Illegal? Not a bit. Unethical? That's a trickier proposition, and it depends on many factors. What's certain is that top executives anxious about losing corporate control in a hostile acquisition or proxy fight have a full bag of self-preservation tools.

"Shenanigans like this can go on and on and happen constantly at public companies," says Richard Lashley, manager of PL Capital LLC, a Naperville, Ill., investment firm. "If the dissident investors don't have the wherewithal and stomach to keep the contest on, management always wins."

The goal: to weaken shareholder influence on the company while shoring up managerial control. Tactics include delaying or canceling an annual meeting to solicit more votes in proxy contests, shutting down telephone and Internet voting systems days before an annual meeting to prevent shareholders from taking part in director elections, staggering election of board members and even relocating an annual meeting to geographically isolated towns.

Netsol Technologies Inc., an auto finance software maker in Calabasas, Calif., went so far as to set its 2001 annual meeting in Pakistan, ostensibly to give shareholders a chance to examine a distant facility. Taking an even more creative route, Houston conglomerate Maxxam Inc. held its 1999 meeting in remote Huntsville, Texas, booking all the nearby hotels to discourage shareholder attendance, says Nell Minow, a governance expert and editor of The Corporate Library.

These tactics represent an effort to disenfranchise shareholders, governance experts say. And with heightened scrutiny on executives today, companies need to be cautious, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

"Management in this new governance environment needs to use more discretion and think twice before using a technicality or engaging in some entrenchment devices to defeat a resolution or put down shareholders," he says. "Using technicalities to defeat shareholders is a definite abuse."

Another such technicality is what's known as "discretionary adjournment authority." Under Securities and Exchange Commission rules, a company can adjourn an annual meeting if fraud is suspected in a proxy vote or if bad weather hampers vote collection.

But Dennis O. Garris, chief of the SEC's Office of Mergers and Acquisitions, says companies routinely abuse this privilege to abruptly end meetings to recount votes, solicit new votes or have shareholders recast their ballots in hopes of affecting the outcome.

"Companies can't just keep adjourning meetings just to solicit more votes," Garris said at a recent American Bar Association conference in Washington.

Don't tell that to Central Bancorp Inc. Midway through its September annual meeting, the Somerville, Mass.-based thrift decided to keep the polls open several weeks longer than scheduled. At the time Central was facing a governance challenge from PL Capital, which had nominated two shareholders to the company's board.

Rick Grubaugh, senior vice president at proxy solicitor DF King & Co. Inc. of New York, says Central knew it was going to lose the proxy contest and wanted more time to solicit shareholders to change their vote. Central Bancorp senior vice president William Morrissey says the polls were left open because, "We felt the election was sufficiently important and that all shareholders should get a chance to vote."

Despite the extended voting period, PL Capital's nominees were elected to Central Bancorp's eight-member board.

In another common tactic, public companies "bundle" votes on popular corporate proposals, such as a merger, with more controversial ones that solidify the power of executive insiders. That effectively deprives shareholders of the right to support a deal while rejecting a chief executive's power play.

"Because shareholders want to cash out in the merger, they're being extorted to go against their own principles and approve all the antitakeover proposals," says Herbert Denton, president of New York boutique investment bank Providence Capital Inc. and an investor activist.

"Often management gets its way, and the shenanigans can go on for months," Grubaugh says. "Then the dissident shareholder has to decide whether it has the wherewithal, stomach and capital to take the firm to court."

Paul Lapides, director of the Corporate Governance Center in Kennesaw, Ga., defends bundling. "To break out every provision in a merger would have a negative impact on the deal, and many mergers would not get done," he says.

Bundling also may protect shareholders in companies undergoing post-merger restructuring, which can lower their value and leave them vulnerable to hostile acquisition, Lapides says.

Still, Garris says the SEC is studying ways to strengthen rules intended to deter companies from abusing proxy bundling and meeting adjournment rights. "Any antitakeover bylaws that are not essential to the merger will have to be put to a separate vote," he says.

The agency hopes to clarify the bundling and meeting rules by mid-April, Garris says.

The agency has already taken steps to discourage bundling. In May the SEC persuaded AT&T Corp. and Comcast Corp. to allow shareholders to vote on controversial corporate governance provisions separately from the companies' merger agreement, under which Comcast bought AT&T's broadband unit.

To approve the $30 billion deal, which investors backed, Comcast shareholders had to approve a series of governance changes that, among other things, suspended director elections and the cable company's annual meeting until April 2005. Other highly restrictive provisions required a supermajority of board members to fire Comcast's chairman or CEO over the next 10 years and barred shareholders from calling special meetings.

Under pressure from the SEC, Comcast and AT&T eventually acquiesced on most of the controversial provisions, letting shareholders vote separately on the merger and governance bylaws.

"It's a signal that the SEC may take that position with other companies," Elson says. "It's important for proposals to be debundled."

Henry Lesser, head of mergers and acquisitions at Gray Cary Ware & Freidenrich LLP of Palo Alto, Calif., says the Comcast-AT&T deal also suggests that securities regulators need to clarify their position on bundling.

"The SEC should put out an interpretive release on bundling so merging companies know where they stand," he says. "The agency shouldn't react to bundling in a particular case."

Yet for some governance watchers, the question is just how far new SEC Chairman William Donaldson will go to resolve such confusion. Indeed, some observers have questioned Donaldson's commitment to strong governance. As CEO of Aetna Inc. in 2000, Donaldson led the insurance giant to adopt highly restrictive antitakeover provisions. Investors approved the rules in a bundled proxy vote on the sale of the Aetna's financial services division to the Netherlands' ING Groep NV for $7.7 billion.

"It doesn't seem like [Donaldson's] interests are in tune with shareholders," says John Chevedden, an independent governance activist based in Redondo Beach, Calif.

Clearly, though, Aetna isn't alone in such conduct. Companies across the corporate landscape, ranging from defense giant Raytheon Corp. to electronics conglomerate Honeywell International Inc. to energy company ConocoPhillips, routinely force-feed antitakeover measures to investors.

One recent example involves Los Angeles-based Northrop Grumman Corp.'s deal to acquire TRW Inc. in December. To vote in favor of the $6.7 billion acquisition, shareholders also had to approve a so-called poison pill, which deters acquisitions by making a target company's stock prohibitively expensive.

"If there was a separate vote on the antitakeover provisions, the pill and staggered board would have been rejected" by shareholders, Chevedden says. "They took all the drastic Northrop governance items and just lumped them in."

Northrop did not return calls requesting comment.

Perhaps the simplest way for corporate leaders to retain control is to wage what amounts to a war of attrition.

"Management discouraged by shareholder proxy fights will continue to delay annual meetings until shareholders take them to court," says Tom Long, executive vice president at DF King. "Their hope is that shareholders will not want to take the time and expense of a lengthy court case."

For instance, for five months in the summer of 2002, Liquid Audio Inc. repeatedly postponed its annual gathering to discourage shareholders bent on liquidating the El Segundo, Calif., online music company. After shareholders sued, a Delaware court ordered Liquid Audio to hold the meeting.

In a last-ditch effort to weaken the influence of dissident shareholders running for election to the company's board, Liquid's CEO subsequently proposed expanding the board from five management-endorsed members to seven. The Delaware Supreme Court in January barred Liquid Audio from stacking its board with insiders amid the proxy fight.

"The court has sent a clear message to officers and directors of a company that they will not accept any attempts to undermine democratic election of directors," says Seymour Holtzman, one of the dissident investors elected to Liquid Audio's board.

There is no charge for participation.  Franklin Mutual Advisers, LLC, the manager of funds owning approximately 12.6% of Farmer Bros. shares, provided initial sponsorship for the Forum and arranged for it to be chaired by Gary Lutin.  Continuing support and guidance of the Forum is provided by an Advisory Panel of actively interested shareholders.