Shareholders' new power reshaping the corporate landscape of America

February 01, 1993|By New York Times News Service

NEW YORK -- Only a week ago, James D. Robinson III appeared to have won the battle of the board room at American Express Co., persuading the company's directors to keep him on as chairman.

But within days, large shareholders began to sell stock or meet with the board and top executives, seeking his ouster. Friday night, Mr. Robinson gave in and resigned.

The news provided a dramatic end to a remarkable week in U.S. corporate history. IBM and Westinghouse, two very large corporations with many unhappy shareholders, announced that their chief executives would be leaving.

And Sears, Roebuck and Co., also the object of shareholder criticism, said it would close its historic catalog operations, lay off 50,000 workers and close 113 stores in an effort to increase profits and its stock price.

At all these companies, the changes were a sign of a shift in power, with shareholders gaining more leverage over the executives and managers of the corporate world. The shareholder rights movement, once a theoretical concept pushed by a band of academicians in the 1980s, is now reshaping the corporate landscape.

At American Express, for example, representatives of the largest shareholder, J.P. Morgan Bank, which owns 13.2 million, or 2.77 percent, of the company's shares, met with top executives to lobby against Mr. Robinson. So did other large stockholders, including Alliance Capital and Putnam Management.

At Westinghouse, large shareholders began to meet with top executives in October, pressing for the sale of the company's troubled financial services subsidiary. The executives agreed, but the subsidiary was not sold. So the large shareholders pressed for a new management team, and the directors agreed.

"Shareholders have suddenly pulled together as a power base," said John Wilcox, chairman at Georgeson & Co., which helps companies manage shareholder votes by soliciting proxies from holders who cannot attend meetings.

"They are talking about the real stuff of corporate performance, not just theoretical things. The economic problems at many companies combined with this increased power of shareholders has left many companies vulnerable."

The leading activist is the California Public Employees' Retirement System. With $72 billion to invest, the fund owns stock in more than 1,000 companies. The state pension funds of New York, Massachusetts and Wisconsin are also very active.

The movement is based in the belief that the shareholders, either as individuals or collectively as mutual funds, pension funds or other institutions, should exercise power as influential owners of a corporation.

Rather than accepting that the corporation is the fief of a chief executive and his hand-picked board, these investors say the corporation must respond to their demands for better performance and higher profits. The blows struck by these shareholders have already been felt in executive suites throughout the United States and have brought about significant changes in companies' strategies and leadership. The movement has also forced corporate boards into a new activism that has turned them into tough overseers rather than silent partners.

"There's been a huge shift in power within companies," said Ralph Whitworth, president of the United Shareholders Association, an investor activist group in Washington. "We're seeing things move in the direction of major structural and managerial changes."

Institutional shareholders, concerned about lagging corporate performance, were behind IBM's decision to seek a replacement for John F. Akers, its chairman and chief executive. And it was shareholders who successfully sought the ouster of Paul E. Lego at Westinghouse Electric Corp.

Earlier, shareholder pressure had been instrumental in galvanizing General Motors' directors to seek the resignation of Robert C. Stempel as chief executive.

"In these cases, boards have no choice but to act," said James E. Heard, president of Institutional Shareholder Services, a consultant to pension funds on shareholder issues. "How can they say to their largest shareholders, who are not quick-buck artists, that they have no right to raise questions about corporate performance? The ripple effect of what happened at IBM and GM at other companies is bound to be significant."

As recently as three years ago, the shareholders' rights movement was largely an academic exercise, as some pension funds led generally unsuccessful proxy fights against leading corporations.

In many battles, shareholder activists sought to gain board seats or to change rules so that it would be easier for those outside the company to be elected to corporate boards and their key committees.

The movement was born amid the takeover battles of the 1980s, as some institutional shareholders became dismayed that corporations erected elaborate defenses to avoid being taken over, in some cases denying large shareholders the chance to accept a would-be acquirer's top dollar for their holdings.

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