SHAREHOLDERS LIKELY TO KEEP QUESTIONING

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, January 3, 1993                   TAG: 9301010028
SECTION: BUSINESS                    PAGE: E1   EDITION: METRO 
SOURCE: John Levin  Staff
DATELINE:                                 LENGTH: Medium
SHAREHOLDERS LIKELY TO KEEP QUESTIONING
The annual reports have begun arriving. And so far, the numbers suggest good news. Regional companies are reporting improved earnings even at outfits where there is lingering evidence of recession.
Will it make shareholders complacent at the round of annual meetings beginning this month? Usually the only reason for shareholders to question management is weakness at the bottom line.
Roanoke Electric Steel Corp., which holds its annual meeting on Jan. 18 in Roanoke, reported an 11-fold increase in net income in fiscal 1992, although the $2.7 million profit was 79 percent below its 1989 peak.
Chairman Donald G. Smith wrote: "We enter 1993 much the same as we began 1992, with much uncertainty as to the direction of business and the economy. Demand for steel products remains sluggish . . . . The near-term outlook for the construction industry is not encouraging."
And Roanoke Technical Treatment & Services Inc., a subsidiary the company formed in 1990 to license its process of treatment of electric arc furnace dust, is still being organized with no specific date for start-up, the annual report said.
Ruddick Corp., the Charlotte, N.C., owner of Harris Teeter supermarkets, reported grocery sales rose 4.7 percent but operating profit from the chain was down 9.5 percent. Ruddick's Jordan Graphics Inc., a manufacturer of business forms and labels with a warehouse in Roanoke, said sales dropped 4 percent last fiscal year because of competition in an oversupplied industry.
Ruddick's shareholders meet Feb. 4 in Charlotte.
The United Shareholders Association, a Washington, D.C., group that lobbies for about 65,000 individual and institutional investors, expects annual meetings this year to mirror some of last spring's rowdiness.
The complaints about executive pay a year ago were but a sample of the unrest that simmers among American stock owners, the association said.
"Shareholders are demanding accountability," said Cari Christian, the association's executive director. And their complaints are pointing out that "there's a fundamental dysfunction in the system."
Stock owners last spring grew vocal over the amount executives of public corporations earned in salary, perks and stock options vs. what the company's owners earned in dividends and stock prices. A year later, Christian said, they are discovering an unholy alliance in some companies between management and the boards of directors.
And the fundamental question likely to be posed this spring is just whom the directors represent. Logic and securities law suggests it should be the company's owners - the shareholders - but the record of action sometimes suggests directors are beholden to the executives who recruited them.
In recent months boards at General Motors, American Express, Tenneco and Goodyear have exercised their independence when top managers seemed ineffective or have led companies in wrong directions. Westinghouse and IBM are getting similar pressure from its shareholders, Christian noted. At IBM, "we've submitted a proposal that the chairman and CEO should not be the same person. John Akers simply has too much power," she said.
"When you look at executive pay while stock prices are dropping, the obvious answer is the CEO is running a private fiefdom with a rubber-stamp board," she said.
The association suggests shareholders apply a three-point test to companies whose stock they own. To decide if directors are acting in owners' interest, ask:
Do outsiders hold a majority of the seats on the company's board? It is common for one or two top executives to be on the board. But when insiders dominate, the association said stock owners should raise questions.
Are the boards nominating, compensation and audit committees composed entirely of outsiders? Those committees determine the board's makeup and have the primary responsibility for monitoring management's performance, areas where there should be no conflict of interests.
How does the company's stock price, compare to its industry's overall performance? When the company doesn't do as well as its competitors, shareholders should ask why and gauge directors' reactions, the association said.
Nebulous answers are a bad sign, Christian said.
"If they're all insiders, you may be fed a line," she said. "If they've been hand-picked by management, remember that you dance with whoever brought you to the dance."
\ John Levin is business editor of the Roanoke Times & World-News.

by Bhavesh Jinadra by CNB