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In High Profile
Proxy Battle, Dissident Group Reconsiders Its Plan
RANGER RETHINKS CEO ARRANGEMENT. Ranger
Governance’s plans to retool Computer Associates apparently are still
taking shape, several of those involved in the high profile proxy fight
told IRRC in an August 2 meeting. Originally, Ranger had said it planned
to divide the company into four groups—storage management, security
management, network management and knowledge management—each to be
overseen by its own CEO. Breaking the company into four pieces has been
criticized by some analysts who think this will lead to fragmentation and
others who think it will increase operating costs. Now, said George Ellis,
a former chief financial officer at Sterling Software and a Ranger team
member, Ranger is rethinking its arrangement, and is considering the
possibility of adding another top-level CEO who would oversee these four
CEOs and four corporate components. Ellis explained that if such a
position were to be created, Ranger Governance’s Sam Wyly would not serve
in that capacity; instead he would fill the board chairman’s seat. The
four CEOs would be chosen from both inside and outside the company, he
said.
Ellis and his team also told IRRC that both potential board
nominees and institutional investors are intimidated by Computer
Associates. They said they could not convince any CEOs to serve as
dissident nominees to Computer Associates’ board because the executives
feared that it would affect the licenses that granted their companies’
access to Computer Associates’ software. Ellis said several institutional
investors told him that they could not back publicly Ranger Governance’s
bid for Computer Associates’ board because they feared similar
consequences. Computer Associates has about 55 percent institutional
ownership.
A few months ago, Ranger Governance
conducted a survey of Computer Associates’ clients that it says found a
significant level of dissatisfaction. The company, in turn, complained to
the SEC that the survey results were inaccurate. Now, Ellis said, Ranger
Governance has obtained, and plans to release next week, results of a
survey that Computer Associates conducted of its customers. “In this
survey, 55.8 percent of the companies surveyed said the value of Computer
Associates products was fair or poor,” said Stephen Perkins, a dissident
nominee and co-founder of Sterling Commerce.
Ranger Governance has drafted a rather detailed “Corporate
Governance Charter” outlining the changes it would make to Computer
Associates’ governance practices if the Ranger nominees are elected. The
charter says the board would be comprised of 10 to 12 directors, and four
committees: audit, human resources and compensation, product development
and acquisition, and governance and nominating. The governance committee
would be charged with establishing policies and practices for the board,
which would include such matters as the frequency of meetings, executive
sessions, board evaluation and director effectiveness, mandatory
retirement age and the director nomination and removal process. There
would be no executive committee. Each of the committees would be comprised
solely of independent directors who have no business ties to Computer
Associates other than through their service as board members.
Other moves to improve the company’s governance practices
include making director compensation equity-based with no fringe benefits.
In addition, “equity interests would be subject to a vesting schedule to
insure continued dedication to the company’s affairs.” There would be
guidelines for stock ownership by directors and a timetable by which
targeted levels of ownership would have to be accomplished. Executive
compensation would be tied to the company’s financial performance and
shareholder value. Stock options for directors, CEOs and top managers
could not be repriced. Ranger would eliminate the company’s poison pill.
WYLY PROPOGATES THE FAITH ELSEWHERE.
Included in an information packet about Ranger Governance’s plans for
revamping Computer Associates is an announcement of the governance changes
that Michaels Stores is adopting. The announcement
says Michaels Stores Chairman Sam Wyly will step down to become vice
chairman, while his brother, Charles Wyly, who had served as vice
chairman, will assume the chairmanship. Sam Wyly says he is stepping down
to devote more time to the Computer Associates proxy battle.
The brothers’ switch is accompanied by a bevy of governance
changes that mirror many of the governance reforms that Ranger Governance
is proposing at Computer Associates. The announcement says Michaels will
expand its board from five to seven members after its annual meeting in
October. With this expansion, five of the seven members of the board “will
be independent of the family of Charles J. Wyly and Sam Wyly,” says the
announcement. The company also plans to create a corporate governance and
nominating committee that will be charged with drafting corporate
governance guidelines for the company and nominating candidates for
election to the board. As part of this major overhaul, the board’s
executive committee will be disbanded so most issues will be considered by
the full board. The company also plans to—subject to shareholder
approval—declassify the board.
The news release also notes that Michaels never has had a
poison pill in place, has a policy of not repricing stock options without
shareholder approval, and ties its executive compensation to profit
targets as well as to share price appreciation. Michael Rouleau, who has
served as CEO since 1996, does not sit on the company’s board.
“Good corporate governance and good performance go
hand-in-hand, and the steps we’re announcing today underscore Michaels’
commitment to both,” said Charles Wyly. “We respect the rights of
shareholders to vote on our performance as directors each year and will
not have any arbitrary impediments—such as poison pill or staggered
board—to changing stewardship of the company if warranted.”
Sam Wyly learned the hard way about the importance of good
governance practices. In 1995, when he was serving as chairman of Michaels
Stores, he was criticized for his involvement in a deal with Lehman
Brothers. As part of that arrangement, he benefited when the price of
Michaels’ shares fell. In 1998, Calpers named Michaels Stores on its focus
list of underperforming companies, and said the company had committed
“some of the most egregious corporate governance practices” among its
industry peers. The pension fund noted that although the company’s stock
price plummeted between 1993 and 1996, the board awarded “generous golden
parachutes.”
“Sam has 36 years of mistakes, and has shown ample
eagerness to learn,” said Dennis Crumpler, a dissident nominee to Computer
Associate’s board.
To give both slates of candidates for the Computer
Associates board an opportunity to discuss their positions on the issues
that concern shareholders, Gary Lutin, who cosponsored similar programs
for the New York Society of Security Analysts, is conducting a forum open
to all Computer Associates shareholders and members of the Association of
Investment Management and Research. Those interested in participating
should contact Lutin by email at
gary_lutin@msn.com
or by phone at 212/605-0335.
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Investor Responsibility Research Center
1350 Connecticut Avenue, NW, Suite
700
Washington, DC 20036
Tel: (202) 833-0700
Fax: (202) 833-3555
cgs@irrc.org
Editor: Rosemary Lally
Contributors: Brian Belensky, Allie Monaco,
Maria Carmen S. Pinnell and Virginia
Rosenbaum