BellSouth Corp., Abbott Laboratories and Wyeth are the largest companies, in terms of market capitalization, that are most likely to face securities class actions over the next 18 months, according to a report by the Corporate Library, a corporate governance research firm. The largest firms least likely to face a lawsuit are Mosaic Co., Weight Watchers International Inc. and Titanium Metals Corp. In all, the Corporate Library identified 75 companies most likely to face lawsuits and 50 others that were least likely.
The predictions were based on newly developed screens. The new analysis identifies six key factors which, in combination with share-price volatility, leverage and other performance fundamentals, "provide a reliable tool for assessing the probability of (securities class action)," according to a statement about the study. The key factors are: excessive CEO compensation; director age, tenure, over-commitment and lack of independence; percentage of institutional ownership; industry-specific risk; company size; and share trading volume.
The study contains suggestions for reducing the risk, such as trimming excessive CEO compensation. "Excessive CEO pay remains the single most statistically significant governance indicator of (securities class action) risk," the study said.
Brent Fowler, BellSouth manager-corporate communications; Douglas Petkus, Wyeth spokesman; and Scott Stoffel, Abbott spokesman; said they couldn't comment on the scores without seeing the report. Calls for comment were not returned by Linda Thrasher, Mosaic spokeswoman; Donna Fontana, Weight Watchers vice president-public relations; and Bruce P. Inglis, Titanium Metals vice president, finance-operations.