Last September, when IBM first asked shareholder activist Ralph Whitworth to stop badgering the company about its performance, Big Blue assumed the shape of three mid-level executives and a corporate counsel bearing a box of slides. Problem was, none of them had brought a slide projector. After Whitworth scrambled around his spartan Washington (D.C.) office to find one, his reward was a cursory presentation explaining why IBM's problems weren't as bad as they seemed. "I wasn't impressed," says the 37-year-old president of the United Shareholders Assn. (USA). "It was clear to me why IBM is in so much trouble."
By Jan. 26, the computer giant had learned to take Whitworth and his army of 65,000 small investors a lot more seriously. With both its share price and earnings in a free-fall, IBM announced that John F. Akers would be stepping down as chief executive and several steps would be taken to loosen management's grip on the company's board. IBM's sorry performance had set the stage for the radical changes. But much of the pressure the board felt was brought to bear by big institutional investors coalesced around four tough proxy resolutions written by Whitworth and his USA staff.
When it comes to shareholder clout, Whitworth is not in the same league as institutions such as the California Public Employees' Retirement System (CalPERS). But he serves a vital role. As the proxy season approaches, his populist attacks on entrenched management have helped make him the Ross Perot of investor rights. The billion-dollar funds prefer to pressure management from behind the scenes. Whitworth is the movement's loudmouth. "He plays the role of the bad cop," says CalPERS General Counsel Richard H. Koppes. "That allows us to be the good cop."
Whitworth isn't acid-tongued. He just says what he thinks. He's always ready with a blunt quote for reporters. And USA's annual "Target 50" list of companies deemed disrespectful of investor rights creates lots of embarrassing publicity. But for all his bluster, Whitworth is no radical table-pounder. Instead, executives say, he preserves credibility with a levelheaded grasp of the issues. "I'm quite impressed with him," says Dale R. Laurance, executive vice-president at Occidental Petroleum Corp., which settled with USA over golden parachutes. "He's good at what he does."
'COERCIVE TACTICS.' Since rule changes by the Securities & Exchange Commission have made it easier for Whitworth to get USA's barrage of shareholder resolutions into proxy materials, CEOs are scrambling to avoid becoming USA targets (table). The reason: USA's proxy measures--challenging everything from CEO compensation to poison pills--get far more than the scant 1% or 2% of votes that gadfly proposals usually garner. Last year, USA's resolutions won an average of 40% of the votes cast, up from 17% in 1990. "That should send a pretty strong message to the board," says one CEO.
Not surprisingly, Whitworth has plenty of critics. Some dismiss him as a publicity hound who goes after companies unfairly. "I question his methods," says John C. Wilcox, chairman of Georgeson & Co., a proxy-solicitation firm. "He uses coercive tactics."
Whitworth does not deny that he likes to grab headlines, but he makes no apologies either. Unlike big institutions, whose power derives from billions in investments, USA is a grass-roots organization, whose survival depends on membership fees starting at $50 from small investors. USA thrives by making noise, and Whitworth figures the more he gets quoted trumpeting his victories, the more investors he'll attract.
Whitworth hardly lives like a typical activist. A Washington yuppie, he drives a Jeep Cherokee and cooks gourmet food for his wife Wendy Walker, a news producer who covers the White House for Cable News Network. His background, however, is strictly middle class. He grew up in Winnemucca, Nev., the son of a mining engineer. Until he went to college, at the University of Nevada at Reno, he was content to tool around in his red 1965 Pontiac GTO and make a few bucks as the local whiz at fixing anything mechanical.
His life shifted into a higher gear in the summer of 1981, when he met Paul Laxalt, then Nevada's Republican senator, and landed a staff job in Washington. During a five-year Capitol Hill stint, he worked on President Reagan's 1984 campaign and earned a law degree from Georgetown University.
Along the way, he met Mesa Petroleum Chairman T. Boone Pickens. Whitworth dated Pickens' daughter, and although the romance didn't last, T. Boone hired him as an assistant in 1985 during the heyday of hostile takeovers. It was Pickens who formed USA, in August, 1986, making Whitworth his chief of operations (Pickens left in 1990). Critics derided the group as a thinly disguised vehicle for undermining the targets of T. Boone's raids. It was up to Whitworth to establish its credibility as a force for shareholder rights.
MEDIA BLITZ. He did so shrewdly: Whitworth came up with the idea of monitoring a list of 1,000 companies and choosing those that coddled management despite poor performance. The worst offenders were subjected to a media blitz. Figuring that local headlines made executives squirm as much as national coverage, Whitworth tailored pointed press releases for hometown papers. And by sticking to the economic issues that most piqued institutional shareholders (no South Africa measures, for instance), he could create a bandwagon effect.
Whitworth receives no pay for his part-time USA duties. He relies instead on a six-figure annual income from a lobbying practice with a handful of mining and energy concerns as clients, including Mesa Petroleum and the Bronfman brothers of Canada. Whitworth insists that his consulting business poses no conflicts with his shareholder work. He argues that his clients are either foreign-based or too small to merit USA's scrutiny. He has to be careful, he says, because "some companies would love to take a shot at us."
Whitworth is not short on ego. The IBM tussle, he says grandly, "was clearly one of the biggest battles in corporate activism." He notes that, only days before Akers stepped down, IBM negotiated settlements on two of the four proxy issues USA had slated for its upcoming annual meeting. Whitworth still needs big friends like CalPERS to get things done. But as support for USA's proposals grows, his targets will have to give shareholder democracy--and Ralph Whitworth--a lot more respect.