Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus,americast.usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Wed, Oct 28 1992 Date: Wed, 28 Oct 92 04:40:26 EST Message-ID: 10-28 0000 BONUS: Boards hold CEOs accountable USA TODAY Update Oct. 28, 1992 Source: USA TODAY:Gannett National Information Network Corporate chiefs, watch out! Your status and power as head of the USA's largest companies is no longer sacrosanct. If you aren't performing well, you may be fired or demoted, just like any other employee. Monday's ouster of Robert Stempel as chairman of General Motors and the recently announced restructuring of Sears, Roebuck & Co. reflect a new era of accountability for chief executives. HOW HAS STEMPEL'S OUSTER BEEN AN EXAMPLE? These days, corporate board members, especially outsiders who don't work at the company, are less likely to approve everything a CEO suggests. They're starting to demand change if the company isn't thriving. In many cases, outside board members are working as allies of already active shareholders. Both groups, tired of seeing earnings suffer and stocks fall, are no longer willing to accept the recession as an excuse. HOW FAR DOES THIS TREND EXPAND? "GM is just the tip of the iceberg," says Michael Jacobs, a former Treasury official and author of Short-term America. "We're seeing boards become more responsive to shareholders and more committed to the company." For several years, angry shareholders have grabbed headlines, protesting CEO pay packages and pressuring companies for change. HOW DID GM ACT? At GM, board members, led by former Procter & Gamble chairman John Smale, essentially put Stempel on probation in April when they removed him and key deputies from important management committees. They weren't happy with the pace of change at the automaker, which lost money in eight of nine quarters during Stempel's tenure. On Monday, they forced him to resign. They meet next Monday in New York to select a new leader. HOW ARE BOARDS TAKING NOTE? After two years of fighting shareholders, Sears Chairman Edward Brennan gave up last month. At the urging of his board, he agreed to sell or spin off several divisions, paring Sears to its retailing core. For now, at least, large public pension funds and other shareholder activists are setting the agenda for increasingly receptive corporate boards. Shareholder groups are currently cobbling together lists of companies they want to target at next year's shareholder meetings. WHAT ARE THE SHAREHOLDERS DOING? The United Shareholders Association, which represents 65,000 shareholders, is negotiating with 10 companies and has put another 30 on its hit list. Large public pension funds such as the California Public Employees' Retirement System are analyzing performance and deciding which companies to battle. The goal of the groups is to improve a company's performance and its stock price. HOW ARE THEY REACHING THEIR GOALS? Their tactics include tying executive salaries to performance, creating more independent boards and encouraging board members to oversee the company more aggressively. "That's really the thrust of the whole movement," says Ralph Whitworth, head of the shareholders association. "Boards need to accept more responsibility in holding management more accountable." WHO ARE THEIR TARGETS? Shareholder activists say possible targets during 1993's annual meeting season include Paul Lego of Westinghouse, John Akers of IBM, James Robinson at American Express and John Reed of Citicorp. All are trying to restructure their companies for the '90s. But formerly loyal boards could become impatient, especially if shareholders step up their opposition. HOW HAS LEGO DRAWN SHAREHOLDER IRE? After Westinghouse reported a $1.1 billion loss for 1991, the board cut his cash pay by $1.5 million to $675,000. But it also granted him stock options worth $2.5 million, according to Graef Crystal, a critic of executive pay. Not surprisingly, Lego has been meeting with shareholder groups, hoping to head off a potentially embarrassing fight. WHAT HAS BOOSTED SHAREHOLDERS? Activist shareholders received a boost two weeks ago when the Securities and Exchange Commission passed rules making it easier for them to fight. The rules require companies to spell out, in charts and graphs, how much they pay their executives. They let shareholders communicate more easily with one another about the company's performance. And they make it easier for unhappy shareholders to get new board members elected by letting them field individual candidates, rather than entire slates. WHAT WILL BE THE EFFECT OF THE RULES? That last change may be key because for shareholders to be truly effective, they need the support of board members. Few CEOs can dodge a one-two punch from like-minded shareholders and board members. At Occidental, CEO Ray Irani was pressured to resign last month as head of the board's compensation committee, which sets salaries for top executives. At Digital Equipment, the board ousted Ken Olsen, chairman, founder and computer-industry legend, in July after years of strategic blunders. WHERE WILL ALL THIS LEAD? Renowned corporate attorney Martin Lipton put it bluntly in a memo to clients: "We are in the initial stages of major changes that will rival the 1980s' takeover frenzy in their impact on corporations." That troubles some executives. The Business Roundtable, which represents the CEOs of 200 major companies, says large shareholders are becoming too powerful. HOW POWERFUL ARE LARGE SHAREHOLDERS? Currently, institutional stockholders - public and private pensions, mutual funds and insurance companies - own more than 50% of all publicly traded stocks. According to H. Brewster Atwater, chief executive of General Mills and head of the roundtable's task force on corporate governance, 20 to 30 large institutions will own more than 30% of the 10 largest U.S. companies by the end of the decade. WHAT DO ACTIVISTS SAY? Shareholder activists say they're simply looking out for their investments. If so, their activism seems to be paying off: A study by the California Public Employees' Retirement System, the USA's largest pension with $68 billion in assets, found that stocks of companies targeted for change tend to rise. The study estimates that CalPERS and its beneficiaries reaped $137 million a year the past four years due to their activism. WHAT ARE THE WORRIES? Many observers worry some shareholders care only about boosting short-term stock price and not enough about long-term research and investment. Responsible, responsive corporate boards may be best equipped to balance such conflicting interests. "Their job is to monitor the long-term performance of the company," says Jay Lorsch, a Harvard Business School professor. Still, despite the GM coup, he thinks most boards have a long way to go. Bonus Editor: Kate Coughlin. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM