Richard Parsons Leaps the First Hurdle
By Cathy Yang
Perhaps no company better serves as a poster child for the New Millennium than AOL Time Warner (AOL ). This outfit has seen it all: a $97 billion merger that went sour when the Internet bubble burst, a bear market, an economic downturn, and the specters of terrorism and war. AOL Time Warner investors have lost 75% of their shares' value in two years. And the once-heady marriage that resulted in the creation of the world's largest media and online-services company has dissolved into bitter recriminations, with charges of executive hubris and botched management hurled from all sides.
So it should come as no surprise that when AOL Time Warner CEO Richard D. Parsons led his first annual shareholders' meeting at the Landsdowne Resort in Leesburg, Va., on May 16, he was greeted with a barrage of angry questions about management and board accountability. Was Parsons ruffled? Not a chance. The ever-diplomatic CEO was smooth as buttercream (see BW Cover Story, 5/19/03, "Can Dick Parsons Rescue AOL Time Warner?").
Relaxed and chatty, he joked with investors and let them have their say, but he didn't give an inch. "I don't know what you're drinking up there, but it's helping you," quipped one investor who took the microphone near the end of the grilling. Replied the mellow Parsons, who had been sipping a glass of water, "We drink what we can and sell the rest" (a motto he's thinking of using for his Tuscan vineyard).
"THANK YOU, STEVE."
AOL Time Warner, as expected, won reelection of its board of directors and beat back two shareholder proxy proposals -- one a demand that it compile a study comparing the compensation of top execs vs. the lowest-paid workers. And Parsons lucked out with only one question about the federal accounting investigation. Going forward, he responded, "We want to be known as a company that plays it safe."
The day's biggest development -- the resignation of AOL visionary Stephen M. Case as chairman -- was a foregone conclusion, announced in January after mega-shareholders such as Capital Research & Management Senior Vice-President Gordon Crawford worked quietly but forcefully to get Case to step down. Except for the handful of former AOL employees wearing homemade "Thank you, Steve" tags, the event scarcely made a ripple.
Instead, this shareholders' meeting was a chance for the little guys and gals who don't have the same access as a Crawford to air their ire. And the small shareholders turned out in force -- everyone from union members, socially responsible Christian investors, human-rights watchdogs, ordinary individual shareholders, and even a few Ted Turner bashers.
WHERE'S THE DEMOCRACY?
The American Federation of State, County & Municipal Employees (AFSCME), which holds a stake in AOL Time Warner, proposed direct shareholder nominations of board members as a way to make the board more accountable. Today, AOL Time Warner investors can make recommendations only for director candidates to the board's nominating committee, which makes the ultimate selection.
"We're fighting for democracy in Iraq, and we don't even have democracy in our corporations," said an AFSCME representative. Parsons bluntly dismissed the idea, although he noted that the Securities & Exchange Commission is studying a change in the rules: "I don't think it's a very good idea. It's the obligation of the board to represent all shareholders." The proposal never made it to the official agenda.
With their investments in the tank, many shareholders at the meeting questioned AOL Time Warner's request for executive bonuses, though when push came to shove, shareholders-at-large easily voted them through. Individual investor Gail Hammer lamented the loss of value in her 400 shares. "How am I supposed to pay a bonus for directors?" asked the gray-haired lady. "The stock should be $42 to $49 a share. Why is it not?" (It's trading at around $14.) Parsons answered by vowing to do a better job of returning shareholder value.
Parson defended Turner as a "media visionary"
Socially responsible investors took Parsons to task, too, for what they saw as paying lip service to the mantra that "people are the most important asset" while tolerating huge pay disparities between top execs and low-level grunts. "You can't rebuild value if you don't have values," said Franciscan Brother Michael Crosby. Parsons smoothed over the issue by declaring that most employees had stock options. Next question?
TED TAKES HIS LUMPS.
Shareholder Sharon Hom demanded to know how AOL Time Warner execs justified their investments in China, a known violator of human rights. What due diligence had it taken to examine the ethics of investing in China besides relying on the country's WTO ascension as a guarantee of good world citizenship, she asked. Parsons replied that China, with "one-fifth of humanity," isn't "a market that we can ignore" and that corporate employees on the ground in the region do in-depth due diligence daily.
Parsons even sidestepped the most visceral attack of the day when an unidentified shareholder charged board member Turner with creating a spectacle of himself, damaging the company, and "driving out executives from a merger you didn't try to stop" -- a reference to Turner's efforts to oust former CEO Gerald M. Levin.
"Why are you still on the slate as a director?" asked the investor of Turner, who was in the room at the time. "Good luck on your restaurant business. I hope you have more time to focus on it!" added the angry investor, referring to Turner's fledgling chain, Ted's Montana Grill. Parsons defended Turner as "one of the great media visionaries of our time."
One angry shareholders' meeting down. The question now: How many more to go for Parsons? You can say this much for AOL Time Warner's CEO: He demonstrated that he has the Teflon finish to shield his outfit as it rebuilds credibility among investors.
That said, if any company needs to think long and hard about its business in the light of the last three years, it's his. Parsons showed his deft touch in deflecting embarrassing attacks on board and management accountability, but he can't afford to brush aside these serious issues as he gets back to the real work of reviving AOL Time Warner
Yang covers AOL Time Warner from BusinessWeek's Washington bureau
Edited by Douglas Harbrecht