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Subject: Executive Update
Date: Tue, 3 Nov 92 12:44:32 EST
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11/3/92

TITLE Executive Update

Stockholder Pressure On Boards Squeezing CEOs

Increasingly, Directors At Lagging Firms Are Holding Managers
Responsible Vineeta Anand In Washington

The revolt in the boardroom may be spreading.

Last week, non-employee directors at General Motors Corp. finally
forced Chairman Robert C. Stempel's resignation after he was un-
able to stem the automaker's widening losses.  And in September,
Sears, Roebuck & Co. Chief Executive Edward A. Brennan bowed to
pressure from out- Performance

side directors to sell or spin off the company's financial
businesses and return the company to its retailing roots.  From
Detroit to Chicago, Boston and Houston, outside directors at some
of America's worst-performing companies have begun to take
charge, orchestrating the removal of chief executives or pressur-
ing them to undertake restructurings to bolster shareholder
wealth.  In the past year or so, outside directors have stepped
in at a number of visibly poor-performing companies. The recent
decision of Digital Equipment Corp. founder and Chairman Kenneth
Olsen to retire was widely attributed to board pressure, and
banking company Midlantic Corp., where Continental Illinois Corp.
veteran Garry#m#cq#m# Scheuring was brought in to replace Robert
Van Buren as chief executive.

Directors made Compaq Computer Corp. Chief Executive Joseph R.
Canion walk the plank in 1991 after the company's earnings and
stock price dived. And Chrysler Corp.'s board gave Lee Iaccoca a
strong nudge to announce his retirement plans last year.  Tom
Neff, president of SpencerStuart#m#cq#m#, the New York-based exe-
cutive recruitment firm, calls it a trend.  "I do believe there
will be earlier action, but earlier action does not translate
into removal of the CEO," Neff said. Rather, he said, it "should
mean the board making it clear to the chief executive that it is
concerned about the problems and expects to know what he plans to
do about them."

That directors are beginning to take their jobs as shareholders'
representatives more seriously by holding managements accountable
for performance is becoming evident in many ways.  Even at blue-
chip companies where performance is not an issue, outside direc-
tors are consulting executive recruiters to bring in more in-
dependent directors who have no affiliation with management. They
are limiting the number of companies whose boards they sit on,
and they are seeking to further align their interests with share-
holders by accepting directors' fees in stock, rather than cash.
A recent study by SpencerStuart of boards at 100 large U.S. cor-
porations found that the boards at half the companies had three
times as many outside directors as management directors. Ten
years ago, the median ratio of outsiders to insiders was 2-to-1.
Also, at least 30 companies now make stock grants to outside
directors in addition to their retainers, up from 24 last year.
The new emphasis on director responsibilities comes at a time of
increased stock ownership by big pension funds and other large
investors and a shift in focus in shareholder activism to
bottom-line performance from social issues and fringe corporate
governance matters.

Institutional investors collectively hold more than 50% of the
equity of U.S. public companies.  Not only are shareholders
bigger and louder in their protests against boards at companies
where performance is below par, but new Securities and Exchange
Commission rules also make it easier for large shareholders to
communicate with each other to discuss company performance and
voting strategies.  This shareholder pressure on boards to demand
that incumbent chief executives shape up or ship out is likely to
heighten within the next few months as the proxy season gets
under way for companies with fiscal years ending Sept. 30. Share-
holders will have the opportunity to withhold votes for directors
if they feel they have failed to hold management accountable for
performance.  New SEC rules also make it easier for shareholders
to cast their votes against a management's slate of directors in
favor of dissident director nominees.

"What board of directors should be good at doing is firing top
management," commented Gregg A. Jarrell, professor of finance at
the University of Rochester's business school. Jarrell also is a
director of the United Shareholders Association, a Washington-
based shareholder group founded by oil baron T. Boone Pickens.
"In the old model, outside directors would keep quiet because the
fallout from inside directors loyal to management was worse than
rewards from shareholders," he noted. "You got ostracized and la-
beled a gadfly and someone who just looked at the bottom line.
That calculus is changing." Already, several pension funds and
shareholder groups have indicated they will withhold votes for
directors at companies such as International Business Machines
Corp., Citicorp, Westinghouse Electric Corp., American Express
Co., Time Warner Inc., Champion International Inc., ITT Corp.,
Hartmarx Corp., Polaroid Corp. and International Multifoods Corp.
These companies have been financial laggards for some time. Many
of them were at the bottom of the heap of 1,000 industrial com-
panies companies ranked by Stern Stewart & Co. on their ability
to create shareholder value.  Although shareholders may not
present proposals regarding a company's financial performance,
deemed to be an ordinary business matter and within the confines
of management, the SEC allowed shareholders to present a nonbind-
ing proposal to Sears calling for an independent investment bank-
er to examine the financial impact of a separation of the
company's retail and financial businesses.  Emboldened by the
suc+ess of that proposal, which garnered a respectable 23.3% of
the votes cast, the United Shareholders Association plans to
present proposals in the upcoming annual meeting season at West-
inghouse and IBM. The proposals would seek the establishment at
each company of a committee of outside directors empowered to
evaluate the company's strategic plans and allowed to hire
lawyers and investment bankers to examine ways to boost share-
holder value.

"We don't want to tear the company down but (to) do something
that would be constructive," said Ralph V. Whitworth, president
of the United Shareholders Association. Whitworth recently met
with the CEO of Westinghouse and four senior officers of IBM.

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