NEW YORK -- The Council of Institutional Investors' ninth annual Focus List of underperforming companies includes some familiar names.
Several of the 20 companies have made the list several times, with Kmart being the all-time leader, having the dubious distinction of making the list four times.
Dillard's, Loews and Tenneco have been on the list three times each, and Adobe Systems, Advanced Micro Devices and Mallinckrodt have been on the list twice.
The other companies on this year's list are Bausch & Lomb, Cabletron Systems, Cooper Tire and Rubber, Data General, First Data, Fort James, Ikon Office Solutions, The Limited, National Semiconductor, Parametric Technology, Reebok International, Silicon Graphics and St. Jude Medical.
These companies underperformed their industry peers for the one-, three- and five-year periods ended July 31.
Five of the 1998 companies have been on the list for consecutive years: Dillard's Inc., Little Rock, Ark., and Troy, Mich.-based Kmart Corp. for the past three years; and Adobe Systems, San Jose, Calif., Loews Corp., New York, and Mallinckrodt Inc., St. Louis, for two years in a row.
Responding to Kmart's third consecutive year on the list, Floyd Hall, the company's chairman, CEO and president, said, in comments to the Council, "We have worked diligently to put in place the management team, the fundamental financial structure and operating expertise to significantly improve performance."
A slightly different methodology was used to determine the 1998 Focus List. For the first time, the council included a three-year performance period in determining the list. In the past, the council only covered stock performance for one- and five-year periods.
Officials at several Focus List companies criticized aspects of the selection methodology in comments to the Council. Kenneth I. Watchmaker, executive vice president and chief financial officer of Reebok International Ltd., Stoughton, Mass., said, "We believe the methodology used for selecting Reebok is misleading since Reebok's performance is compared to only one other company in the industry -- the industry leader (Nike) -- and not assessed against the numerous other U.S. athletic footwear companies."
And Tenneco Inc. Chairman and CEO Dana G. Mead said that while Standard & Poor's Corp. places the company in its diversified manufacturing industry group, "security analysts who regularly follow the company rarely put us in that category (only two of 11) and popular rankings by major business publications (Fortune and The Wall Street Journal, among others) also use a specific industry."
Tenneco, based in Greenwich, Conn., has undergone a "major transformation," in the past seven years, according to Mr. Mead. In July, Tenneco announced a program designed to further enhance shareholder value, under which it will cut structural costs by $100 million a year over the next two years and explore other options to maximize its stock price.
The Limited Inc. Chairman Leslie H. Wexner sent a four-page response to the Council. He said that in addition to eliminating the "distractions" of noncore businesses, the company had started to "wage a war" to attract top management talent.
Mallinckrodt recently repurchased about 2 million shares of its stock, "showing that we think it's a good investment," said Barbara A. Gould, vice president of investor relations. She said the company's stock had suffered because Mallinckrodt "overpromised" on its 1999 earnings in 1997 and recently had to lower analysts' expectations.
Advanced Micro Devices, Sunnyvale, Calif., must compete with the much larger Intel Corp., Santa Clara, Calif., and has suffered by comparison. Spokesman Scott Allen points out that even though AMD's stock price has declined, "the market is much better when there is competition." He added, "Our challenge now is to execute our planned business strategy. If we can do that, our stock price will take care of itself."
Cooper Tire & Rubber Co., Findlay, Ohio, "has a full contingent of plans in place to improve the price of our stock," said spokeswoman Patricia Brown. The company has its "Cooper 21" strategic planning initiative. It recently put a fact sheet about the company in Investor Direct magazine. "In all financial measurements compared to our peer group Cooper is doing well, except for our stock price," she added.
High insider stock ownership and CEO continuity characterize several 1998 Focus List companies. Six companies -- Adobe Systems, Advanced Micro Devices, Dillard's, The Limited, Loews and Reebok -- are headed by company founders or co-founders, and CEOs of two others -- Cabletron Systems, Rochester, N.H., and Parametric Technology Corp., Waltham, Mass. -- have been executives and directors for more than a decade.
Cabletron spokeswoman Betsy Winckler said in a statement that the company is taking aggressive steps to improve its performance, including hiring new marketing and technology executives, and expanding its new product offerings and its international focus, with the goal of having 50% of its revenue come from foreign markets.
Parametric announced a share repurchase program last month, with the board authorizing the buyback of up to 20 million shares. "Consistent with our overall goal to enhance shareholder value over the long term, we believe that this is an effective way to return value to our shareholders," Steven C. Walske, chairman and chief executive, said in a press release.
Family members also sit on several of the Focus List companies' boards and in their executive suites. Five members of the Dillard family, including company founder William Dillard, are executives and directors of the retailer; and five Tisch family members, including co-chairmen Laurence A. and Preston R. Tisch, are executives and directors of Loews. The wife of The Limited's founder Leslie Wexner sits on the retailer's board; previously his mother, Bella, was a director.
Nine 1998 Focus List companies -- Advanced Micro Devices, Cabletron Systems, Dillard's, The Limited, Loews, Mallinckrodt, Parametric Technology, Reebok International and St. Jude Medical -- fail to meet the council's standard for board independence. Loews has the least independent board; only two of its 12 directors qualify as independent under the council's definition.
