Frustrated Shareholders Take a Leaf Out of Perot's Book

WHILE Ross Perot lights fires under the seats of Washington politicians, shareholders are stoking a similar sense of financial accountability in corporate board rooms.

The shareholder movement has no single, colorful leader like Mr. Perot, and it lacks the grass-roots, 800-number style of his United We Stand America. But it springs from a comparable sense of frustration - the idea that many big corporations are failing to represent the interests of the investors who own them.

As corporate annual-meeting season gets into full swing this month, there are signs that activists are gaining momentum. Since last year's meetings 22 companies, under pressure from the United Shareholders Association, have voluntarily agreed to make specific changes in their governance policies. That is up from 15 companies the previous year and nine the year before. IBM Corporation, for example, agreed in February to ensure that new board members were nominated by a committee independent of the company 's management.

"This has been our most successful year," says Kerry Christian, a spokeswoman for the seven-year-old group, based in Washington. "Our bottom-line issue is to bring a sense of accountability to the board" of directors, the body that oversees publicly owned companies.

A number of companies on United Shareholders' "target 50" list have not reached agreements and face proxy battles at their coming meetings. The group wants Sears to stop having the same officer be chief executive and board chairman. Grumman, Hartmarx, EG&G, and USAir are being asked to give shareholders more control over "poison pill" defenses against takeovers.

UNITED Shareholders, founded by Ralph Whitworth, represents 65,000 individual investors. "We haven't put a lot of money into" building membership, Ms. Christian says. Each spring the group unveils three "shareholder 1,000" lists, which rate American companies on stock-price performance, executive compensation policies, and shareholder rights policies. The organization targets for its campaign about 50 companies that have done poorly for shareholders.

Meanwhile, institutional investors such as pension funds have been prodding corporate boards from another angle, helping to oust chief executives several companies this year, including American Express. A recent study of 60 institutional investors by the University of Pennsylvania's Wharton School finds such involvement is likely to increase.

Is all this activism a good thing?

"Judiciously used, it could add value" to America's companies and their owners, says Mark Cunningham of Buck Consultants in New York. He cautions that emphasizing the role of outside directors could go too far. Outsiders, often having little knowledge of complex industries such as automobiles or computers, might replace the head of a struggling company just as a turnaround is beginning.

"What is the time frame in which you judge" a chief executive's success or failure, Mr. Cunningham asks.

Harvard University professor Jay Lorsch urges that, on boards where the chief executive officer is chairman, outside directors should select a leader from their ranks as a counterbalancing force.

Complicating matters further, large investors increasingly are bypassing boards to talk directly with management, the Wharton study finds. The California Public Employees Retirement System, is moving to buy larger stakes in companies to give its voice more weight.