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CALL FOR PHILIP MORRIS: DON'T STONEWALL THE SHAREHOLDERS
Ask participants what happened at a Sept. 21 meeting between management and shareholders at the New York headquarters of Philip Morris Cos., and you'll hear Corporate America's version of "He said, she said." After months of trying to see management and directors, several big shareholders stormed out before discussion began on such issues as why, with tobacco woes dragging down the stock, aren't the company's huge and healthy food operations being spun off?
The disgruntled shareholders, mainly public pension funds, wanted to see outside directors--their representatives--in a cross-table, give-and-take session. Instead, Philip Morris offered presentations by Chairman William Murray, Chief Executive Officer Geoffrey C. Bible, and General Counsel Murray H. Bring, followed by a question-and-answer session with the executives and three "outside directors." But with former Chairman Hamish Maxwell and longtime PM outside counsel Robert E.R. Huntley among the outsiders, only Richard D. Parsons, CEO of Dime Savings Bank of New York, was truly independent. And Murray told shareholders that after 45 minutes the talks would continue over cocktails--hardly the setting for a serious strategy session.
No wonder bickering ensued. "The fact is, they did not have the people there we asked for," charges Sarah Teslik, executive director of the Council of Institutional Investors.
PRECIOUS TIME. "We've had 30 meetings with various investor groups and the media since Murray and Bible took over [last June]--they're very forthcoming," replies Craig L. Fuller, Philip Morris' senior vice-president for corporate affairs. "I reject the notion that [these shareholders] should dictate the precise form of the meetings."
"They're treating us as analysts, not as shareholders," complains Jon Lukomnik, who as New York City's deputy comptroller oversees its $51 billion in pension funds. Lukomnik and others say Philip Morris stage-managed the event, taking up precious time with presentations and handpicking a few tame nonexecutive directors.
"It's not our position that all directors should be at these meetings," Fuller counters. "All directors were aware of the meeting, but the company chose to invite these three. It's up to management to address the issues."
Both sides look silly. Lost in the folderol, though, is a key fact: Shareholders in the $61 billion company have a legitimate gripe--and it's a big one. They aren't getting their money's worth in the market, thanks to Philip Morris' strategy of redeploying the huge profits generated by tobacco to buy food properties. Over the past decade, PM has spent nearly $25 billion buying General Foods Cos., Kraft Cos., and other food companies. On average, it paid nearly 27 times earnings.
Philip Morris' own stock, meanwhile, is trading at 10 times estimated 1994 earnings, while food companies are selling for 16 times earnings on average. Even if the company should not, for legal reasons, be split into two--as management argues--shareholders have a right to hear directly why Philip Morris persists in squandering earnings.
Now they have another cause for complaint: They have no assurance that directors are questioning that strategy. From the outside, at least, the board, which includes Citicorp CEO John S. Reed, media mogul Rupert Murdoch, and transportation magnate Roger S. Penske, looks complacent. "I'm not convinced the company should be split, having listened to them," says Richard H. Koppes, general counsel of the $80 billion California Public Employees' Retirement System, who didn't quit the Sept. 21 meeting. "But we still don't know how the independent directors `n this board operate."
GONE ARE THE DAYS. Such stonewalling is inexcusable. The days when companies could insulate themselves from shareholders, communicating through Wall Street analysts, are long gone. Large institutional shareholders have a right to seek a dialogue with managers and directors, as they have at such companies as IBM, Westinghouse, and Zenith Electronics.
Sadly, in the days following the aborted meeting, neither side seemed willing to break the impasse. Some shareholders talked of running a slate of new directors at the company's annual meeting next spring and hiring a proxy solicitor to rouse votes. Teslik says she has already gotten one call from a big money manager offering support. Fuller says that "the complaint that we won't address their concerns is an empty complaint." As for the trend toward corporate openness that would suggest letting the Reeds and Murdochs on PM's board meet with shareholders, Fuller merely says, "It's something we'll continue to watch."
The PM contretemps has escalated needlessly. With both shareholders and managers digging in their heels, there's just one way out: Some of the outside directors should offer to meet with the dissidents. They may, at the moment, look hotheaded, but they're shareholders. As providers of capital, they're what makes the U.S. system work.Commentary/by Judith H. Dobrzynski