Latham response to McGurn comments in "Fledgling Activist" article:

Subject: "Fledgling Activist" response
Date: Thu, 05 Oct 2000 12:55:27 -0700
From: Mark Latham <mlatham@corpmon.com>
Organization: The Corporate Monitoring Project - http://www.corpmon.com
To: Patrick McGurn <Patrick.McGurn@tfn.com>
CC: Phyllis Plitch <phyllis.plitch@dowjones.com>

Hello Patrick --

I thought it would be helpful to respond to your comments in Phyllis
Plitch's October 3 article in Dow Jones Newswires ("Fledgling Activist
To Corporate America: I'll Be Back"):
http://interactive.wsj.com/archive/retrieve.cgi?id=BT-CO-20001003-006664.djml

Here's the paragraph where you're quoted:

> Patrick McGurn, director of corporate programs at
> Institutional Shareholder Services, has a list of
> problems with Latham's model, not the least of which
> would be a divided loyalty if an advisory firm was
> hired by a company. It would also result in an added
> layer of bureaucracy, he said, likening it to the
> "corporate governance equivalent of the Clinton health
> care plan."

You and I have exchanged views on this before, so I'm not sure how much
will be new here but, for the record, and since opinions evolve over
time, here's my response:

1. It would be nice to see your current list of problems with my model.
I have a list of frequently asked questions (and answers) on my website
at http://www.corpmon.com/ProposalFAQ.htm, but it could probably use
some updating.

2. Re divided loyalty: In my proposal, the shareowners choose the
advisory firm. The advisory fee is paid out of company funds, which is
the shareowners' money. Although management controls most disbursement
of company funds, my proposal would give shareowners direct control over
a few thousand dollars of company funds for this purpose. Management
would have no discretion over this disbursement. So there would be no
reason for loyalty of the advisory firm to anyone but the shareowners.
And considering that this is to create an alternative to management's
voting recommendations, management could never have as much control over
the advisory firm's recommendations as they have over their own.

When looking at conflicts of interest between a company's owners and
management, I think it's misleading to identify "the company" with
"management". It's best to be clear whether one is talking about the
owners' interests or management's interests.

3. I agree with your low opinion of the Clinton health care plan. One
of its key flaws was its coercive aspect, with the government pushing
people into health care arrangements they don't want. Some people have
advised me to seek legislative help to enact the corporate governance
improvements I've designed. But I don't believe in that, since
shareowners have the power to vote for change if they believe it's in
their interests. I designed a system to benefit shareowners, and I
think once they understand it, they'll vote for it, and vote to replace
a board of directors if that's what it takes for implementation.

Certainly my proposal would add two things to the annual proxy: a vote
to choose an advisory firm, and (in the next year) the chosen firm's
advice. I am very sensitive to the danger of cluttering up the proxy,
which can make important shareowner decisions more difficult. But I
think you will agree that independent voting advice improves the quality
of shareowner voting decisions. My proposal would give all shareowners
access to such advice, which many do not now get.

I think the costs are small compared to the substantial economic
benefits of solving the free-rider problem in monitoring management.
Most shareowners are paying for voting advice already. Direct
competition on price and quality will benefit the customers (investors),
and create a corporate tax deduction on the fee.

---------------

I would be happy to hear from you on this, if you have time.

Regards,
Mark
--
===============================================
Mark Latham, Founder
The Corporate Monitoring Project
http://www.corpmon.com