Last Update: 10:36 AM ET May 24, 1999
CBS MarketWatch

The Gadfly
Treetop to boardroom
Odd alliance in proxy loss

By Michael Collins, CBS MarketWatch

HOUSTON, Texas (CBS.MW) -- Today's tale from the corporate board wars
demonstrates that proxy battles can create some odd alliances -- and rather
unusual definitions of "victory."

The annual meeting of Maxxam Inc. (MXM: news, msgs) on May 19 saw CEO
Charles Hurwitz facing down shareholder resolutions and dissident director
candidates from an unlikely coalition of environmentalists, union officials
and large institutional investors.

To fight the company, the Rose Foundation for Communities and the
Environment and the United Steelworkers of America bought stock and formed
The Committee of Concerned Maxxam Shareholders. The Rose Foundation opposes
logging methods by Maxxam's Pacific Lumber Co. in Northern California, and
union members have been locked out after a strike at Kaiser Aluminum (KLU:
news, msgs), in which Maxxam holds a 63 percent stake.

According to proxy filings, the committee owned less than 1,500 shares out
of 7 million outstanding. So they began to appeal to institutional
shareholders, and surprised everyone when they got support from some of the
biggest -- including the California Public Employees Retirement System --
who were concerned about poor performance by Maxxam.

The dissidents ended up with a pretty good coalition, considering the
widely varying interests. Environmentalists are often seen as putting trees
before profit and jobs, unions as putting jobs before the environment or
profit, and institutional investors as putting rate of return over most
other considerations.

Futile battle

Only one problem -- even with the odd alliance, there was no chance of
victory against Hurwitz, who controls a voting majority of shares in the

"Normally when there's a controlling shareholder people don't tend to be so
energetic in a proxy battle," said Stephen Sears, a senior analyst at
Institutional Shareholder Services who had recommended that clients vote
with the dissidents even though there was little chance of victory. "It's
pretty interesting that they've all come together."

But why bother with the time and expense of a proxy battle that you're
never going to win? The modern answer: "To send a message." Or rather,
several messages. For the environmentalists it was a way to go beyond
chaining protesters to trees, for the unions it was a step beyond picketing.

And for the institutional investors? They're more likely to be able to
speak directly to management, but sometimes they feel the need for a
shareholder vote to get more attention. In Maxxam's case, Sears said, the
vote came because "There was no evidence that the status quo (on the board)
would improve things."

Press release victory

The dissidents lost by all standards except those of their press release,
which said: "The Committee of Concerned Maxxam Shareholders declared
victory today in a campaign that stunned management." Elsewhere, the
release called the results of shareholder proposals a "wake up call to
management" and a "stunning vote." And that was just in the headlines.

Huh? I'm not sure what spinning world they're living in, but even in the
Gadfly's skewed little universe the 15 percent vote the dissidents say they
got on an effort to install two new directors looks an awful lot like

And as for Maxxam's "stunned management?" Hurwitz and his team probably had
a good chuckle over the release, after slapping themselves on the back.
"This isn't the New Hampshire primary, you can't come in second and claim
victory," said company spokesman Joshua Reiss.

Still, even with Hurwitz's control of the company, and little possibility
of a shareholder vote making much difference, the Maxxam CEO would be wise
to consider what it was that prompted the cautious analysts at
Institutional Shareholder Services to recommend that their clients vote
with the dissident group. That recommendation came even though the ISS
report acknowledged the dissidents included "individuals and organizations
whose interests are not aligned with those of shareholders."

Sears pointed out that his organization recommended against supporting
similar proposals against Maxxam two years ago. But this year, ISS
concluded that "the incumbent board has little to offer, other than the
Headwaters agreement (in which the government bought old-growth redwood
forests from Pacific Lumber to protect them), in terms of historical
evidence of its ability to create value."

Reiss said the company was "puzzled by the ISS report" which supported what
Maxxam viewed as "a corporate campaign by a group not acting in the
interests of shareholders." He added that management believes it has the
support of most of its institutional shareholders, and will continue a
dialogue with CALPERS and others who voted against the board.

It would be wise for Maxxam to remember that winning a battle because of
overwhelming force may not mean winning the longer war. Management should
share institutional investors' desire for good corporate governance and
better returns. If not, everyone loses -- not just the tree-huggers and the

Michael Collins writes on consumer and investor issues for CBS MarketWatch.

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