December 15, 2002
In the Empire of Siebel, Stirrings of Rebellion
By GRETCHEN MORGENSON
T last, more and more institutional shareholders are sharpening their pitchforks and taking them up against imperial corporate executives.
The Teachers' Retirement System of Louisiana has sued Siebel Systems, contending that since 1996, the company's board has awarded more stock options to Thomas M. Siebel, the founder and chief, than shareholders have approved and that some grants to Siebel directors have not been disclosed. The suit also contends that the company has improperly accounted for options issued at a discount to prevailing market prices. As a result, the suit questions Mr. Siebel's certification in August of the company's financial statements.
The $10.6 billion retirement fund, which owns 392,000 Siebel shares, has asked executives and directors, including Charles R. Schwab, the brokerage firm executive, to return what it calls the "tainted options." Mr. Schwab did not return a call seeking comment.
Stuart M. Grant, a partner at Grant & Eisenhofer in Wilmington, Del., represents the pension fund. Siebel Systems "fosters an environment of the all-powerful C.E.O. and an abdicating board," he said. "They are fighting us, but we're saying, `If you cure this corporate governance problem, you will be a better company.' "
A Siebel spokesman said that the company had never issued options at discounts to the market price and that its accounting and disclosure were proper. The company called the suit baseless; it must file a response by Christmas.
Since its creation in 1993, Siebel has been a big believer in stock options. From 1996 through 2001, Mr. Siebel received options worth almost $1 billion at the time of the grant, the lawsuit says. Siebel Systems' stock has lost 94 percent of its value since its 2000 peak and is down 72 percent this year, so many of his options are underwater. But from 1998 to 2001, Mr. Siebel exercised almost six million options and realized gains of $321 million related to them.
From 1996 to 2000, according to the suit, Mr. Siebel got the maximum number of options and a higher salary and a bonus. In recent years, according to the complaint, the compensation committee met less and less.
In 1996, when he received $320,000 in cash and two million options, the committee met five times. In 2000, when he got $2.5 million in cash and eight million options, it met once. Last year, the committee did not meet at all. It gave Mr. Siebel only $1 in cash compensation but again gave him the maximum eight million options.
According to the suit, the compensation committee members realized more than $36 million through their own option exercises. They are A. Michael Spence, a partner at Oak Hill Venture Partners, and Eric E. Schmidt, the chairman of closely held Google Inc., the Internet search engine. Mr. Spence did not reply to an e-mail message seeking comment; Mr. Schmidt did not return a phone call.
Siebel Systems says its option program motivates employees, but it is not clear why Mr. Siebel needs motivating. He owns 7.5 percent of the company's stock, a stake that is worth around $280 million at current prices.
Siebel's reaction to the case shows that its executives continue to believe that me-first practices, so common during the bubble, are fine even now. Before the suit was filed, Mr. Grant said, the fund tried to persuade the Siebel executives to make the board more independent and return the options it said had been granted improperly. The fund also asked Siebel to let an independent accountant decide the option accounting issue. Siebel declined on both counts.
Amazing, isn't it, how some executives think it's still O.K. to stuff their pockets with stock options, then stiff-arm the owners who complain?
nytimes.com |
