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ICN Pharmaceuticals, Inc.
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ICN Committee to Maximize Shareholder Value
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The ICN Committee to Maximize Shareholder Value
May 10, 2001
Dear Fellow Shareholders,
We are enclosing a reprint of this week's Fortune article, "The Dirty
Half Dozen: America's Worst Boards," which names ICN Pharmaceuticals to
Fortune's fourth annual list of America's worst corporate boards. We think
you'll agree it makes very interesting reading.
In the same article Fortune inducted Occidental Petroleum (which
previously made it onto both Fortune's first and second annual lists of worst
boards) into its Hall of Shame of worst corporate boards. You'll recall that ICN
just this February appointed not one but two long-time Occidental Petroleum
directors - CEO Ray Irani and Rosemary Tomich - to ICN's board. Irani is up for
election this year as one of management's three nominees.
The Fortune article describes ICN's Board as "an absolute joke . . . .
handpick[ed]" by Milan Panic. Do you really think this dreadful public image has
no impact on the value of ICN shares?
Our nominees are totally independent of Milan Panic and are committed
to maximizing shareholder value. And that's no joke!
The ICN Committee to Maximize Shareholder Value
Your Vote is IMPORTANT
We Urge You to Cast Your Vote
"FOR" The Committee's Nominees on the enclosed GOLD Proxy Card Today
If you have any questions or need help voting your shares, please contact
Mackenzie Partners
(212) 929-5500 (call collect) or (800) 322-2885
or by email at:
proxy@mackenziepartners.com
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The enclosed article was reprinted through the courtesy of the Editors of
Fortune (C)2000 Time Inc. Fortune has consented to the use of this reprint as
proxy soliciting material.
This reprint was first made available to shareholders on or about May 10, 2001
May 14, 2001
FORTUNE
on the job
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The Dirty Half-Dozen:
America's Worst Boards
For those who track bad corporate governance, the year 2000
provided an embarrassment of riches. BY MATTHEW BOYLE
There's nothing like a bear market to thrust a bad board into the spotlight.
Accordingly, FORTUNE's fourth annual list of America's worst boards consists
mostly of newcomers--corporations whose governance in 2000 was so outrageously
awful that it bested (worsted?) even the stinky performance of runners-up
Conseco, Disney, General Motors, and Motorola. (Lest you think we've forgotten
the perennial baddies, we've inducted them into our Hall of Shame, which
follows; we also created a Hall of Fame for boards that do an outstanding job,
year after year.) As always, we queried institutional investors, corporate
governance gurus, investor advisory firms, and shareholder-rights activists for
nominations. FORTUNE made the final selections. Got your proxy card ready? Here
we go.
Bank of America: Bombastic Chairman/CEO Hugh McColl finally retired last
month, but the ex-Marine's spirit lingers in the form of a huge 17-member board
dominated by McColl's Carolina cronies, whose status as "independent directors"
leaves much to be desired. Particularly galling to shareholders is the board's
cozy compensation committee. Last year it included O. Temple Sloan and Alan
Dickson, who chair the boards at Raleigh's Highwoods Properties and Charlotte's
Ruddick Corp., respectively. Bank of America leases space from subsidiaries of
both companies, and McColl serves on the board at Ruddick. The committee also
includes Paul Fulton, who named a building after McColl when he was dean of
UNC's business school, and Meredith Spangler, wife of C.D. "Dick" Spangler, a
huge shareholder who has been McColl's buddy and neighbor for four decades. No
surprise that this crew saw fit to hand McColl a pay package worth $76 million
in 1999 and $4.4 million in 2000, even though the company--groaning under the
weight of bad loans and messy integration issues from the now-infamous
BankAmerica/NationsBank merger in 1998--has underperformed the S&P's banks
composite index for four years running.
Eastman Kodak: Most observers we spoke to gave Kodak's board an "F." Why?
Entrenched directors, a history of outrageous pay, and a pronounced inability to
adapt to changing times. For four straight years, the majority of shareholders
who voted have chosen to eliminate Kodak's staggered board (in which only a few
of the directors are elected each year), and for four straight years the company
has ignored them; company bylaws state that 80% of shares outstanding are needed
to change the way the board is elected. Then there are Kodak's widely criticized
compensation practices. In 1999 the board made economic profit/economic value
added (EVA) the sole performance measure to determine the size of management's
bonus pool. But it quickly soured on the EVA standard when it resulted in
bonuses being slashed in 2000; Chairman/CEO Dan Carp's bonus was chopped almost
in half. So in Kodak's latest proxy, the board's compensation committee has
proposed adding 19 new performance measures to the bonus plan, including revenue
and cost reduction. The committee can pick and choose which performance measure
to use in any given year, so management is virtually guaranteed a cushy bonus.
All this while Kodak's stock recently closed about 40% off its 52-week high.
Great Lakes Chemical: This Indianapolis-based producer of flame retardants,
swimming-pool chemicals, and other products makes our list for several reasons.
First, the company has twice ignored majority shareholder votes (based on shares
voted) to eliminate its staggered board and its antitakeover poison pill; it
could do so because the proposals didn't get a majority of shares outstanding.
Last year the New York City Employee Retirement System spearheaded a no-vote
campaign to withhold approval for the two board candidates nominated that year.
The campaign garnered about one-third of the total shares outstanding, widely
considered the biggest no-vote ever. Meanwhile, the board has been liberally
bumping up CEO Mark Burliss' salary (from $482,500 in 1998 to $745,385 last
year) even as Great Lakes' performance stagnates. Net income was down 9% in
2000, and the company has vastly underperformed a peer group of its own choosing
since 1995.
ICN Pharmaceuticals: If Fox ever decides to do a TV show about a power-hungry
CEO, ICN's Milan Panic would be a great model. The show would have sex (Panic
has settled half a dozen sexual harassment claims), political intrigue (he was
Prime Minister of Yugoslavia in 1992-93), and courtroom battles (the feds are
mulling civil and criminal charges against the company on offenses that include
insider trading). Comic relief would be provided by ICN's directors.
The board is an absolute joke, turning a blind eye to Panic's shenanigans and
even lending him $3.5 million to pay off his sexual harassment settlements.
Several of the so-called independent directors, including members of the
compensation committee, have taken consulting fees from the company, a practice
that ended only last year. Each member of the staggered board gets 15,000 stock
options every year, an obscene amount. (By comparison, directors at Johnson &
Johnson get 2,700.) There is no nominating committee; Panic handpicks all
directors. The stock? It's 40% off its 52-week high, and ICN just sliced $9.25
million from last year's already dismal earnings in anticipation of a settlement
of its legal woes.
[Text Box containing text reading:
Hall of Fame Hall of Shame
A good board is hard to find, but a Entrenched, clubby, blind to
few draw raves year after year. shareholder concerns: These boards
just don't get it.
Coca-Cola. This feisty board isn't Advanced Micro Devices. Talk about
afraid to make waves, nixing CEO Doug weak: This board slavishly kowtows to
Daft's plan to acquire Quaker Oats omnipotent founder/CEO Jerry Sanders.
last year.
Intel. Its big-name directors Archer Daniels Midland. As the stock
regularly assess one another's falls near ten-year lows, the
performance, a rarity in the family-controlled board twiddles its
boardroom. thumbs.
Pfizer. This year, the Wharton School Maxxam. With loads of common and
named this board - packed with heavy preferred stock, CEO/Chairman Charles
hitters - the second best in the Hurwitz has most of the voting power.
nation.
Target. The proof is in the Occidental Petroleum. Its board pays
performance: This unflashy board has CEO Ray Irani obscene amounts even as
presided over years of solid returns. the company underperforms its peers.
Texas Instruments. Deadly serious Warnaco. This board, dominated by
about good governance. TI's board had Chairman/CEO Linda Wachner, seems to
near-perfect attendance in 2000. exist solely to redefine excessive CEO
pay.]
Lucent: The board hasn't taken nearly enough blame for fiddling while Lucent
burned in 2000, sending more than $200 billion in market value up in flames.
Last October the board showed CEO Rich McGinn the door and welcomed back former
Chairman/CEO Henry Schacht, but axing McGinn did little to address Lucent's
fundamental problems, which are now so bad that it had to issue a press release
last month to refute bankruptcy rumors.
The board itself is overpaid (directors get a $100,000 annual retainer, twice
as much as that of Nortel's board and three times as much as Cisco's), overripe
(only one director is under 60), clubbish (it has just six members, five less
than the average S&P 500 firm), and staggered. There's no nominating committee,
and important functions that merit their own standing committees (audit,
finance, compensation, corporate governance) are simply lumped together. This
"suggests that [the board] has not yet recognized the importance of focused and
independent oversight," says Nell Minow, editor of the Corporate Library, an
online trove of corporate governance information.
Xerox: Xerox is a textbook example of a high-profile board asleep at the
wheel. Over the past two years, the once proud document giant has been plagued
by everything short of locusts: missed earnings estimates, plummeting stock,
mounting debt, and an SEC investigation of dodgy accounting practices in Xerox's
Mexican operations. What have the venerable directors (average age: 62) done?
Very little--perhaps because they were busy at other meetings (most of Xerox's
directors serve on at least four other boards).
[Text Box containing text reading:
What have Xerox's directors done? Very little - perhaps because they were busy
at other boards' meetings.]
Last May, when the board fired CEO Richard Thoman, board chairman Paul Allaire
quickly re-inserted himself into the CEO's seat and blamed everything on Thoman
(but not before giving him a $13 million severance payment and $800,000 annually
for life). Never mind that Allaire had signed off on Thoman's strategy to
reorganize the sales force and consolidate Xerox's billing operations--actions
that destroyed employee morale and sent customers fleeing. And never mind that
things only got worse after Thoman left. Last summer Allaire told investors that
there would be no more surprises; then in October he said that the company had
"an unsustainable business model." Sounds like a surprise to us. So pardon us
for not being thrilled that the company lost less money in the first quarter of
2001 than analysts expected. Shareholders prefer to jump up and down for
profits.
(C)Copyright 2001 Time Inc. All rights reserved. Reproduction in whole or in
part without permission is prohibited.