VideoThe waves of destruction that pummeled Southeast Asia the day after Christmas left American companies in a quandary: how best to help a region halfway around the world just days before year-end and with many of their employees out for the holidays?
"We said, 'We need to do something,' " says David Odell, CFO of Hyperion. And while the $622 million company was not set up to send blankets or water in the immediate aftermath, "we were set up to write a check," says Odell, who gave $100,000 to the International Red Cross on December 30. Hyperion, like many companies, also offered to match employee contributions to the relief efforts.
Pam Scholder Ellen, a marketing professor at Georgia State University who studies consumer reactions to corporate philanthropy, says consumers normally give "greater credence to contribution of effort" than to cash, but in this case, "everybody screamed, 'Where's the money?' "
As of January 10, an Associated Press survey put total corporate contributions at $110 million in cash, with an additional $192 million pledged in donations of products and services. "One of the industries most able to help in this case is the pharmaceutical industry," says Ellen, "which has also been under fire for the past several years." The result: one of the largest corporate donations came from Pfizer, which donated $10 million to local and international relief and pledged an estimated $25 million in needed drugs and health-care products. Others offered similar combinations of cash and drugs, including Merck ($3 million) and Bristol-Myers Squibb ($1 million).
Calculating how much to give is tricky. Companies that give nothing are rarely criticized, while those that do risk unflattering comparisons to competitors. Hyperion's donation, says Odell, "seemed like a meaningful, healthy amount of money for a company our size." Beyond that logic, however, not even the magnitude of the disaster provides much of a guide. For example, many of the larger cash contributions — such as those from Pfizer and from Wal-Mart ($2 million) — mirrored donations they made after the September 11 terrorist attacks.
Ellen says that despite the uncertainty, many companies will likely formalize their disaster-response process going forward. For example, American Red Cross spokesperson Kara Bunte says part of the unprecedented level of Internet giving was driven by employees who were encouraged by their employers to give through redcross.org. The Red Cross has set up more than 200 companies to tally their online employee contributions. —Tim Reason
Payback is a b....
Now it's the shareholders' turn to extract pain.
In early January, 10 former directors of WorldCom Inc. (now MCI Inc.) agreed to pay a collective $18 million out of their own pockets to settle a $54 million class-action suit stemming from the company's infamous bankruptcy. Just days later, 10 of Enron Corp.'s former directors agreed to pony up $13 million out of a $168 million settlement.
How the amounts were determined was not fully disclosed. But for the WorldCom directors, the payout represents 20 percent of their aggregate net worth, excluding their homes and pensions. That's on top of the $250 million they already lost from their WorldCom investments. In the case of Enron, directors paid out only 10 percent of their pretax profit from sales of stock in the energy trader.
The discrepancy is "problematic," says Charles M. Elson, a professor at the Weinberg Center for Corporate Governance at the University of Delaware, who terms the Enron settlement "more appropriate." For directors who were "conflicted," he says, such penalties may be justified. But for those accused of just being sloppy, the message is muddied. Still, he says, "this is a potential template for other settlements." —Lori Calabro
Overgrown Evergreen
When TIAA-CREF began encouraging companies whose stock it owned to drop dilutive evergreen provisions from their stock-option plans, it expected push-back. Instead, says Linda Scott, director of corporate governance for the financial-services firm, "we've had a number of conversations that concluded with 'We'll take this back to the compensation committee.'"
The firm's chief concern over the provisions — which annually replenish the stock pool available for stock or options grants — is that their automatic renewal means they systematically dilute shareholder equity each year. Scott says the fund is focusing on 50 companies it believes have high dilution due to the provisions.
The openness to dropping evergreen provisions may be a matter of good timing. Now that stock-option expensing is inevitable, many companies are looking to amend their stock-option plans in favor of other long-term compensation. If they can make a big institutional shareholder happy in the process, so much the better.
Some companies, such as Cupertino, Calif.-based Symantec, have already removed the provision. Others self-monitor to prevent dilution. NCR spokesman Jeff Dasler says that although the Dayton-based tech firm's plan took effect in 1997, NCR has replenished the option pool at a level that's "significantly below" the shares authorized by the evergreen provision. "It's a matter of good corporate governance," he says, adding that the firm has not received any institutional shareholder push-back about its program. Nor has Sprint, according to a spokesperson.
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