By Gary Flood
In Forrest Gump Tom Hanks’ character becomes rich partly because of some crafty ground-floor stock buying in what the Southern Everyman calls a fruit company – Apple Computer. If Forrest had put $100 in the company in September 1991 instead of in the 1970s, though, he’d still be catching shrimp. For he’d have less than half his money – $47 – five years later. Maybe he would have been better off with that nice networking company Novell? Sorry, Forrest – your 1991 $100 investment would only have been worth $36 last October. Let’s try databases. How about high-flyer Sybase? Yes and no. Your $100 grubstake in that sorry company has gone the right direction, north, to $161 – but how pale that looks to the height it has fallen from – a whopping $501 in December 1995. Corporate America has many cheerleaders. This is even truer in the computer industry, rightly celebrated as a jewel in the crown of the US economy. And at the risk of making a large generalization, many of these yea-sayers write for mainstream computer magazines; much editorial seems to be taken up with supporting Our Boys’ efforts, not in trying to spot flaws or deconstruct their marketecture. We’ve had some comments recently to the effect that some folks out there think the tone of some of our coverage is a tad too robust sometimes. Well, this story on the parlous returns on shareholder trust that hardly anyone of the mainstream pubs (or even their Web epiphenomena) have picked up on neatly illustrates why we write the way we do. We think a critical attitude is a necessary defense in this business against the risk of buying too many Brooklyn Bridges. It’s all too often forgotten that the point of a commercial enterprise is to return value to shareholders and profit to investors; this is capitalism, remember, and IT vendors should at least try to act as if they’re for-profit concerns. Which makes the fact that these three most high-profile American computer companies – Apple, Novell, and Sybase – making the annual Calpers (California Public Employees’ Retirement System) list of the worst ten financial underperformers all the more noteworthy. Calpers, the nation’s largest public pension fund at $108 billion, has even put Apple at the very top of its sin list. Calpers targets public corporations for severe underperformance relative to their industry peers, with the luckless companies involved serving as the focus of the System’s corporate governance activism for the 1997 proxy season. Apple Computers heads the target list because of the company’s downward spiral in the marketplace as buyers continue to abandon the Macintosh computer in greater numbers. Based on research conducted by the pension system, the body believes Apple’s top management lacks experience in the personal computer business, significantly disadvantaging it in the marketplace. In addition, it is dissatisfied with the high salaries paid to management in light of poor financial performance and mounting layoffs. Earlier this month Calpers voted against Apple’s board of directors at its shareholders meeting. Two or more of Apple’s directors sit on four or more boards and personal stock ownership is significantly low among most directors. As shareholders – and owners of this company – we believe that dedication of all of Apple’s directors and personal incentives are critical to recovery, says the organization. The other IT companies in the list of shame, Novell and Sybase, placed at number five and ten respectively, but hardly get off without a tongue lashing: Novell is tagged with a note, Without quick and fundamental product changes, the company’s long-term recovery may be jeopardized, and Sybase doesn’t get off much better, with a tart comment that the restructuring database player is losing market share and is barely profitable. It is clear that these companies have lost their competitive edge and are emerging as financial deadweight compared to their industry peers, says William Crist, president of the Calpers Board of Administration. As buy-and-hold players in the stock market, we have an economic interest and a fiduciary responsibility to our members to become a constructive voice in urging better performance [at these companies]. Calpers has requested a meeting with each of the company’s independent directors to discuss issues of performance and shareholder value. If the companies fail to cooperate, it threatens aggressive means to improve performance such as voting against directors and filing shareholder proposals. Calpers claims to have a big stick to back all this pension fund aggro. Despite underperforming the (S&P) 500 Index by an average of 85 percent for the five years prior to Calpers shareholder activism, the 62 companies that were targeted by the System from 1987 to 1995 have outperformed the S&P 500 Index by 33 percent over the subsequent five years, it boasts. Anything we can do to help, we’ll do gladly – even if that means sometimes suggesting the Emperor’s New Clothes do seem a tad see-through.
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