This is from Friday's WSJ:
Pension System Ousts Company's Board
In Big Victory for Institutional Investors
By ELLEN E. SCHULTZ and SUSAN WARREN
Staff Reporters of THE WALL STREET JOURNAL
In a precedent-setting victory for institutional investors, TIAA-CREF, the
country's largest pension system, succeeded in ousting the entire board of
Furr's/Bishop's Inc., a struggling cafeteria company.
"It's the shot heard round the world," says Sarah Teslik, executive director
of the Council of Institutional Investors, a Washington, D.C., association
that represents more than 100 pension funds with combined assets of $1
trillion. Even though Furr's is a relatively small company, TIAA-CREF's
victory is nevertheless considered important. "Once one pension fund does
it," others are likely to follow, she said.
During a brief, subdued meeting Thursday morning at a Holiday Inn in
Lubbock, Texas, the city where Furr's is based, more than 80% of
shareholders of the struggling company, which owns a chain of cafeterias
in the South and Midwest, voted to replace the nine-member Furr's board
with a seven-member board proposed by New York-based
TIAA-CREF.
In the past, TIAA and some other pension funds have managed to get their
own candidates elected directors of companies in which they own shares,
but there is no precedent for sweeping out an entire board.
Sagging Stock Price
TIAA became the holder of 17.7% of the common stock of
Furr's/Bishop's following the company's default on debt that was issued to
TIAA and other institutional investors, resulting in a major reorganization
of the company in 1996. Since the restructuring, Furr's stock has steadily
declined, losing more than half its value. Thursday, the stock jumped
18.75 cents, or 23%, to $1 a share in New York Stock Exchange
composite trading, but that is still well below its $2-a-share level in January
1996.
Ousted Furr's board members, leaving the shareholders' meeting,
described the board changeover as "astonishing."
In recent proxy statements to fellow shareholders, Teachers Insurance and
Annuity Association-College Retirement Education Fund, as TIAA-CREF
is formally known, claimed that something was "fundamentally wrong" at
Furr's, which it says "has been operated for far too long for the benefit of a
few rather than all the stockholders."
TIAA'S proxy statements said that despite the company's poor
performance, Furr's board approved "high consulting fees, executive
compensation and golden parachutes to certain members," including a
lump sum of roughly $540,000 that Chief Executive Theodore Papit will
receive now that TIAA has succeeded in replacing the board.
Pressing for Changes
Thursday's board overhaul could chart a new course for other institutional
shareholders, coming as it does at a time when large institutions are
pressing for changes in management and structures at companies in which
they have a lot of money invested.
"Institutional investors are on a roll," says Patricia Macht, spokeswoman
for the California Public Employee's Retirement System. "It's been a big
year for institutional investors." On Wednesday, at Calpers' urging,
shareholders of Sybase Inc., a San Francisco software manufacturer,
voted to adopt annual elections for the company's directors, a move that
Calpers said would make the board more accountable to shareholders.
The public pension fund owns 423,300 Sybase shares, or less than 1%.
Sybase directors have been elected on a staggered basis, with one-third of
the board elected every three years. Calpers is the nation's largest pension
fund, with assets totaling more than $140 million.
Marriott International Vote
Last week, shareholders of Marriott International Inc. rejected the
hotelier's controversial proposal to create two classes of stock. Major
institutions including Calpers and the New York State Retirement Fund
voted against the plan, saying it served to protect the power of the
Marriott family, which holds nearly 20% of the company's stock, at the
expense of other shareholders. The vote was unusual in that shareholders
tend to support management when companies are doing well, as Marriott
has been, and to question management only during bad times.
TIAA-CREF is known for working with management to implement
changes, rather than taking an aggressive stance. So, what prompted its
Furr's challenge? Sharon Manewitz, managing director in TIAA's securities
division, said the vote "demonstrates that our views were widely shared. It
was clear that circumstances at Furr's/Bishop's warranted this
extraordinary action."
Furr's has been grappling with financial problems since the 1986 leveraged
buyout. In recent years, the company has been shutting down outlets. It
now has 102 cafeteria-style restaurants, down from 157 previously.
Mr. Papit, the chief executive, launched a remodeling project to update the
restaurants' drab interiors and outdated menus, and a new marketing
campaign with a new emphasis on take-out food. Furr's says same-store
sales have been rising over the past year, and that profitability has been
improving. In 1997, the chain reported a net loss of $5.4 million on sales
of $193.5 million, including charges of $10.5 million in writedowns and
legal settlements. That compares with net income in 1996 of $8.4 million
on sales of $197.2 million.
Difficult Period
Following the board's ouster, Mr. Lewis, the departing chairman, gave a
farewell speech in which he cited the company's recent improvements in
profitability and sales, while acknowledging "it's been a difficult five years,
and an even more difficult past 15 years." He then declared the TIAA slate
the winner and adjourned the meeting.
Departing board members expressed frustration that the plug was pulled
just as they believed the company was turning around. The board's
reorganization plan "was working powerfully," said Kenneth Reimer, a
board member since 1996. "It will be disheartening for the company to go
through another change and another leadership turnover." He noted that
84% of Furr's is owned by only eight shareholders, including TIAA, which
made it easier for the pension plan to shake things up.
Asked about Furr's future course, Suzanne Hopgood, a former Furr's
director who had resigned to be on TIAA's slate, said: "I don't think
there's anything we would rule out right now." But Ms. Hopgood, who
was named board chairman Thursday, did say the new board won't hold a
"fire sale" as suggested by Furr's management in a recent letter to
shareholders.
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