Release Date: Mar 19, 2003
NEW YORK, PR Newswire The most sweeping reforms of the corporate boardroom ever produced through shareholder litigation are at the centerpiece of Sprint's settlement of two major lawsuits against Sprint officers and directors. The agreement announced today also recovers $50 million in cash for Sprint investors who purchased stock between October of 1999 and September of 2000.
The reforms agreed to as part of the settlement case go considerably farther than the changes in accountability that Congress achieved last year in the wake of widespread corporate scandals.
"We are proud to be part of this historic settlement that will literally end business as usual at Sprint," said Bruce Raynor, Chairman of Amalgamated Bank. "Union pension funds as shareholders in the nation's largest corporations can continue to push for changes that open closed boardroom doors and make workers' retirement accounts more secure," continued Raynor.
The agreement mandates that Sprint establish a truly independent Board of Directors and narrowly defines "independence" to eliminate cronyism between the board and top executives. Pursuant to certain corporate governance provisions that will be adopted as a result of the settlement, a number of current board members will be replaced when their current terms expire. Additionally, Sprint has confirmed that Mr. Esrey and Mr. LeMay will no longer hold executive offices at Sprint or remain on the Board, although Sprint maintains their removal is not related to the litigation.
Once the new reforms take effect the outside board directors will meet at least twice a year without management present, and an independent director will hold the authority to set the agenda, a power currently reserved for the CEO. The settlement also imposes new rules to prevent directors and officers from vesting their stock on an accelerated basis.
Another of the breakthrough reforms contained in the settlement is a lengthy and specific criterion for defining whether a director is "independent." Former employees of Sprint or a Sprint subsidiary must wait five years after leaving the company before they can be considered for the board. The same restriction applies to anyone who in the previous three years has been affiliated with a present or former auditing firm used by Sprint.
Under terms of the settlement the packages of salary, bonuses and other compensation awarded to executives will receive greater scrutiny and must be in line with industry standards. A special committee will also evaluate the job performance of executives to determine if they are meeting previously established goals.
"There has never been an occasion in American corporate history when a company has agreed to so many groundbreaking corporate governance reforms in one fell swoop," said Robert Monks, pioneer in corporate governance and reform and the founder of LENS Governance Advisors, Institutional Shareholder Services and the Corporate Library. "These reforms should serve as a model for other corporations who want to reinstate investor confidence with or without a Congressional mandate," continued Monks.
The first Sprint lawsuit, filed in 2000 in Missouri state court by institutional investor Amalgamated Bank's LongView Fund is a derivative shareholders' suit that alleged shareholders were manipulated into approving an ill-fated merger with WorldCom allowing directors and officers to accelerate $1.7 billion worth of employee stock options. According to the suit, Sprint - without shareholder approval - created a company policy that accelerated executives' stock options early for attempting a merger regardless of whether the merger took place or executives lost their jobs.
Soon after the options were accelerated, two of Sprint's top five executives left the company, along with more than 2,000 other employees, creating serious "brain drain" and damaging the company's market value, according to the lawsuit. Amalgamated, the country's oldest labor-owned bank, holds more than 600,000 shares of Sprint stock.
The settlement agreement prevents stock options from being exercised without a "double trigger" - an actual sale or merger AND a loss of employment. Sprint has also agreed to take the unusual step of fully expensing all stock options going forward.
"Thanks to Amalgamated Bank's leadership, Sprint's shareholders will finally have a seat at the boardroom table," said Bill Lerach, partner at Milberg Weiss Bershad Hynes & Lerach LLP, the firm representing a lead plaintiff, Amalgamated Bank's LongView Fund. "Today's settlement is a victory for shareholders across the country. Current Sprint shareholders and those who purchased Sprint stock at inflated prices will benefit from today's agreement," continued Lerach.
The Sprint settlement resolves all claims of the two lawsuits arising out of the attempted merger with WorldCom. The second lawsuit was filed in federal district court in Kansas as a shareholder class action by Amalgamated Bank's LongView Fund, New England Health Care Employees Pension Fund, Teamsters Local Nos. 175 & 505 Pension Trust Fund, the United Brotherhood of Carpenters, Pace Industry Union Management Pension Fund, and Plumbers & Pipefitters National Pension Fund. The suit alleged that shareholders were misled into purchasing overvalued stock between October 1999 and September 2000 because they were not properly informed about antitrust and regulatory obstacles to the merger. When the executives called off the proposed merger, Sprint's stock price dropped precipitously.
"It's not fair or ethical for the leaders of a company to take advantage of their position for personal gain while leaving the shareholders in the lurch," said Bruce Raynor, Chair of Amalgamated Bank. "With the new rule we've instituted a groundbreaking set of checks and balances."
Over fifty corporate governance provisions have been agreed to as part of the settlement. A summary of the most significant corporate government enhancements and copies of the lawsuits filed against Sprint are available on http://www.milberg.com (Milberg Weiss Bershad Hynes & Lerach LLP).
Sprint Corporate Governance Enhancements
- The settlement provides that every director standing for election shall stand for a one-year term.
- The settlement provides that at least 2/3 of the Sprint Board will consist of "Independent Directors." The settlement narrowly defines "independence" to eliminate virtually all material business or personal relationships with the Company or management.
- All of the agreed to provisions are at least as strict as the newly proposed, but not yet adopted, NYSE standards for independence. Unlike the NYSE standards that, if adopted, allow 5 years for implementation, the agreed to provisions will take effect immediately.
- The settlement implements a $45,000 limitation to any payments to board or family members. By contrast the proposed NYSE standard is $100,000 in only "direct compensation."
- The settlement implements a $200,000 limitation for payments to organizations. By contrast the NYSE proposes a $1 million limitation. Additionally, the settlement applies to partners and controlling shareholders, as well as employees of organizations. The NYSE only limits payments to employees.
- The settlement provides that the Sprint Board shall designate a Lead Independent Director who is officially responsible for coordinating the activities of the independent directors and has authority that is functionally equivalent to that of the Chairman of the Board, including authority to set agenda items, authority to schedule Board meetings, the power to ensure full discussion on all topics, and the power to call an executive session of the non-management members of the Board at anytime with a minimum of two executive sessions per year.
- The settlement provides that no Sprint directors who are currently employed will sit on more than 4 public company boards, and no director who is retired or employed less than full-time will sit on more than 6 public company boards. Additionally, no Sprint director, other than the CEO, shall maintain a position on the Board in excess of 15 years.
- The settlement provides that Sprint insiders cannot sell Company stock subject to a buy-back program during a Company-funded stock buy-back. No corporate officer or director shall make an investment that gives the corporate officer or director an interest in poor stock performance by the Company, such as put options or short sells.
- The settlement provides that Sprint will fully expense all stock options going forward.
- The settlement provides that a single stock option plan shall be instituted to replace all existing stock option plans with a double trigger change of control, requiring an actual sale or merger to take place and loss of position.
- The settlement provides that all shareholder proposals will be referred to and evaluated by an independent committee of the Board.
- The settlement provides that Sprint's Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee of the Board of Directors shall be composed entirely of "independent" directors. The settlement also details how each of these committees will function.
- The settlement provides that the Committees of Sprint's Board, and all non-management directors as a group, shall have standing authorization, on their own decision, to retain legal and/or other advisors of their choice, which advisors shall report directly to the Committee.
- The Company has confirmed that Mr. Esrey and Mr. LeMay will no longer hold executive offices at Sprint and will no longer remain on the Board. The Company takes the position that the removal of Mr. Esrey and Mr. LeMay is a result of factors not associated with any pending lawsuit.
http://www.milberg.com
See also:
"Sprint to Pay Out $50 Million; Settlement of Shareholder Suits Also Results in Change to Board"
Martha McNeil Hamilton, The Washington Post
03/20/2003
E06
"Sprint to pay $50M, alter board procedures"
By Andrew Backover, USA TODAY
3/19/03
"Sprint Executive Changes Over Tax Shelter Raise Eyebrows"
By Janet Whitman and Phyllis Plitch, Dow Jones Newswires
02/06/2003
