Monks The Gadfly Lands On Stone & Webster

Bob Monks invariably finds himself calling on CEOs to press one question: "What have you done for shareholders?" This corporate gadfly takes on companies whose stocks have underperformed mainly because of inferior returns on equity and lackluster earnings.

Monks is now quietly targeting Stone & Webster, the Big Board-listed global engineering, construction, and management-consulting outfit. Stone's stock has meandered between 25 and 30 a share in the past two years. It's now at 26.

Stone's management should probably start worrying. Through shareholder pressure, Monks has, after all, helped trigger restructuring in the past two years at Sears, Kodak, American Express, and Borden. Except for Ed Brennan at Sears, the CEOs at these companies have been dethroned.

What's Monk's gripe against Stone? He thinks management hasn't exploited Stone's assets to beef up its stock price. Monks, president of the money-management firm Lens Inc., met with Chairman William Allen Jr., President Bruce Coles, and Director William Egan on Sept. 21. Monks suggested Stone sell the 700,000 shares of Tenneco that it owns, now worth $35 million, and other nonconstruction related assets. Allen told BUSINESS WEEK that he would sell the shares only if Stone needed cash for an important venture. And he sees no reason to sell the several hundred acres of land and six buildings that Stone owns in Tampa.

NO WELCOME MAT. Stone's return on equity is a meager 2.9%, notes Monks, compared with big competitor Fluor's 16%, Morrison Knudsen's 9%, and Foster Wheeler's 8.6%. Earnings also have been unimpressive: Stone earned 50 a share in 1990, $1.08 in 1991, and 62 in 1992. In 1993's first nine months, the company earned a measly 11 .

Monks wanted to know what growth plans management had in the face of such returns. "Egan was visibly upset at my questions, while Allen and Coles just listened and made us feel quite unwelcome," recalls Monks. Weeks later, he got a letter from Coles advising Monks not to worry and that everything was running smoothly. On Dec. 15, Allen, who is 74-years-old, announced that he would cede the post of CEO to Coles at the May 12 shareholders meeting.

Monks figures that Stone "is a $54 stock" if management paid attention to producing better returns. Lens owns 175,000 shares--worth $5 million. Grouses Monks: "Our stake is more than what the entire board owns."