CalPERS Releases Annual List of Focus Companies; Lack of Board/Committee Independence, Conflicts of Interest and Other Governance Shortfalls Are Key Issues for 2002.Business Editors SACRAMENTO, Calif.--(BUSINESS WIRE)--April 24, 2002 In its 13th year of corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. activism, the California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). Public Employees' Retirement System (CalPERS) today released its Focus List of five companies which represent some of the worst examples of poor financial and governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. performance. Following on the lessons learned from the Enron Enron A U.S. energy-trading and utilities company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made the firm become the seventh and Arthur Anderson Arthur Anderson may refer to:
This year's Focus List companies include: Lucent Technologies of Murray Hill, New Jersey
NTL National Transportation Library NTL Norsk Tjenestemannslag NTL National Training Laboratories NTL Never Too Late NTL Nothing to Lose NTL National Training Laboratory NTL None the Less NTL Number Theory Library , Inc. of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , New York; Qwest Communications
Cincinnati is a city in the U.S. state of Ohio and the county seat of Hamilton County. ; and Gateway Computers of San Diego, California “San Diego” redirects here. For other uses, see San Diego (disambiguation). San Diego is a coastal Southern California city located in the southwestern corner of the continental United States. As of 2006, the city has a population of 1,256,951. . The pension fund is also closely monitoring four other companies for poor corporate governance, and possible actions regarding the companies will be disclosed throughout the proxy season. "The Enron debacle should have caused every single company in America to re-examine re·ex·am·ine also re-ex·am·ine tr.v. re·ex·am·ined, re·ex·am·in·ing, re·ex·am·ines 1. To examine again or anew; review. 2. Law To question (a witness) again after cross-examination. their own corporate governance practices and many have," said Dr. William D. Crist. "Our research on the focus list still shows that regardless of whether a company is large, well known, or small and not well known, shareowners' interests are threatened when good corporate governance isn't part of the company's culture." "This list is obviously by no means exhaustive," added Crist. "These same problems are inherent in the structures of many corporations in America." "An ounce ounce, in zoology ounce, in zoology: see leopard. ounce, unit of measurement ounce: see English units of measurement. of prevention is worth a pound of cure," said Investment Committee Chair Michael Flaherman, noting that many of the Focus List companies this year could have prevented the performance problems they are facing today. "We hope our list of poor performers will help to educate others about the role corporate governance plays in a company's performance." CalPERS "Focus List" of companies was selected from the pension fund's investments in more than 1,800 U.S. corporations, and was based on the companies' long-term stock performance, corporate governance practices, and an economic value-added (EVA Eva to marry winner of singing contest. [Ger. Opera: Wagner, Meistersinger, Westerman, 225–228] See : Prize 1. Eva - A toy ALGOL-like language used in "Formal Specification of Programming Languages: A Panoramic Primer", F.G. (R)) evaluation. EVA(R) measures a company's after-tax net operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. , minus its cost of capital. By using EVA(R) and stock performance, CalPERS has pinpointed companies where poor market performance is due to underlying financial performance problems as opposed to industry or extraneous ex·tra·ne·ous adj. 1. Not constituting a vital element or part. 2. Inessential or unrelated to the topic or matter at hand; irrelevant. See Synonyms at irrelevant. 3. factors. Gateway Computers, for example, has some of the worst performance in its industry. The California developer of desktop and portable personal computers underperformed all comparison indices and its direct competitors last year. The company turned in a loss of 55.3 percent for the one-year period ended December 31, 2001 and showed little profitability between 1998 and 2000. An EVA(R) evaluation performed for CalPERS by Stern Stewart & Associates revealed that Gateway's cumulative EVA(R) for the three-year period was a negative $141 million. Gateway's poor governance practices include a lack of complete independence on the company's audit and nominating committees A nominating committee is a group formed usually from inside the membership of an organization for the purpose of nominating candidates for office within the organization. It works similarly to an electoral college, the main difference being that the available candidates, either , a classified board and a recently adopted poison pill A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. The poison pill is a defensive strategy used against corporate takeovers. . The CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and Chairman Theodore Waitt also chairs the Nominating Committee. Gateway has not answered requests from CalPERS to meet, citing that letters take a month to read and are responded to if they are "worthy." The pension fund has filed a shareholder proposal to de-classify Gateway's Board that will require annual elections of all Gateway directors. It has filed the same proposal at NTL, Inc., but given the company's restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). a vote may never come to pass. CalPERS is also outraged at recent reports that Qwest's Chief Executive Joseph P. Nacchio received a $1.5 million bonus last year and a $24 million cash payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. , during a period when the company is cutting jobs and its performance has fallen. "These decisions demonstrate blatant disregard for shareholders," said Mark Anson, CalPERS Chief Investment Officer. "We have lost complete confidence in Qwest's management and board." Qwest also has a number of egregious e·gre·gious adj. Conspicuously bad or offensive. See Synonyms at flagrant. [From Latin conflicts of interest. There have been multiple reported business transactions between Qwest and the Anschutz Company, where Qwest's Chairman and Founder Phillip F. Anschutz also sits as a director and Chairman. CalPERS plans to vote against any Qwest director up for re-nomination this year. NTL, Inc. has corporate governance issues that show particular disregard to its shareowners. The owner and operator of broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). communication networks has underperformed its peers by approximately 292 percent for the five-year period ended July 31, 2001 and has underperformed the broad market by nearly 144 percent. NTL also recently announced plans for the recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. of its Pounds Sterling 12bn debts, which would include a massive debt-for-equity swap Debt-for-equity swap A swap agreement to exchange equity/returns for debt returns or the converse over a prearranged length of time. that CalPERS believes will severely impact common stock holders. NTL's Board does not allow shareowners to call special meetings, has re-priced options in recent years for a handful of executives, and is replete re·plete adj. 1. Abundantly supplied; abounding: a stream replete with trout; an apartment replete with Empire furniture. 2. Filled to satiation; gorged. 3. with interlocking interlocking /in·ter·lock·ing/ (-lok´ing) closely joined, as by hooks or dovetails; locking into one another. interlocking Obstetrics A rare complication of vaginal delivery of twins; the 1st directors. Lucent Technologies is refusing to adopt a shareholder proposal to declassify de·clas·si·fy tr.v. de·clas·si·fied, de·clas·si·fy·ing, de·clas·si·fies To remove official security classification from (a document). de·clas its board that passed by a shareholder majority vote last year. CalPERS has already voted against Lucent compensation committee directors Paul A. Allaire and John A. Young for awarding the company's former CEO, Richard McGinn, an excessive severance package A severance package is pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following:
Cincinnati Financial Corp. is also on the list for poor corporate governance pitfalls. More than half of Cincinnati Financial Corporation's Board is comprised of inside or affiliated directors. CalPERS is the nation's largest public pension fund with assets totaling more than $150 billion. The System provides retirement and health benefits to 1.3 million State and local public employees and their families. For CalPERS information, visit www.calpers.ca.gov.
Fact Sheet CORPORATE GOVERNANCE
CalPERS 2002 Focus List At-A-Glance
--------------------- --------------- --------------------------------
Company CalPERS CalPERS is Seeking a Number of
Holding Governance Changes
(in shares)
--------------------- --------------- --------------------------------
Cincinnati 717,218 -- Perform a formal governance
Financial (CINF) review using an external
Cincinnati, Ohio (.45% of consultant, preferably
outstanding forming a Governance Committee.
shares)
-- Review and revise the current
Director compensation plan
given that some Directors have
relatively minor holdings.
-- Adopt a resolution requiring
the Board consist of a majority
of independent directors,
including adoption of a written
definition of independence.
-- Adopt a resolution requiring
that the key committees be
comprised exclusively of
independent directors.
-- Appoint a lead independent
director.
----------------------------------------------------------------------
Gateway (GTW) 1,112,190
San Diego,
California (.35% of
outstanding
shares)
-- Conduct a formal governance review
using an external consultant.
-- Request that the Board de-classify
itself into one class of directors
whereby each director stands before
the shareowners for re-election each
year.
-- Adopt a resolution requiring that
the key committees be exclusively
independent directors.
-- Separate the Chairman and Chief
Executive Officer positions, or
consider the appointment of a lead
independent director.
----------------------------------------------------------------------
Lucent Technologies 12,133,348
(LU)
Murray Hill, New (.38% of
Jersey outstanding
shares)
-- Expand the Board by several members,
with a focus on the expertise and
contribution of each new member
rather than a specific time frame.
-- Request that the Board de-classify
itself into one class of directors
whereby each director stands before
the shareowners for re-election each
year. CalPERS was dissatisfied with
the Company's response to a
shareholder proposal, which passed,
asking for the declassification of the
Board.
-- Review all anti-take-over provisions
used by the company.
-- Consider adopting CalPERS'
definition of independence.
-- Adopt a resolution requiring the
Board consist of a majority of
independent directors, including
adoption of a written definition of
independence.
-- Clearly define Henry Schacht's role
on the Board in light of the transition
to the new CEO and include a specified
and reasonable time frame for the
completion of his role.
----------------------------------------------------------------------
NTL, Inc. (NLID) 964,150
New York, New York
(.35% of
outstanding
shares)
-- Perform formal governance review
using an external consultant.
-- Establish a formal Nominating
Committee along with a clear
definition of the nominating
process.
-- Adopt a resolution requiring the
key committees be exclusively
independent directors.
-- Adopt a resolution requiring that
the Board consist of a majority of
independent directors, including
adoption of a written definition
of independence.
-- Review the current Director
compensation plan given that some
have relatively minor holdings.
----------------------------------------------------------------------
Qwest (Q) 10,264,787
Denver, Colorado
(.62% of
outstanding
shares)
-- Perform formal governance
review using an external
consultant.
-- Request that the Board
de-classify itself into one
class of directors whereby
each director stands before the
shareowners for re-election
each year.
-- Adopt a resolution requiring
that the key committees be
comprised exclusively of
independent directors.
-- Request that only one Chairman
sit on the Board.
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