The Rebels Are Banging On Westinghouse's Boardroom Door

Next year, Westinghouse.

Juiced by the corporate upheaval they helped spur at General Motors Corp., activist investors are zeroing in on the ailing Pittsburgh company as their next quarry. Several U.S. pension funds, including the huge California Public Employees' Retirement System, have targeted it. So has Robert A. Monks, who was instrumental in goading Sears, Roebuck & Co. to make boardroom changes and to spin off its financial-services units. The United Shareholders Assn., a group of individual investors, says it is filing four shareholder resolutions with Westinghouse Electric Corp., including one that asks its independent directors to evaluate the company's strategy and leadership.

As if that didn't spell trouble enough for Chief Executive Paul E. Lego, there is more. Using new power granted by recent changes in federal proxy rules, the Council of Institutional Investors, a group of major pension funds, is likely to solicit proxy votes for the shareholder resolutions and against directors. The outside counsel to Westinghouse's board is one Ira M. Millstein, the attorney who roused GM's outside directors and is known to be none too happy with Westinghouse's performance. Meanwhile, former and current Westinghouse executives are leaking internal data to board members who might agitate for change.

NETTLES. No company has ever faced so many angry investors brandishing so many weapons--let alone faced them down. And the barrage could intensify before Westinghouse's annual meeting in April. Some funds haven't announced their prey and might yet pick Westinghouse. Some have deliberately stayed away. "Westinghouse is not on our list because they're on everyone else's list," says Edward J. Durkin, special programs director of the United Brotherhood of Carpenters. Others say they're likely to vote against its directors.

Investors are united in their ire for one reason: performance. Westinghouse turned in a $1.1 billion loss last year on $12.8 billion in sales, and it's running in the red again this year. Its financial-services operation in particular keeps bleeding. In recent months, credit-rating agencies have twice downgraded the company, effectively shutting it out of the equity and commercial-paper markets. And the performance of its shares, now near 13 1/2, lags behind its peers'.

Westinghouse's internal practices also nettle investors. The company has installed a raft of measures to entrench management. The board is passive and doesn't even have a nominating committee. In October, it issued a statement giving Lego a vote of confidence.

Then there's that little matter of pay. In early 1991, management reaped big bonuses based on unaudited 1990 results. A month later, the company took a $975 million charge against earnings that would have obliterated the grants. In 1991, managers got no bonuses but were handed plump stock-option grants instead. Lego pocketed some $2.4 million in 1990 and 1991, plus options on 824,000 shares of stock. To protest, a handful of big funds voted against Westinghouse's directors last April.

LINE OF ATTACK. Since then, investors have pelted Lego with complaint letters. In response, he has traveled the country to see some of them, including Monks and Ralph V. Whitworth, president of United Shareholders. On Nov. 9, Lego is set to meet with CalPERS and the California Teachers Retirement System.

Lego always meets with his detractors alone. Former Westinghouse executives say that's due to his lone-wolf management style. He manages in "self-imposed isolation," exerting "heavy-handed" pressure on the units to increase earnings, one says, adding that company morale is "corrosive." A ranking insider says many senior executives "would like to see change" at the top.

But investors seem to be more galvanized by Lego's visits, not less. "Lego blames everyone else for the company's problems," says one major shareholder. And he displays no sense of urgency. "He says, `I know, I know, I know, I'm working on it,' " says another. Lego, on vacation, says through a Westinghouse spokesman that "nothing could be further from the truth" and that the company is addressing shareholder concerns.

To provoke change, investors have so far settled on five resolutions as their first line of attack. Besides asking for a panel to study a restructuring, United Shareholders' proposals seek termination of the company's poison pill and a plan to tie compensation closely to performance. Both United Shareholders and the New York City Teachers' Retirement System ask for creation of a nominating committee of outside directors. Other funds may offer proposals to split the job of chairman and CEO. CalPERS may propose strong candidates for the board. Monks and others want Westinghouse to consider divestitures.

The bottom line: "The company needs to take very dramatic action very soon," says one investor. That now seems to be the only way Lego can avoid meddling by some very grumpy investors.