Three Former Rogues Fail 'Clean Stocks' Test

But once again, this board has missed the boat. Motorola's problem is that it continues to see itself as an engineering company in markets that are now dominated by design and marketing. In wireless phones, the company is a fading No. 3 in an industry that it invented.

Hiring Zander, a superb operations guy at Sun, a superb engineering company, hardly seems the way to send the company on a new direction. In fact, you might read it as an endorsement by the board of the company's past direction as long as Zander does it better.

But then, what do you really expect from a board of directors that gave Galvin a $1 million bonus and $4.3 million in restricted stock in 2003 as a sign of a job well done?

Rite Aid: A board that rewards itself first. In 1999, a scheme to inflate executive compensation by manipulating company earnings left Rite Aid on the verge of bankruptcy. Result: The company had to restate $1.6 billion in earnings in 2000.

Out went the whole management team, with most of them on their way to prison. CEO Martin Grass, for example, was sentenced to eight years in jail in May. In came a new team headed by Robert Miller, former chief operating officer of Kroger(KR), and stocked with retail veterans from grocery chain Fred Meyer.

I'd love to report that a company that's been through what Rite Aid has been through has come out of the mess squeaky-clean, but Rite Aid's score on the Clean Stock checklist is mixed. The company did move to separate the office of chairman and CEO this year, with Miller keeping just the chairman's job and Mary Sammons, a 15-year Fred Meyer veteran, becoming CEO.

But the company's board is light on the kind of high-powered independent directors I'd like to see in this situation, and the board has voted itself a rather generous compensation package of the sort that raises warning signs. Each director gets 100,000 options upon election to the board, and then 50,000 for each year on the board. I find other troubling signs, such as personal loans from the company to Miller and Sammons and rather hefty grants of 500,000 options each to Miller and Sammons in fiscal 2003. There is nothing illegal in any of this, and that is certainly an improvement. But it is still not what I'd like to see as a shareholder.

It is really hard, apparently, to teach an old company new tricks.

The three nominees from readers for the next Clean Stocks report are Chico's FAS(CHS), Cincinnati Financial(CINF) and Lennar(LEN).

Here's the complete list of Clean Stocks, and how they've done:

Cleaning Up Here's how the list of clean stocks has performed as of June 17, 2004
Company	% Return Since Purchase	% Change YTD	Purchase Date	Purchase Price
Apache (APA:NYSE)	40.8%	7.9%	8/1/2003	$31.11
Applebee's (APPB:Nasdaq)	13.4	-3.7	9/19/03	22.27
Berkshire Hathaway (BRK.B)	6.2	4.4	12/19/03	2,768.00
Expeditors International (EXPD:Nasdaq)	32.4	26.9	9/19/03	36.15
Paychex (PAYX:Nasdaq)	17.3	1.1	8/1/03	32.17
Stryker (SYK:NYSE)	40.6	27.4	10/7/03	38.52
Trustmark (TRMK:Nasdaq)	-0.1	-0.8	11/25/03	29.25
T. Rowe Price (TROW:Nasdaq)	15.4	2.7	10/7/03	42.20
Walgreen (WGO:NYSE)	-4.5	-3.9	11/25/03	36.62
Washington Post (WPO:NYSE)	23.0	20.1	12/19/03	772.50
Average Clean Stock return	18.5	8.2
S&P 500 return	15	2
Source: MSN Money

To nominate a stock for a future Clean Stocks report, just send me an email with the name of the stock and any reasons that you have for thinking it might make the list.

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