I. Introduction : 1995--Stone & Webster annual meeting. One candidate was a woman with $1 billion in assets but only 100 shares of S&W stock. S&Ws response.

Background : LENS, what we do, how we pick companies, premise--even a small (but vocal) shareholder makes a difference

Goal : Corporate governance is about the relationship between shareholders, boards, and managers. The goal is making sure the right questions get asked. It is not a coincidence that the worst corporate performers of the 1980s were the ones that had once been so securely on top that they stopped asking questions.

• IBM vs. ATT (and vs. Compaq)
  
• Sears vs. Motorola

II. Shareholders get mad

• 1930's-60's--Gadflies
  
• 1960's-70's--Social issues
  
• 1980's--Corporate governance, from takeovers to executive compensation
  
• 1990's--Investing in activism (SEC and IRS rules change the calculus of the risk/reward ratio)

III. The evolution of the CEO --as seen by Fortune magazine

• 1990 "The Pharonic CEO"--presented only in the context of the employees, no mention of shareholders and the only reference to the board implied that the CEO and the board were the same thing.

• 1993 "The King is Dead"--the CEOs of GM, IBM, Westinghouse, Kodak, American Express--the corporate equivalent of Mount Rushmore--all gone. This article was all about shareholders and boards of directors.

IV. The awakening of the board

• Like sub-atomic particles, they behave differently when they are observed.
  
• Our 1991 full page ad in the Wall Street Journal called the Sears board "non-performing assets."
  
• The Journal now routinely includes the names of directors in relevant stories. GM guidelines -- "What's good for General Motors is good for board rooms all across America."

But--Grace, Morrison-Knudson, CalPERS failing grades and the Queen of Hearts

V. New forces in the field

• IRAA [(516)829-2823]
  
• NACD [(202)75-0509]
  
• Bulletin Boardroom [(612) 871-5375]
  
• CalPERS--grades, Ralph Whitworths fund
  
• Executive comp--still an issue
  
• Capital Allocation report
  

VI. Governance = value

• Models: Motorola vs. Minow

• Minow model relies on substitutes--board stock ownership, executive session meetings, board and CEO evaluation, annual election of directors and confidential voting

• Investing in governance--governance profiles, director stock ownership, etc. As predictors or indicators, as opportunities for change--Opler study, Wilshire study

• Dont list--missing meetings, insiders on committees (including non-profits), pay (see Borden speech), stiffing shareholders

A corporation's challenge--and commitment--is to confront risk and to lead or at least manage change. Corporate governance structure is the best way to assure that over the long run by making sure that the right questions are asked, and that they are answered by the people with the best access to information and the fewest conflicts of interest.

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