agree we should get a stimulus package and bush should push some type of prescription drug program for elderly. both would be winners in the fall elections..
on another sad note...
Polaroid workers dealt new setbacks on stocks
By Jeffrey Krasner, Globe Staff, 1/20/2002
t was bad enough that Larry Cullen of Westford watched $84,000 in
Polaroid stock disappear as the price sank from its July 1997 high of
$60.25.
It got worse when the 33-year company veteran opened a letter dated Dec. 18
from the company, and learned that his shares were gone. The stock he had
acquired through Polaroid's employee stock ownership plan, and had paid for with
part of his salary, had been sold. He got 9.46 cents per share.
''I didn't think they had the right to do it once we were severed from the company,''
said Cullen, who was laid off in October. ''I thought they were my shares.''
The bankruptcies of Polaroid Corp. and Houston's Enron Corp. have highlighted
the risk in retirement plans that are heavily weighted in a single stock.
When those shares are company-sponsored stock-ownership plans, little-noticed
rules often prevent employees from selling shares before they leave their jobs. The
plans can leave workers completely exposed to the vagaries of the stock market,
even as executives, who own shares outside of the plans, are free to sell.
But the sale of the Polaroid employee-plan shares illustrates another
little-appreciated risk of the plans: Participants often have little control over their
investments, and they can find themselves stripped of the ownership rights they had
paid to acquire. Even though the shares are nearly worthless, as stockholders the
employees - who owned about 15 percent of Polaroid through the plan - could
have banded together and influenced the fate of the company in court.
''This situation clearly raises issues about when participants have a vested right in a
share, and then it's sold,'' said Matthew Nestor, chief of the state Securities
Division. ''We don't have a definitive answer whether Polaroid or the trustee had
the authority to sell those shares.''
Senator Edward M. Kennedy plans to make inquiries about the sale next month at
a Senate hearing. ''If the rules were different, workers would have had an
opportunity to sell the stock before it got down to 9 cents,'' said a Kennedy aide
who declined to be named. ''We expect to be introducing legislation to prevent this
situation, so you won't have another Polaroid or Enron.''
Polaroid said it had played no role in the sale of the shares. The employee plan was
overseen by State Street, a subsidiary of State Street Corp., the Boston banking
firm, which also provides support services for benefit plans, mutual funds, money
managers, and other financial operations.
''We didn't sell the shares; the trustee sold the shares,'' said Skip Colcord, a
Polaroid spokesman.
State Street Bank and Trust officials declined to comment.
Why, then, were the shares sold? Polaroid, in a letter to participants, gave this
account: The employee stock ownership plan, known as ESOP, being set up to
invest in Polaroid shares, was precluded from diversifying.
When Polaroid filed for bankruptcy, State Street reviewed whether the shares
should be sold because of the ''extraordinary'' circumstance. It hired a consultant,
who came to the conclusion that the shares would ultimately be worthless. ''As a
result, State Street as trustee decided that it was in the best interests of the
participants to sell the shares,'' Neal D. Goldman, Polaroid's general counsel, wrote
in the letter.
One person close to the process said State Street had been reviewing the Polaroid
account before the bankruptcy filing because of the company's rapid financial
deterioration. ''They made the decision to sell when there was strong evidence and
opinion that the shares were going to have no value,'' said the individual, who
declined to be named.
Both companies' explanations have raised questions.
''As a fiduciary, why did State Street wait until it was 9.4 cents a share?'' asked
Theodore Benna, a benefits consultant who helped create the first 401(k) savings
plan in 1981. ''Where in the heck were they earlier on?''
Benna also questioned State Street's decision to unilaterally liquidate the shares:
''Why didn't they provide the information to the participants and let them make their
own decision? It seems to me to be so obvious that that would be a better
strategy.''
Polaroid declined to provide a copy of the trust plan, which spells out the
responsibilities of the trustee, and which could shed further light on State Street's
decision. The company said the document was available only to ESOP
participants. However, several of the participants said they had sought copies of
the plan, but had been stalled by Polaroid officials.
Polaroid's stock ownership plan was created in 1988, in an effort to make workers
feel invested in its success. Workers paid up to 8 percent of their salaries for the
shares.
On their company identification badges, each worker who invested was called an
''employee-owner.''
Just after the stock ownership plan was established, Polaroid faced a hostile
takeover bid by a group led by Roy Disney. The ESOP played a crucial role in
thwarting that bid. Workers were fiercely loyal to the instant-photography company
founded by Edwin H. Land, and without the votes from the ESOP shares, Disney
was unable to gain control.
But as Polaroid's fortunes waned in the late 1990s, the ESOP became a source of
frustration. Employees couldn't sell their shares until they left the company. (A
change in 1998 enabled workers over the age of 55, with at least 10 years of
participation in the ESOP, to exchange up to 25 percent of their shares for other
investment options.)
As Polaroid's stock sank, employees saw a big piece of their life savings
evaporate.
Just after the bankruptcy, the stock traded for about 25 cents. Though resigned to
the loss, many employees and those recently laid off still wanted the rights
accorded to owners, such as the ability to vote at annual meetings and to launch
shareholder resolutions.
The ESOP's history, as a vehicle that gave employees voting rights used to block
the Disney takeover, makes the sale of the shares more outrageous, said Corey
Rosen, director of the National Center for Employee Ownership, an advocate for
such plans.
Rosen attributed the disaster to outdated laws overseeing ESOP arrangements,
which are lumped with other retirement plans. State Street, he said, was barred
from considering those participants who wanted to maintain ownership positions.
''The employees participated in the ESOP because they wanted to prevent the
takeover. They wanted a governance role,'' Rosen said. ''But the trustee is required
by law to make decisions for the exclusive benefit of participants as participants,
not as shareholders.''
Perhaps most importantly, a group of shareholders is seeking official recognition
from the US Bankruptcy Court in Wilmington, Del. If they succeed, the
shareholders could influence Polaroid's restructuring, and perhaps boost the value
of the penny stock.
''Our goal is to repay creditors and retain our equity position in the company,'' said
Steve Morgan of Natick, who claims to have letters of support from 600
shareholders who hold about 25 percent of Polaroid's stock. He wants to replace
current management with a team interested in rebuilding the company, rather than
selling it off.
But with the ESOP shares now dispersed in the open market, Morgan is unable to
seek support from the former employee-owners. He has to start over, locating the
new owners of the shares and writing to ask them to join his group.
Some former employees say Polaroid had directed the sale to remove the threat of
an angry, cohesive group of shareholders. ''If the ESOP still had its 15 percent
interest, it could have joined with the activist equity group and created major
problems for present management,'' said Gerald Dicker, a former vice president
who left the firm in 1996. ''Polaroid blocked this by killing the ESOP for its own
interests.''
Colcord, the Polaroid spokesman, said: ''The stock is selling right now at
approximately the same price cited in the letter. Anybody who wanted to could go
out and buy the shares back.''
Jeffrey Krasner can be reached by e-mail at krasner@globe.com.
This story ran on page A1 of the Boston Globe on 1/20/2002.
© Copyright 2002 Globe Newspaper Company. |
