully privatized.

Labor Shines Light on Bunge Limited IPO

The AFL-CIO Office of Investment criticized the proposed initial public offering of agribusiness giant Bunge Limited (NYSE:BG). Closely held by the descendants of company founder Johann Peter Gottlieb Bunge, Bunge Limited hopes to raise an estimated $300 million from outside investors next week. This small group of insiders will continue to control 79 percent of the outstanding shares following the IPO.

“We feel the proposed offering price may be too high for a company with significant risk factors such as Bunge. Institutional investors who are the pension fund fiduciaries of America’s working families need to carefully review the terms of the Bunge IPO,” said Richard Trumka, Secretary-Treasurer of the AFL-CIO.

According to the report, Bunge is a highly leveraged company with poor profitability and weak cash flow. The proposed offering would create liquidity for Bunge’s family-owners, but will do little to address the company’s high leverage or marginal profitability. Bunge shareholders will also be exposed to substantial risks associated with emerging market investments, including currency and political risk from its South American operations.

Bunge’s shares will be registered in Bermuda and subject to Bermuda securities laws, which afford weaker rights and protections to shareholders than they generally enjoy under U.S. law. Bunge’s operations are also subject to additional risks that may not be adequately discussed in its Registration Statement, including its exposure to genetically modified organisms and the growing labor problems related to the ten-week strike at its Danville, Illinois plant that is believed to be the largest dry corn milling facility in the world.

The AFL-CIO Office of Investment provides research and assistance in support of shareholder advocacy and corporate governance initiatives by collectively-bargained benefit funds. A copy of the report is available by calling the AFL-CIO Office of Investment at 202-637-3900 or athttp://www.shareholdervalue.org.

Global Compact

The Global Compact, a U.N. program intended to help businesses become better world citizens, celebrated its first anniversary this week with more than 300 corporate partners, up from 44 at its launch. However, critics say that it has little to show for its efforts. Participating firms are to post their techniques for dealing with the many labor, human rights and environmental challenges spawned by globalization on the program’s Web site but even the United Nations itself was not yet applying the guidelines in its own procurement policies.

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United Airlines Active Ownership Committee

The International Association of Machinists (IAM) held the first meeting of its new United Airlines Active Ownership Committee in New York. Input from rank and file employee owners will be the basis for the committee to formulate proposals that will allow employees to be more involved with the governance of their company.

“The employees of United Airlines control 55% of the company,” said District 141 President Randy Canale. “This marks the beginning of a campaign to address our members’ requests to be more active shareholders. We will educate our members on how to use the power they posses as a result of the ESOP.”

The committee is discussing various means for exercising ownership rights, including possible proposals to be submitted in connection with the next annual shareholders meeting. “Our members wanted to be more involved as owners of United Airlines,” said General Vice President Robert Roach, Jr. “This committee will allow them to have their voices heard. It is time Jim Goodwin and his team realized they work for us.” (prnewswire, 7/30)

Directors’ Summit

The Directors’ Summit is one of the first conferences accredited by Institutional Shareholder Services as a Preferred Boardroom Education Program. As a result of this designation, boards composed of directors who have participated in the Directors’ Summit will receive an upward adjustment in their corporate governance quotient (CGQ) under ISS’ new rating system to be introduced later this year.

Keynote speakers include:

• Abby Joseph Cohen, chief market strategist, Goldman Sachs, speaking on the occasion of the 50th anniversary of the State of Wisconsin Investment Board
• Patricia Dunn, global chief executive officer, Barclays Global Investors, on the importance of corporate governance to stakeholders
• Lynn E. Turner, chief accountant, Securities and Exchange Commission, on government regulatory issues
• Constance Horner, director, Pfizer, on director independence and board culture

More than 18 sessions, breakouts and keynote speeches on best practices, current issues and regulatory trends in corporate governance.

For additional information:
Contact: Ted Beck, Associate Dean, at 1-608-441-7300
E-mail: tbeck@bus.wisc.edu
Contact: Patricia Seaman, Marketing Director, at 1-608-441-7315
E-mail: pseaman@bus.wisc.edu

Michaels Stores

Its great to see more firms proclaiming their corporate governance reforms. A recent press release by Michaels Stores, (Nasdaq: MIKE) announced:

• Expansion of its Board of Directors to seven members. Five of the seven Michaels directors will be independent of the family of Charles J. Wyly, Jr. and Sam Wyly, currently Chairman and Vice Chairman of the Board of Michaels Stores. (Its not clear if they are independent of the firm though.) All seven directors will be independent of the CEO, Michael Rouleau, who is not on the Board.
• Creating a new Corporate Governance and Nominating Committee, whose duties include developing corporate governance guidelines for Michaels Stores.
• Disbanding the Board’s Executive Committee, which will result in key corporate issues being reviewed by the full Board.
• Eliminating staggered election of Board members in favor of a Board that will stand for re-election all at once beginning in 2002, subject to shareholder approval.

This is in addition to existing policies such as:

• Executive compensation tied to profit targets and share price appreciation.
• No repricing of stock options without shareholder approval.
• No poison pill.

Swiss Developments

The SWX Swiss Exchange and Economie Suisse, a private economic development group, are developing codes of corporate governance that are expected to be issued in 2002. The SWX code will deal with disclosure and transparency in financial reporting, while Economie Suisse is preparing a code to address such issues as shareholder rights. The drafts will go out for comment sometime this autumn.

New King Report Calls for Additional Reforms

South Africa’s 2001 King Report on Corporate Governance call for the use of state resources to deal with company directors and officers who break the law. Financial observers have pointed out that the absence of a proper system able to monitor compliance with corporate rules and regulations has resulted in local companies paying only lip service only to the original 1994 report.

The second report recommends that the Registrar of Companies be provided with sufficient resources to monitor compliance with the Companies Act. “The resources of the South African Police Service and those of the judicial system also need to be enhanced to ensure that complaints are adequately investigated.”

The of a contingency fee system would allow minority shareholders faster, easier access to the law “in the context of delinquency in the management of a company.” The Report also calls for amending the Companies Act to compel private companies to file their annual statements with the Registrar of Companies. Such statements would then be open to public inspection.

The registrar should also be encouraged to establish a register of delinquent directors and the votes of the top 25 shareholders, or of those holding at least 1% of the equity securities in a company, should be made public on conclusion of the shareowners meeting. (Africa News Service)

ICGN Draws Crowd

The International Corporate Governance Network (ICGN), representing institutions with some $10 trillion (US) in assets, concluded its seventh annual meeting in Tokyo with a call for regulators to treat global investors equally and for companies to be responsive to the concerns of all shareholders. A record 450 members attended the ICGN meeting, jointly sponsored by the Tokyo Stock Exchange and the Japan Corporate Governance Forum.

“The large attendance for ICGN’s first meeting in Asia since our founding in 1995 underscores the intensified interest in good governance as a way to alleviate some of the economic malaise in the region,” said Peter Clapman, director of corporate governance activities for TIAA-CREF and chairman of the ICGN for 2001-2002.

ICGN members stressed their support for: uniform global accounting standards; equitable shareholder voting procedures for all investors, whatever their country of origin; and sharper focus on corporate governance matters by company managements; the need to address and resolve cross-border proxy voting problems.

The organization accorded three members special recognition for exceptional achievements throughout their careers to promote good corporate governance and fair treatment of all shareholders: Sir Adrian Cadbury, former chairman of the Cadbury Group; Ira Millstein, managing partner of the law firm of Weil, Gotshal and Manges, LLP; and Professor Hasung Jang, finance professor at Korea University.

Four new individuals were elected to the ICGN Board: Leo Goldschmidt, director of the Brussels-based European Association of Securities Dealers (EASD); Sanda Guerra, managing director of the Brazilian Institute of Corporate Governance; Peter de Koning, an attorney and a managing director of the Dutch Railways Pension Fund; and Sophie L’Helias, CEO of Franklin Global Services, an advisory firm which assists corporations in governance matters.

The next annual meeting of the ICGN will be held in Milan, Italy in July of 2002.

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Independence in China Not Enough

The announcement by the China Securities Regulatory Commission (CSRC) in May requiring a system of independent directors for all domestically listed firms has been well received. However, since most listed companies in China came from restructured State-owned enterprises (SOEs), the State and its representatives will still control a majority of shares in listed companies. Ni Xinxiang, vice-president of the Asia Business Consulting, points out that smaller shareholders need minority rights “such rights as vetoing and appealing.” In addition, the impartiality of independent directors may mean little because they can easily be fired. Under the proposed model, a gathering of 7% of shareholders can fire an independent director.

According to the rules set by the CSRC, all listed firms must have at least one-third of its directors as independents by July next year. Based on the number of listed companies, that means at least 3,000 independent directors. Currently, most are drawn from universities and research institutes. However, some scholars already act as independent directors for as many as 10 companies at the same time. Ni also calls for regulations to require independent directors to report on their performance every year at the general shareholders’ meeting. (see Asiaport Daily News, 7/4)

Actuant Corporation (ATU)

Shareholder activist John Chevedden has issued a call for help. His proposal for shareholder vote on poison pills passed in Jan. 2001 and he would like to resubmit it before the 8/3 deadline for the January 2002 meeting. Unfortunately, he needs a co-sponsor since the value of his stock has dropped below $2000 in value. ATU is a Milwaukee-based diversified global company that provides electronic systems and components, tools, equipment and supply items to a variety of end users and OEMs in the computer, semiconductor, telecommunication, datacom and other industries. Sales are $500 million annually.

If you own more that $2,000 worth of Actuant stock, and would consider co-sponsoring Mr. Chevedden’s proposal, please e-mail him immediately at jrcheve@earthlink.net.

Stakeholders v Shareholders

David Finegold, Edward Lawler III, and Jay Conger ask how stakeholders can have a say in corporate governance, given the dominant Anglo-American model. Failing to recognize the importance of firm-specific human capital can result in “alienating their most valuable and mobile assets,” their high skilled employees. Yet, the German model of codetermination and the Japanese model of lifetime employment aren’t real options when countries risk alienating world capital markets if their governance standards are less friendly to shareholders.

How to avoid a race to the bottom and poor relations with knowledge employees? The authors embrace “enlightened self-interest,” demonstrated through

• High levels of employee involvement in decisionmaking.
• Flexible work schedules and other programs which help balance work and personal life.
• Heavy investment in employee training.
• Generous benefits and perks.

Yet, they doubt such programs will lead boards to value employees as highly as stockholders. Boards can too easily breach their trust with workers through corporate takeovers or due to recession. In addition, such programs often fail to address the needs of 80% of the workforce that have seen their incomes stagnate or decline.

The answer is to turn employee stakeholders into employee shareholders. Eventually employee ownership will translate into employee voice in the boardroom. They cite Margaret Blair’s arguments that employee ownership:

• Fits well within existing US governance systems
• Is embraced by both right, left and center political factions.
• Brings firms closer to a widely successful entrepreneurial model.
• Provides a powerful retention tool in tight labor markers.
• Provides a basis for employee commitment in the absence of job security.
• Fosters greater alignment between employee and shareholder interests.

To learn more, see “To Whom Are Boards Accountable?” in the July/August edition of The Corporate Board or order a copy of Corporate Boards: New Strategies for Adding Value at the Top.

Japan’s Stock-Buying Companies

The Asian Wall Street Journal — July 4, 2001, carried a commentary by Nicholas Benes, president of JTP Corporation. He discusses Japan’s plans to establish a “stock-buying fund,” supported by government guarantees and tax advantages. “The objective is to soak up the supply overhang that will occur when banks sell stocks worth Y14 trillion through 2004 to comply with new rules that limit their stockholdings to total bank capital.”

Apparently, the proposed stock-buying corporation has no duty to exercise corporate governance rights (e.g., voting by proxy) for stocks that it holds. “It’s likely that corporate governance rights either will not be exercised — reducing the efficiency of the capital markets — or will be retained by the banks (who do not exercise them much either).”

Benes calls for various conditions for any such funds including: “The fund managers must exercise corporate governance rights (e.g., voting by proxy) solely in the interests of the fund as defined by its investment criteria and standards, and must document their actions.”

Agreed, this would be an important condition, not only for these proposed funds but for all funds around the world where fiduciaries hold other peoples money in trust. Yet, nowhere is it currently required, except in the US under ERISA for pension funds and here the Department of Labor has never taken an enforcement action against any violation.

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Dutch Revolution

The Amsterdam Court of Commerce ruled in favor of shareholders in construction company Hollandsche Beton Group (N.HBG), that an investigation was warranted into actions taken by management over the past eighteen months. HBG had rejected an attractive-looking bid for its dredging operations from rival Koninklijke Boskalis Westminster, then hastily announced a merger with Ballast-Nedam, without an explanation to shareholders.

Peter Paul de Vries, head of the Dutch shareholder rights advocacy group VEB, hailed the decision. “What it says in essence is that management must take shareholders’ interest more into account when making decisions.” (Dow Jones Newswires, 7/5)

European Summer University

Better hurry; deadline: July 15th, 2001. “Corporate Governance of European Companies, Between National Systems and
Globalisation,” September 8-15, 2001, Montpellier, France.

– Trends of the World Economy and Theories of “Corporate Governance”
– Facts and Experiences in Several European Countries (I & II)
– Convergence ? World Model or European Model ?
– Emerging Issues

The program includes:
– a special session on corporate governance and sustainable development
– a Doctoral Seminar

Travel and accommodation scholarships are available. Sessions will be bilingual (French or English).

Focus on NACD

The National Association of Corporate Directors encourages professional excellence in corporate leadership and encourages self-improvement in the boardroom. Members get discounts to continuing education programs, NACD’s annual corporate governance conference, publications, director’s registry, and fast and reliable corporate governance information fromExpresSource. If you’re a director, you’re bound to benefit from membership and as shareholders we all benefit our firms have enlightened directors.

Everyone can view the cover article in this month’s issue ofDirector’s Monthly, but only members can read the additional insights on regulation FD, antitrust in M&A transactions, intellectual property management, book reviews and more. For example, this month’s Capitol Hill column discusses the AFL-CIO’s Paywatch site, the SEC’s proposed rule on executive compensation and President Bush’s call for Social Security Reform.

36% of Households Have a Stake

Wall Street Journal/NBC found that 36% of respondents (65% of whom were employed) said they have stock options or a financial stake at their place of employment. That percentage is consistent with NCEO‘s estimates that 25 to 30 million individual workers out of a civilian work force of 108 million people currently own stock in their companies. (May/June 2001 newsletter)

Northwest Poison

Northwest Airlines announced that a proposal to repeal their poison pill won 35% shareholder approval. However, given that executives and directors own 40% of the outstanding stock, the introducing shareholder, John Chevedden, finds the results impressive. Independent shareholders apparently gave a majority approval for the shareholder right to vote on maintaining any poison pill at Northwest. According to Chevedden the annual meeting was postponed 2 months due to its labor problems.

News from Electronic Business

Electronic Business says the best defense against irritating corporate gadflies is tender loving care. Michael Claes, managing director of public relations firm Burson-Martseller, recommends the following: CEOs follow these principles when dealing with active shareholders:

1. Treat all shareholders with respect as owners, regardless of how many shares they own.
2. Act in the interest of all shareholders.
3. Seize every opportunity to build and strengthen relationships with shareholders.
4. Every announcement should reinforce key messages about a company’s strategy or plan.
5. CEOs should never be rude, brusque or unresponsive to shareholders. As owners of the company, shareholders should be treated with respect. (A pox upon you, 7/1/01)

Investment professionals believe companies are using the SEC’s new Regulation FD as an excuse to tighten their news grip. In polling 6,000 of its analyst and portfolio manager members last winter, the Association for Investment Management and Research, found that 57% believed public companies were releasing less information. Over 80% agreed with the following statement: “Now that Regulation FD has gone into effect, companies that want to minimize communication can do so more effectively.” Stonewallers now have another defense. The SEC has not yet brought any charges, but says it is investigating roughly half a dozen potential cases. (Tight lips sink stock tips, Electronic Business, 7/1/01)

ESOPs Improve Performance

In what NCEO calls the “largest and most significant study to date,” Douglas Kruse and Joseph Blasi of Rutgers have found the employee stock ownership plans apppear to increase sales, employment and sales per employee by about 2.3% to 2.4% per year. ESOP firms are also more likely to have other retirement-oriented benefit plans than comparable non-ESOP companies.

In Review

I just received a review copy of Working Capital: The Power of Labor’s Pensions. It covers the groundwork of how pension funds are failing workers and what reforms are necessary to build sustainable wealth. I’ll have more to say on this book later, but it appears like a good wake up call.

Too Many Carrots, Too Few Sticks

“There’s no risk anymore in being a CEO,” says compensation expert Graef “Bud” Crystal. Priceline gave outgoing CEO Daniel Schulman a separation package worth $5.8 million. Webvan’s ex-CEO George Shaheen, 58, will collect $375,000 a year for the rest of his life–equal to $7.5 million over the next 20 years. That’s in addition to a $6.7 million loan that isn’t expected to be repaid.

My own tiny investment in Webvan has gone from a value of $740 to $16 and I didn’t buy anywhere near the peak. Nell Minow, editor of The Corporate Library, says board members should know that an executive candidate who asks for a cushy severance package is “telling you he’s the wrong person for the job.” Severance proposals were the subject of eight proxy votes this year and the number is expected to go up, especially if the economy stays flat or goes down. (Some departing tech CEOs land big money, CNETNews.com)

EBF Debates: Is Corporate Governance Delivering Value?

The European Business Forum, a joint initiative of PricewaterhouseCoopers & Community of European Management Schools, invited distinguished panel to address corporate governance issues. Valter Lazzari, outlines the basic, theoretical principles from which corporate governance has emerged and explaiw why divergent patterns in Europe are best understood by reference to national law.

Robert Monks exposes the gulf between appearance and actual practice in the US and UK, as well as offering reflections on the appropriate model for continental Europe. Next, Sir Adrian Cadbury argues that what we are witnessing a convergence of governance standards and processes, if not necessarily of structures. Claudio Demattè, former chairman of Italy’s Railways and main television network, and Lutgart van den Berghe, founding partner of the European Corporate Governance Forum, put the spotlight on organisations where governance standards should be improved.

EBF then focus on governance issues in three European countries: the merits and demerits of the German supervisory board system (Wolfgang Salzberger and Manuel René Theisen); the case of voting rights in Italy (Francesco Chiappetta and Stefano Micossi); and the impact and significance of recent corporate governance initiatives in Spain (Miguel Trias). Finally Graham Gilmour of PricewaterhouseCoopers sums up the debate and offers some useful guidelines.