Kayla Gillan: Calpers' Grand Inquisitor

Meet the new scourge of underperforming companies

Kayla J. Gillan doesn't look very scary. Her warm smile frequently breaks into an infectious giggle. And her tidy desk looks a bit like the one your favorite elementary school teacher had, complete with polished red apple. But make no mistake, Gillan is fast becoming one of the most feared and respected women in Corporate America. And she couldn't be happier.

On Feb. 11, Gillan, a 38-year-old mother of two, produced her first report card for underperforming corporations since taking the top corporate governance job at the California Public Employees' Retirement System (CalPERS) last August. Apple Computer Inc. and Reebok International Ltd. topped the list. Apple, she says, "is on its deathbed." With a colossal $108 billion under management, CalPERS has been throwing its weight around for years, forcing such companies as IBM and Sears, Roebuck & Co. to do a better job for shareholders.

OVITZ OUTRAGE. Gillan is determined to maintain the pressure--and then some. She is gearing up for new and aggressive lawsuits to force companies, for instance, to reform their boards and reduce exorbitant compensation. "You are going to see corporate governance move into the courts over the next couple of years, and Kayla Gillan will be there first," says Sarah A. Teslik, executive director of the Council of Institutional Investors.

On Feb. 18, sources say, the CalPERS board is expected to approve a measure Gillan is pushing to join a shareholder lawsuit against Walt Disney Co. claiming that Michael D. Eisner and the Disney board acted irresponsibly when it agreed to fork over at least $93 million in stock and cash to President Michael Ovitz, who walked away after only a year on the job. "We are very dismayed with the compensation package that Disney dished to Ovitz on his way out," says CalPERS Chief Executive James E. Burton. CalPERS owns 3.5 million Disney shares worth $271 million.

Gillan, moreover, is particularly incensed that in cutting the deal, Eisner ensured for himself a similar big-bucks going-away present worth $195 million. With a complacent board rubber-stamping the arrangement, "Disney is a prime example of why the current definition of independent boards isn't working," says Gillan.

The litigation strategy will be a natural outlet for the ambitious Gillan, who has been waiting patiently for years to make her mark on the corporate-governance movement at CalPERS. For the past decade, she worked closely with two of the founding gurus, Dale M. Hanson, the former CalPERS chief, and Richard H. Koppes, Gillan's predecessor. Under Koppes, she wrote dozens of speeches attacking the likes of General Motors and drafted proxy proposals against such high-profile boards as Lockheed. Now, she and a staff of 10 attorneys cull the Top 10 underperformers from a set of thick blue binders of 1,500 companies. "In many ways, she was the brain trust," says Koppes, now a lawyer in private practice.

For many of those years, the young Gillan quietly endured the patronizing comments of high-ranking tycoons as she traveled the country laying out CalPERS' demands. "She's been in the wings for years and has had to take all sorts of potshots," says Teslik. "But she has backbone and a real desire to prove how good she is."

Already, Gillan's reputation as a hard charger with an appetite for studying every shred of research about a company is spreading through executive suites. Take Fleming Cos., the Oklahoma City food distributors. As part of her preparation for meeting with the company, Gillan read scads of letters from individual shareholders, including a 14-page, hand-written tirade from one specially irate investor. What others may have dismissed out of hand as the rantings of a crank, Gillan studied closely, then incorporated the valid points in a meeting with Fleming management.

Even Stride Rite Corp., which has appeared on the CalPERS list for two years running, has grudging respect for Gillan. "Of course, we'd rather not be on the list in the first place," says Stride Rite Chief Financial Officer John M. Kelliher, who at first refused to meet with Gillan and CalPERS. "But we have a good working relationship with Kayla--she's put a lot of time into understanding our company."

That's just what executives at such high-profile companies as Apple, Reebok, and, soon, Disney, among others, don't want Gillan to do. Their challenge now is figuring out how to keep their companies out of her dreaded blue books.

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