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Settling for Reform

In the past, the individual shareholders often lost their investment or didn't have a large enough stake to care about corporate governance, explained John Coffee, director of the Center on Corporate Governance at Columbia University. But "institutional investors want to protect their remaining investment and want to see corporate governance that protects them in an ongoing fashion," he said.

In 2002, the number of federal securities class-action litigation suits climbed 31% to 224 filings from 171 in 2001, according to a report from the Stanford Law Securities Class Action Clearinghouse in cooperation with economics consulting firm Cornerstone Research. That excludes 312 "IPO Allocation" securities class-action filings in 2001 alleging fraud in the IPO underwriting process and more recent "analyst" suits naming analysts and investment banks as defendants.

About 30% of all post-Reform Act settlements through 2002 have involved an institutional investor as lead plaintiff, according to Cornerstone Research. That's up from less than 20% of settlements involving an institutional investor from 1991 to 1994.

In addition, the total value of cases settled and average settlement amount have increased each year since the passage of the Reform Act, according to Cornerstone Research. And Milberg Weiss Bershad Hynes & Lerach was involved as lead or co-lead plaintiff counsel in more than 50% of all post-Reform Act cases through 2002.

Large pension funds were plaintiffs in both the Homestore and Siebel cases. In the Siebel case, settled Aug. 26, the reforms won by the Teachers' Retirement System of Louisiana included limits on director compensation and the addition of a new outside director, with the $10 billion retirement fund having input into that director's selection.

In the Homestore case, settled Aug. 13, the California State Teachers' Retirement System won several changes to the company's board of directors. The company agreed to gradually eliminate staggered terms for directors, ban the use of stock options to pay directors and allow shareholders to directly nominate a director to the board. The settlement also will create a group of independent directors that will meet at least once a year without senior management and nonindependent directors.

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