Archives: December 2001

Auditor Proposals on Rise

In the wake of Enron’s collapse, pension funds and others have been flooding the firms they own with proposals for change. Enron paid Andersen $52 million in 2000 for both audit and non-audit services, then declared bankruptcy this year on December 2nd. “What’s new this year is these auditor independence proposals. That’s something that we really haven’t seen before,” says Pat McGurn, vice president atInstitutional Shareholder Services.

The United Brotherhood of Carpenters union have filed 12 proposals calling on companies not to hire the same accounting firm to do both audit and non-audit work. Among the companies targeted are Apple Computer, Bristol-Myers Squibb, Avon Products, Dominion Resources, Liz Claiborne and Manpower, according to the Investor Responsibility Research Center.

In 2001, the SEC handled 438 requests from companies for permission to exclude shareholder proposals from their proxies, down from 477 requests in 2000. Shareholder proposal activity is expected to “increase slightly” this season, according to John Wilcox, vice chairman of Georgeson Shareholder, which manages shareholder communications programs for many big companies.

One of the most innovative approaches to ensure auditor independence was introduced last year at SONICblue by Mark Latham of the Corporate Monitoring Project. Latham’s proposal would let shareowners vote to select the auditor, not just ratify a firm selected by the board of directors. Competing to please shareowners rather than directors, would create “new pressure for higher standards and tougher audits, according to Latham.

“The average investor may seem ill-equipped to assess auditor quality on her own. But she need not do this on her own — she would benefit from consensus-building discussion by the entire investment community. Shareowners are asked to vote each year on the choice of directors, yet it is much easier to assess reputations of auditors than of board members, because there are only a handful of auditing firms, versus hundreds of board candidates for a diversified portfolio of stocks over the years.” (Latham)

Although the SEC allowed SONICblue management to omit the resolution from the proxy, my hope is that with some slight modification it can be reworded to win SEC approval. To read Latham’s SONICblue proposal, management’s response, Latham’s response, the SEC’s no action letter, and Latham’s comment on the SEC decision, see Corporate Monitoring website (corpmon.com).

Cash is King

According to pay consultant William M. Mercer, only 18% of the compensation of American chief executives (and 40% of that of UK chief executives) came from fixed salaries last year. The rest came from variable sources, such as stock options and other performance-related bonuses. Watson Wyatt, another pay consultants says 90% of listed American companies have options “under water” (i.e., the share price is below that at which the options were issued). Cash may be coming back into favor. One way to minimize overhang are “stub options,” short-term options which vest within 12 months but expire after 13, compared to most options which vest within four years and expire after ten. (The Economist, Under water, 11/8)

Increase Board Opportunities

In “Tips for Corporate Board Election,” (Wall Street Journal, 12/26) Charles H. King of Korn/Ferry International, suggests involvement in cultural, religious and political groups, as well as corporate governance conferences. Consultant and board director Jenne K. Britell recommends nonprofit board service. Also helpful is Boardseat.com. Whether you’re looking to get on a board or are building a board of directors or advisors, Boardseat.com can help you make the connection. They’ve also got a growing list of articles and FAQs on everything from “Advisory Boards – The Basics” to “What to Do With Not-For-Profit Board Members Who Don’t Do Anything.”

Help for Fiduciaries in Meeting Triple Bottom Line

Since 1995 our Corporate Governance site at CorpGov.Net has served as an interactive resource for those who believe active participation by shareholders in governing corporations can increase triple bottom line returns (adding economic, environmental and social value). SRI World Group, Inc. has now created the most definitive guide in print on the subject that we have seen. Sustainable and Responsible Investment Strategies: A Guide for Fiduciaries and Institutional Investorsis a must read for every director who has been challenged by colleagues, when attempting to consider sustainability in stock picking and when exercising care and judgment as a shareowner.

Sustainable and Responsible Investment Strategies is written by SRI World Group, which has provided consulting services to fiduciaries, walking them through key decision steps and helping them identify what factors may be the most appropriate for their institutions in achieving sustainable and responsible investment strategies. Now you can get many of the benefits of their workshops in a handy, easily referenced volume.

The book is divided into four chapters covering the terms and strategies of sustainable investing, fiduciary responsibilities, performance, how to implement the strategies right for your organization. Appendices include decision trees, profiles of institutions, financial performance graphs of several mutual funds, guidance documents from the US Department of Labor, sample shareholder resolutions, an extensive list of institutions and their strategies, policy guidelines and timetable of important historical events.

Director’s Monthly

Another source for those concerned with the triple bottom line is the National Association of Corporate Directors. The November issue of their newsletter, Director’s Monthly, has articles providing boardroom a guide to the triple bottom line, diversity initiatives, and an update of the Caux Round Table’s principles for business. “The ‘Triple Bottom Line’: A Boardroom Guide” is written by Michael Sauvante, Chairman and CEO of Rolltronics Corporation. Rolltronics has an innovative corporate structure. A limited liability company, controlling 25% of the stock, makes ownership available to employees and contractors. The Rolltronics Foundation, which fosters sustainability through philanthropic and educational enterprises, owns another 25%. Sauvante discusses natural capital and cradle-to-grave closed loop systems, citing: Natural Capitalism and Mid-Course Correction. He goes on to discuss social capital, citing such books as The Emperor’s Nightingale, Profit Building and Wealth Creation and Wealth Sharing.

Other books favorable mentioned in the November issue: Winning the Influence Game, which explains how to maximize effective government relations, and Lessons from the Top, profiles of 50 prominent CEOs.

Raid Agreement May Settle Suit and Help Balance Budget in California

California will save over a billion dollars by “restructuring pension contributions” to CalPERS. The arrangement was made in an emergency closed-door meeting. The state will continue to make its standard contributions for the rest of this fiscal year but will reduce the rates used to determine how much the state contributes to the system. When Governor Pete Wilson deferred payments to the plan to balance the budget in the early 1990s, CalPERS called it a “raid,” sued and won (then reduced the state’s contribution rate in a vain hope that Wilson would use the money to boost salaries of state employees). This time the CalPERS board agreed to the “restructuring.”

According to an article in the Sacramento Bee (CalPERS deal aids budget, 12/20/01) “in return for the lower contribution rates in the short term, retirees will receive stronger inflation protections down the road.” Inflation protection is to kick in when inflation erodes pensions by 20%, instead of 25%. What the Bee leave out is that the “agreement” is dependent on Kathleen Connel dropping a lawsuit, allowing the board to raise its reimbursement rate and that of money managers at CalPERS. Apparently, the only board member to vote against the deal was Charles Valdes, who was recently reelected to the CalPERS board by a landslide election results to be announced later this month) even though he declared personal bankruptcy twice, didn’t pay taxes for about seven years, and was asked to resign by about 1/5 of the legislature.

Connel should stick with her suit despite being widely criticized in the financial press. Connel didn’t sue to stop CalPERS from raising the pay of investment managers, a widely reported; she sued to stop the CalPERS Board from placing itself above the law, the minor impact on the pay of investment managers is incidental.

CalPERS is a great advocate of good corporate governance, including transparency and compliance with the law. Yet, when the CalPERS Board violates California laws and obfuscates their activities, the financial press, including Governance, Pensions & Investments and others, seems all too willing to accept that the primary issue was a pay increase for investment managers.

Here’s the real story. CalPERS Board members wanted a raise but their reimbursement is clearly set in statute. Rather than sponsor legislation, they argued that Proposition 162, which gave the Board independent authority to protect the fund from political raids, allows them to ignore statutory pay limits because such limits interfere with the performance of fiduciary duties.

The Board argued that higher pay was needed to attract competent Board candidates. However, at about the same time they also voted for election rules that would have made it nearly impossible to unseat an incumbent. According to an editorial in the Sacramento Bee their proposed rules risked creation of “a permanent board: unaccountable, untouchable and isolated from the people who elect it.”

Fortunately, CalPERS members were able to head off that action but the salary increases went through. When the Board raised their own pay they provided themselves cover by also raising the salaries of a few investment managers. The strategy worked, since the financial press has not focused on the Board’s own raises at all.

While its true that CalPERS needs to pay its money managers more if it is to continue to attract top talent, the same is true for CalSTRS and the Treasurer’s Office. The same is true for many job classifications in state service. CalPERS isn’t unique.

If the CalPERS Board actually believed their fiduciary responsibilities overrode the law, they could have challenged the Department of Personnel Administration and the Controller in court, instead of simply ignoring the law. However, the courts are no more likely to allow the Board to unilaterally raise their own pay and that of civil servants as it is to forgive traffic tickets to members who claim travel at the posted speed would cause them to violate their fiduciary duty because they’d be late for a meeting.

Dr. Connel should be praised for upholding the law. Retirement boards should be able to plan ahead and go through the normal legal process to raise salaries as needed. Most importantly, they should not place themselves above the law. Kudos to Valdes for the courage to vote against the lastest deal (even though he originally voted for the raises).

Back to the topFood Chain: Watching the Watchers

Governance‘s December editorial, “The food chain,” argues that corporate governance is not just about ensuring managers run companies in the best interests of owners. Since owners and managers exist at “several removes,” trustees, fund managers, and custodians operate in a governance “food chain.” While the past decade focused largely on the relations between managers and directors and directors and shareholders, the focus is now appropriately shifting. He cites, as an example, an article on Unilever in the same issue. It seems the Unilever pension fund, which sued its fund manager for the negligence, was monitored via “nods and winks rather than formal and professional processes.” “Managers and directors have learned to become open, accountable and professional in their dealings with key constituencies. Its time that fund managers and pension fund trustees followed suit.”

ISS Sides With HERE

Hotel Employees Restaurant Employees International Union won support of Institutional Shareholder Services (ISS) in its move to convince shareholders of Loews Corporation to vote against the company’s proposal to create a separate tobacco “tracking stock” for Lorillard. Key points in the ISS report include:

• (B)ecause the company’s tracking stock will be issued via an IPO, current shareholders of the parent company will receive no direct benefit in the transaction.
• According to the empirical studies conducted on tracking stock and the parent stock, there is no compelling evidence to suggest that tracking stock maximizes long-term shareholder value for the parent’s stock.
• One cannot ignore the concerns raised by HERE in that the tracking stock transaction may have been structured to more preserve insider voting interests of Lorillard rather than to maximize shareholder value.”
• The creation of a tracking stock creates a serious conflict for the company’s board.”

Millstein on 911

Corporate governance expert Ira M. Millstein, of Weil, Gotshal and Manges, wrote to the Financial Times in October expressing his concern that “eliminating poverty and misery is crucial to the “just war”; ideologues and fanatics breed on poverty and oppression.” “Diminishing the great economic divide between ‘haves’ and ‘have nots’ will require as much energy, effort and dedication as rooting out those who perpetrated the events of September 11.” (see posting atragm.com)

I would add that of course we need to root out terrorists, but let’s not sweep away our independent judiciary, the right to a public trial, the right to an appeal, the right to counsel, due process, equal protection and habeas corpus in the process. Good governance depends on broadening stakeholders in the system (per Millstein), while ensuring the system is transparent and protective of civil liberties.

End of Limited Liability

Russell Mokhiber and Robert Weissman’s latest corp-focus advances an idea of Lawrence Mitchell’s; limited liability for corporate shareholders should end. “Limited liability encourages stockholders not to care, ” Mitchell says in his latest book, Corporate Irresponsibility: America’s Newest Export (Yale University Press, 2001). Instead of limited liability, he advocates that corporations buy insurance. Risk would then be factored into the cost of doing business based on risk…better than sticking it to a creditor if the corporation fails.”

Mokhiber and Weissman like the idea but recognize it won’t be adopted anytime soon. They suggest an interim step would be to take away constitutional protections and limited liability from the worst-acting corporations. They call for a Corporate Character Commission (CCC), with members chosen from the “human person community.” (As opposed to the human nonperson community?)

Just as the Federal Communications Commission reviews broadcast licensees, the CCC would review corporate charters. They call it a “modest step” to a future where the corporations are subservient to moral human beings. I call it interesting but unlikely.

I would have rather seen Mokhiber and Weissman focus on Mithchell’s idea that earnings reports be required annually rather than quarterly or that the capital gains tax be increased on stocks held for fewer than thirty days. Both measures could contribute to a longer time horizon by shareholders and management, something that might be positive for everyone…and, in my opinion would be more likely. Another more modest step in the right direction would be requiring mutual funds to adopt and publish proxy-voting policies and to record and publicly disclose their proxy votes (read Amy Domini’s letter to the SEC).

Monks on Forefront Again: ExxonMobil Should Separate Chair and CEO to Protect Value

Robert A.G. Monks’ recent shareholder resolution calling for separation of the Chairman and CEO positions at ExxonMobil may result a giant step forward in cooperation between those concerned with corporate governance and the SRI/environmental communities. The move was sparked by his growing concern that the ExxonMobil Board of Directors is failing to protect long-term value in the company from Chairman and CEO Lee Raymond’s increasingly extreme position and public image.

“In the last year there have been dozens of stories highlighting criticism of the company for its environmental and social positions. Bad publicity destroys shareholder value and Exxon is undervalued compared to its peer group when it should be at a premium. We need to reverse this before investors’ holdings feel the effects more,” said Monks.

His resolution cites ExxonMobil’s bad press “…nearly half of the people familiar with [ExxonMobil] continue to give it a poor grade for environmental responsibility,” (Wall Street Journal, 2/7/01.) “ExxonMobil’s stubborn refusal to acknowledge the fact that burning fossil fuels has a role in global warming is creating a PR backlash against the world’s biggest company.” (O’Dwyer’s PR Weekly, 5/23/01) “The Reputation Institute and Harris also identified companies with the worst reputations in America, including Philip Morris Cos., Exxon and Kmart Corp…” (Wall Street Journal 9/23/99) “the company is increasingly isolated on the issue, not only from the international scientific community but also from its European competitors…” (Wall Street Journal, 3/22/01)

Monks lays primary blame on Lee Raymond. His “unflinching attitude to global warming, to ExxonMobil’s businesses in regressive regimes, and his disdain for gay rights sparked a boycott of Exxon’s products in Britain, and even calls for a boycott in the US.” (PR Week 11/26/01)

Taking a lead from the UK’s Myners Report, which promotes responsible activism, Monks’ resolution argues that Raymond’s antagonistic approach to public issues is causing damage to the company’s reputation, and that the board is failing to meet its basic duties. The resolution states:

RESOLVED that the shareholders request the Board to separate the roles of Chairman and CEO and designate a non-executive and independent director as Chairman as soon as possible (without violating current employment contracts).

Campaign ExxonMobil announced its support for the resolution. “We are pleased to see an investor with the track record and influence of Robert Monks taking on this company over its handling of this issue,” said Peter Altman, National Coordinator of Campiagn ExxonMobil. “I look forward to building support for this resolution over the next several months.” “No matter how hard the company closes its eyes and wishes, global warming isn’t going away. The smart course is to admit it is happening and get on with realistic solutions that will prevent the worst from happening.”

Free gift. I’m not sure why Capstone Publishing keeps allowing Robert Monks to give away his books on the internet but he’s done it again. Hopefully, readers of The Emperor’s Nightingale on-line will enjoy the book so much they’ll want the handy bound edition. If you so, click through CorpGov.Net we need the revenue to keep you informed.

Back to the topBroadgate Survey

The bear market has wiped out an estimated $1 trillion in shareholder value. A year-end survey of US institutional investors by Broadgate Consultants, finds that 76% of the 89 survey participants expect pressure from institutional investors on corporate governance matters to increase next year. Top concerns:

• Stock option grants and pension fund accounting. The rising quantity of stock options being issued to employees and their potential dilutive effect. Overly optimistic assumptions concerning pension fund returns.
• Takeover activity in 2002 to contribute to market gains, especially in technology, telecommunications, financial institutions and health care.
• 51% of the respondents said there should be more federal regulation of IPOs.

Reddy on Indian First Principles

Dr. Y.R.K. Reddy, Chairman of Yaga Consulting Pvt. Ltd., has been researching Corporate Governance with special reference to Public Enterprises and Banking in India. We are delighted to be able to present his insights, including 33 recommendations, in our Commentary section. See The First Principles of Corporate Governance for Public Enterprise.

Domini Challenges SEC; We Urge You to Join Her

Domini Social Investments sent a letter to the Securities and Exchange Commission (SEC) urging adoption of a rule requiring all mutual funds to adopt and publish proxy-voting policies and to record and publicly disclose their proxy votes. The letter from Amy Domini to SEC Chairman Harvey L. Pitt states that proxy voting disclosure “should be considered a fundamental fiduciary obligation that mutual funds owe to their shareholders, and should be required as a matter of law.”

Two years ago, Domini Social Investments became the first mutual fund manager in America to disclose the actual proxy votes it casts for each company in its portfolios. All proxy votes are published on Domini’s website, along with the firm’s annual proxy voting guidelines covering more than ninety corporate governance, social and environmental issues. “We think our shareholders have a right to know how we intend to vote their shares on important issues of corporate governance and social and environmental responsibility,” says Ms. Domini, the firm’s founder and a managing principal.

In her letter to the SEC Chairman, Ms. Domini commends the SEC on its recent efforts to encourage greater disclosure and transparency by mutual funds, including the plain English prospectus and detailed disclosure requirements regarding investment strategies, risks and fees. “Disclosure [of proxy voting] would promote accountability and transparency,” writes Domini, “which are not only guiding principles of our financial regulatory system but have been special concerns of the Commission in recent years.”

“I can think of no other instance where the Commission countenances opacity rather than transparency in the discharge of fiduciary obligations,” continues Domini. “Indeed, when it comes to proxy voting there is not even a record-keeping requirement, let alone a disclosure requirement. I believe it is time to address this anomaly.” Yet, “proxy voting is the most direct means by which individual investors – either directly or through financial intermediaries like mutual funds – can play an active role in influencing corporate behavior.”

Ms. Domini’s letter also points out that “there is mounting evidence that progress on social, environmental and corporate governance issues is linked to long-term corporate performance.” “The Commission need not embrace the notion that proxy voting on social, environmental or corporate governance issues positively impacts fund value or corporate financial performance in order to acknowledge that many investors surely believe that it does,” writes Domini. “And if this is true, then they should be entitled to this information – just as they are entitled to information on mutual fund strategies, risks and fees.”

“Proxy voting disclosure will provide the information that mutual fund investors need to ensure that their mutual funds are accurately representing their interests when they vote on corporate governance, social and environmental issues,” concludes Ms. Domini. “I would urge the Commission to propose for adoption a rule requiring all mutual funds to adopt and publish proxy-voting policies and to record and publicly disclose their proxy votes.”

Read MS. Domini’s full letter. Please join Ms. Domini and others by dropping an e-mail to SEC Chairman Harvey L. Pitt. Let him know that you agree; mutual funds should be required to adopt and publish proxy-voting policies and to record and publicly disclose their proxy votes.

Asian Institute of Corporate Governance (AICG)

The first “Asian Corporate Governance Conference” on December 14, 2001 appears to a sellout event. The AICG invited internationally renowned scholars, economic policy makers, and practitioners from Asian countries and the US to discuss the current developments in corporate governance. Congratulations!

Longer term goals of the AICG are

1. Maintain and conduct research on corporate governance related databases
2. Support top-rated academic research on corporate governance
3. Organize international conferences on corporate governance
4. Provide education programs for top-level directors
5. Publish monographs and working papers on corporate governance
6. Interact with other leading research institutes on corporate governance throughout the world

Crompton to Head IRRC

The Investor Responsibility Research Center, (IRRC) announced the appointment of Linda Crompton, MA, MBA, as President and CEO, effective January 1, 2002. Crompton is the founder and former President and CEO of Citizens Bank of Canada, Canada’s first truly electronic bank and the country’s first bank with a publicly stated social mandate. Crompton is recognized in Canada as an innovative business leader and a compelling speaker on the global significance of corporate social responsibility.

“At a time when business is feeling both economic and shareholder pressure, IRRC will benefit greatly from Linda Crompton’s expertise,” said Luther Jones, IRRC’s chair. “Ms. Crompton understands first hand, the dynamic and often difficult balance between meeting business objectives and being accountable to stakeholders.”

In addition to her academic credentials, Crompton brings 25 years of experience in business, finance and organization development as well as a deep understanding of social and environmental issues. “It is an honor to take over the leadership of such an important organization as IRRC,” said Crompton, “Never before has the world felt so small and so interconnected. It is in times like these that we become acutely aware of the need to understand the greater impact of our business decisions.”

Crompton succeeds Scott Fenn, who announced plans to retire earlier this year after a 23-year career at IRRC, including six years as President.

For over 25 years, IRRC has been the pre-eminent source of high quality, impartial information on corporate governance and social responsibility issues affecting investors and corporations worldwide. Today, IRRC provides research, software products and consulting services to nearly 500 subscribers and clients representing institutional investors, corporations, law firms and other organizations.

Back to the topHistorical Review

Fro its 25th anniversary issue, Directors & Boards does is again with “An Oral History of Corporate Governance, 1976-2001.” The editors interviewed luminaries from business, finance, law and academia who trace the evolution of corporate boards from the largely ceremonial bodies of the 1970s to the more activist boards of today. Among participants are longtime corporate directors Raymond Troubh and Barbara Hackman Franklin, fund manager John Neff, arbitrageur Guy Wyser-Pratte, shareholder activist Nell Minow, former CalPERS General Counsel Richard Koppes, Vanguard Co. founder John Bogle, Spencer Stuart recruiter Thomas Neff, National Association of Corporate Directors founder John Nash, Harvard business professor Jay Lorsch, and former Delaware Court Chancellor William Allen.

Other sections include “The Way It Was,” which features exerts from past issues and “The Shape of Things to Come,” which examines emerging issues such as the increasing involvement of small and mid-size companies in corporate governance issues and the continuing effect of globalization. Close to 300 executives, past and present, appear in the issue as commentators on how boards have transformed themselves over the past quarter of a century.

Enron

Few saw it coming but apparently the company did disclose deals with members of its board of directors in their proxy statement published earlier this year that should have lead to suspicions about other practices.

• Enron director, John Urquhart was paid $493,914 last year for providing consulting services to Enron.
• Enron director, Lord John Wakeham, received $72,000 last year for advice on Enron’s European operations.
• Enron director Herbert Winokur was affiliated with the privately owned National Tank Co. that made sales to Enron worth $370,294 last year, the proxy statement said.
• Enron paid $517,200 last year for travel services provided to Enron employees. The travel agency business that provided the services is 50 percent-owned by Sharon Lay, sister of Enron chairman and chief executive Ken Lay.

Perhaps the Ohio Public Employees Retirement System ($68.8 million loss), New York State Common Retirement Fund ($58 million loss), CalPERS ($45 million loss), State Retirement System of Illinois ($15 million) and others will now spend more time carefully reviewing proxy statements for clear evidence of poor corporate governance practices.

Good Governance Pays

Firms that preserved shareowner rights had stock outperformed those that bolstered management’s power during the 1990’s, according to “Corporate Governance and Equity Prices,” a paper co-authored by Harvard economists Paul A. Gompers and Joy L. Ishii and Wharton School professor Andrew Metrick.

“Firms with weaker shareholder rights earned significantly lower returns, were valued lower, had poorer operating performance, and engaged in greater capital expenditure and takeover activity,” according to the paper at the Yale School of Management Finance and Accounting Seminar series.

The study tracked data on corporate governance provisions collected by the Investor Responsibility Research Center (IRRC) on about 1,500 firms from September 1990 through December 1999. The authors then constructed a straightforward “Governance Index,” assigning one point for every provision that reduced shareowner rights. The higher the score, the weaker the shareowner rights and the stronger the management power. An investment strategy that bought the firms in the lowest decile of the index (strongest shareholder rights) and sold the firms in the highest decile of the index (weakest shareholder rights) would have earned abnormal returns of 8.5 percent per year during the sample period.

Weaker shareholder rights are associated with lower profits, lower sales growth, higher capital expenditures, and a higher amount of corporate acquisitions.

In a related item, in emerging markets good corporate governance tends to be a good indicator of superior stock performance. A recent study of 495 companies by CLSA Emerging Markets showed that while the stocks of the largest 100 companies covered fell an average of 8.7% last year, the stocks of the companies rated best for corporate governance rose an average of 3.3%.

Catalyst Reports on Women’s Progress

Women continue to make small gains by taking board seats at large companies in the world. In the 2001 Census of Women Board Directors of the Fortune 1000, Catalyst found that women now hold 12.4% of the board seats, up from 11.2% in 1999. “We have seen a 25.8% increase in the number of Fortune 500 companies with women on their boards since we started counting. Between 1993 and 1996 the number jumped from 345 companies with at least one woman on their board to 417. The pace the slowed over the last five years and there are now 434 companies,” said Catalyst President Sheila Wellington. “If the rate of change remains constant in the F500, women will occupy 25% of the board seats by 2027,” said Wellington.

Catalyst also tracks “Blue Ribbon Boards” with more than 2 women. In 1999 their were 296 companies. This year the number has risen to 317 companies. In the first year of the Catalyst census, 155 of the F500 companies had no women board directors. In Catalyst’s ninth year of counting, only 67 of the F500 still have no women. Women of color comprise about 2% of the F1000 boards seats and 18.1 % of the board seats held by all women. They hold 178 of the 8,941 seats among the 839 companies for which Catalyst could confirm race and ethnicity.

Of the 178 seats:

• 131 seats are held by African American Women
• 30 seats are held by Hispanic Women
• 15 seats are held by Asian American women
• 2 seats are classified as “other

For additional information or to obtain a copy of this report, please call 212-514-7600.

HERE Opposes Lorillard Tracking Stock

The Hotel Employees Restaurant Employees International Union (HERE) announced opposition to a proposal by Loews to create a “tracking stock.” representing its minority interest in the economic performance of Lorillard, Loews’ tobacco subsidiary. “Rather than spinning-off Lorillard to shareholders and allowing shareholders to realize the full value of the tobacco asset, our company has proposed a financial gimmick that doesn’t maximize value for shareholders,” said Matthew Walker, HERE General Vice President.

HERE concerns include:

• The limited voting rights of tracking stock, with no recourse to assets, no board representation, and options by Loews to redeem the shares – would likely dampen market appetite for a public offering. Studies show that tracking stocks have a poor performance record.
• There are no assurances that the proceeds of the proposed tracking stock sale will flow directly to Loews’ shareholders since Loews will use the proceeds of the tracking stock offering for “general corporate purposes.”
• The tracking stock will create significant potential conflicts of interest among stockholders, the board of directors and management.
• The tracking stock was approved by a board dominated by insiders. The tracking stock will allow the Tisch family, which owns over 30% of Loews, to retain control of Lorillard.
• “As part of Loews, Lorillard is currently valued by the market at less than $20 per share. If an independent Lorillard were to trade at P/E ratios similar to other tobacco companies, it would trade in the $40-50 range,” Walker said. HERE has filed a shareholder proposal for the Loews’ 2002 annual meeting seeking a spin-off of Lorillard to shareholders.

Back to the top