Eisner's IPO purchase under review...

[raidermatt]

Hmmm, is this the beginning of Testrack's coup?

Forbes

Disney board reviewing CEO buying IPO shares
Reuters, 12.17.02, 9:12 PM ET

By Peter Henderson

LOS ANGELES, Dec 17 (Reuters) - Walt Disney Co. (nyse: DIS - news - people) said on Tuesday its board was reviewing Chief Executive Michael Eisner's participation in a 1999 initial public offering following a shareholder complaint, the latest allegation that a corporate chief unfairly profited from his position.

The request follows a recent decision by Ford Motor Co. (nyse: F - news - people) to investigate a similar complaint, which comes amid scandals at Enron Corp <ENRNQ.PK> , Adelphia Communications Corp <ADELQ.PK> and several other major companies.

Eisner purchased 30,000 shares of Goldman Sachs Group Inc. (nyse: GS - news - people) in the investment bank's IPO, and Disney said its board, following routine corporate governance practices, had formed a committee of independent directors to review the matter.

"The committee is expected to report back to the board in early 2003. Mr. Eisner, a 10-year substantial private client of Goldman Sachs, participated in the offering at the invitation of his personal banker, and he has not participated in any other IPO," Disney told Reuters.

Disney is a corporate client of Goldman, which was co-lead manager with Salomon Smith Barney of a $300 million global bond offering by Disney on Monday.

Ford board last week agreed to study the acquisition by Chief Executive Bill Ford of 400,000 shares of the Goldman Sachs offering, sources familiar with the situation said. Ford was chairman of the auto maker at the time.

CALL FOR GREATER ACCOUNTABILITY BY DISNEY BOARD

A source familiar with the the Disney board decision said that the shareholder that had raised the Goldman Sachs issue with the board owned about 175 shares of Disney and was represented by the same law firm as in the Ford complaint, New York's Kirby McInerney & Squire, which specializes in class action suits.

The complaint comes amid heightened concern among shareholders about board oversight of management at major U.S. corporations.

Disney shareholders for the last year have called for greater accountability by its board, and the company recently revamped corporate governance standards in response.

The Disney complaint was similar to the Ford case, the source told Reuters. Both shareholders allege that the chief executives unfairly profited because the companies they headed were Goldman Sachs clients. Both complaints were also in the form of requests to the board, not lawsuits.

A representative of Kirby McInerney was not immediately available for comment.

It was not clear whether Eisner still owned the Goldman shares, which were offered in May 1999 at $53 each and closed at $74.69 on the New York Stock Exchange on Tuesday. They peaked at more than $130 in Sept. 2000.

Congressional investigators have charged that many heads of powerful U.S. corporations received privileged access to stock offerings managed by investment banks lobbying for business during the bull market of the late 1990s.

 

[Luv2Roam]

How Clean Must Our Hands Be?
Ari Weinberg, 12.24.02, 7:00 AM ET

NEW YORK - This year we've added new items to the code of responsible corporate behavior. Adelphia provided "Do not replace divots with company cash." ImClone contributed "Wait for the FDA, then sell." And, of course, Enron sponsored "Debt is debt is debt."

These and other corporate blowups spawned a morass of regulation. From chief executive officer sign-offs to options accounting, new rules are being implemented to hold executives or directors accountable for lapses in their fiduciary duty. Now shareholder inquiries put to both Walt Disney (nyse: DIS - news - people ) and Ford Motor (nyse: F - news - people ) are probing the depths of that fiduciary duty. Both concern Goldman Sachs (nyse: GS - news - people ) initial public offering shares bought by Disney Chairman and Chief Executive Michael Eisner and Ford Chairman and Chief Executive William Clay Ford Jr.

At issue, for two men inextricably linked to their companies, is whether Goldman intentionally went through the directors' private pockets to influence their public decisions. The underlying accusation is that Ford and Eisner pocketed favors that should have been reported to their boards and, in turn, become the property of shareholders.

While the recent agreement by Wall Street firms will end IPO allocations to directors of investment banking clients, both Ford and Eisner had long been private clients at Goldman. But, in a world where unaccounted-for corporate apartments or secret fees are reprehensible, the Disney and Ford queries approach a gray area--one that loses sight of the goal of increased transparency to inform investor decisions. The inquiries unnecessarily bear down on the integrity of not only the individual directors but also upon two boards that have been active in clearing up both business and corporate governance issues in their respective companies.

October media reports and a House Financial Services Committee investigation into the allocation of IPOs singled out the two executives. Without providing supporting evidence, uncommon for Congress, the committee used a broad brush to claim that executives with "investment banking business to offer were given special access" to IPOs.

At the time of the House committee report, Goldman claimed that it allocated shares to clients based on requests, assets and trading history. The formula translated into 30,000 shares for Eisner and, amazingly, 400,000 shares for Ford. Spokespersons for both companies hold that Goldman's own IPO was the only offering in which their executives participated. That differs from other Goldman clients such as Yahoo! (nasdaq: YHOO - news - people ) director Jerry Yang or eBay's (nasdaq: EBAY - news - people ) Meg Whitman , who went to the well multiple times. Whitman, conveniently, resigned as a Goldman director on Dec. 20 after just over a year in the position.

But the suggestion that Goldman or its clients were capitalizing on conflicts of interest is diminished by documents from Salomon Smith Barney, a unit of Citigroup (nyse: C - news - people ), and Credit Suisse First Boston, a unit of Credit Suisse Group (nyse: CSR - news - people ), which appear to show bankers and analysts directing allocations. In the Disney and Ford cases, physical or even tangential proof of impropriety has not yet surfaced, but that's not cutting off speculation.

Ford and Disney have obliged the inquiries. And, in the next few weeks, independent board committees will report on how the companies should account for Goldman IPO shares held by Eisner and Ford. While it may have been responsible, and perhaps legally required, for Ford and Eisner to divulge a benefit from a vendor like Goldman, there are no restrictions against a company director utilizing the private bank of his or her firm's investment bank.

"The Goldman opportunities given to Messrs. Ford and Eisner wrongfully provided them benefits which belonged to their shareholders," claims Robert Curry Jr., a senior partner at Kirby, McInerney and Squire, a Manhattan-based law firm that sent out the queries last month on behalf of an individual shareholder.

But consider the difference between these cases and other alleged violations of fiduciary duty. Last week, former Tyco (nyse: TYC - news - people ) lead director John Walsh Jr. owned up to his fault of belatedly disclosing a finder's fee for the company's acquisition of CIT Group (nyse: CIT - news - people ). Then Walsh cut a $20 million reparation check to Tyco. In September, New York Attorney General Eliot Spitzer filed a suit saying that telecom executives who allegedly failed to disclose IPO allocations directly resulting from their firm's relationship with Salomon Smith Barney should also pay up.

While the Disney and Ford inquiries may ultimately put the decision back to Eisner and Ford, the needling should serve to prod executives and directors in this era of enlightened disclosure.

Due to the nature of their agency's relationship to shareholders, directors are obligated to account to the board any profit or favor they derive from that relationship. It's not so much a stretch to consider IPO allocations a form of compensation facilitated by that agency. But to what extent do shareholders have a claim on any banking service a director may receive from his firm's investment bank. How about interest earned on the director's money market account?

"There has been a hot spot linked to forms of compensation that are not disclosed to shareholders," says Jennifer Arlen, a professor at New York University School of Law. Those range from the true cost of stock options to outlandish perquisites for retired executives. The latter caused quite a stir during the divorce proceedings of retired General Electric (nyse: GE - news - people ) Chief Jack Welch.

George Loewenstein, an economics professor at Carnegie Mellon University in Pittsburgh, says simple disclosure is an ineffective policy for dealing with such conflicts. "People were already required to disclose," he says. "Implementing more disclosure isn't going to do it."

So, what if directors disclose where they bank, who provided their mortgage, who wrote their kids' college recommendations, and which clubs they belong to? That will only muddy the waters. The real message that needs to be sent--to corporate America and individual investors--is to simply act in the most ethical manner possible.