This year has turned into one of the most significant in terms of corporate governance issues and shareholder rights since the turbulent 1980s. Events involving major corporations such as Chrysler Corp., Quaker Oats Co., Archer Daniels Midland Co. and Morrison Knudsen Corp., to name just a few, show institutional shareholders cannot let down their guard in asserting their rights. At some companies, boards of directors and managements still don't appreciate the constructive role of shareholders exercising their prerogatives by asking questions and demanding answers.
At Chrysler Corp., for example, management and the board seem to regard Kirk Kerkorian as a raider. But he has proved, after five years of owning the stock, that his role is more complex and certainly hasn't been short-term oriented. His clumsy takeover effort with Lee Iacocca notwithstanding, Mr. Kerkorian has helped raised Chrysler's stock price, which had been falling in the beginning of the year, through his moves to influence control.
Shareholders might have been slow to recognize the value of Mr. Kerkorian's contribution. While fiduciary duty compels institutional shareholders to seek the best value, they proved they are hardy willing to chase deals like Mr. Kerkorian's bid last spring, regardless of price. Yet now they seem to realize Mr. Kerkorian has brought to light major issues, such as cash policy, product quality and competitiveness.
Mr. Kerkorian may not have the answers to these issues. But management may not either. Shareholders should want management to examine issues overlooked because of the company's generally good track record. But shareholders know yesterday's cars, or strategies, won't sell tomorrow.
To paint Mr. Kerkorian as a corporate raider is unfair. He has held stock in the company for five years - certainly qualifying him as a long-term holder - and he is the company's largest shareholder, controlling 14.1% of the outstanding stock. Chrysler's directors and management own together a mere 0.8% of the shares. Certainly, he deserves to have representation on the board of directors, as he requested recently. Mr. Kerkorian, in fact, has called for the adoption of an anti-greenmail bylaw, showing his group isn't seeking to benefit at the expense of other shareholders.
A look at a few other notable companies show the problems that can occur when shareholders act too late rather than too precipitously.
Quaker Oats continues to struggle with its controversial, nearly $2 billion acquisition of Snapple Beverage Corp.; Quaker's president, Philip A. Marineau, who oversaw Snapple, resigned. William D. Smithburg, Quaker's chairman, is taking over Snapple's operations. The new responsibility, while making the chairman more accountable, may be too overwhelming with other Quaker duties to improve Snapple.
ADM now faces serious, complex investigations. Shareholders ignored the board's coziness and the power of its chairman, Dwayne O. Andreas.
Morrison Knudsen is struggling to survive after years under William J. Agee, whose record before he came to the company was controversial and thus deserved tougher scrutiny by its shareholders and board.
In some of these companies, it's now too late for shareholders to do more than try to piece together a viable concern. But they have time in cases like Quaker and Chrysler, where fine companies still exist. It's never too early to act to keep a company strong.
