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Updated from 1:35 p.m. EDT

Siebel Systems


will adopt a set of new corporate governance polices as part of a lawsuit settlement with the Teachers' Retirement System of Louisiana.

Under the settlement, announced Tuesday, Siebel also has indicated it would pay up to $900,000 of the pension fund's legal fees. A Siebel spokesman said Tuesday that no other money would change hands as part of the agreement.

In the suit, filed in September, Teachers charged that Siebel failed to properly account for about $22 million in expenses for stock options given to CEO Tom Siebel and President Paul Wahl in 1998 and 1999, with exercise prices below the market price at the time they were granted. The suit alleged that Siebel's directors violated the company's rules by granting too many options and, in some cases, issuing them below market value without expensing the difference in price.

Under the settlement, which is subject to court approval, Siebel will:

Limit the compensation of directors to a preset level disclosed in advance to shareholders. If Siebel decides to pay directors in stock options, outside directors may receive a grant of no more than 80,000 options following their appointment. Outside directors who have served on the board for more than six months may be granted no more than 20,000 options in a given year.

Provide advance disclosure of the date on which directors will receive stock options. Siebel will grant options to outside directors in January of each year and publicly announce the specific date of option grants to outside directors no later than two weeks before the grant date.

Provide annual disclosure of the value of options granted to directors and the company's five highest-paid executives.

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Provide shareholders with more specific criteria used by the compensation committee in determining compensation awards to executives, directors and employees.

Add a new member to its board of directors, to be nominated for election at the company's next annual stockholders meeting. The pension fund will have input into the selection of this outside director.

Create and disclose more specific criteria for selection of future directors.

Add an additional outside director to the size of the board's compensation committee and its nominating and corporate governance committee.

"The new governance protocols represent changes that we believe should serve as a model for other companies," Tommy Reeves, the teachers' fund general counsel, said in a press release.

Siebel's board of directors reads like a Silicon Valley Who's Who Guide, a feature the Teachers pension fund hopes to change. Among its members: Charles Schwab, chairman and CEO of the Charles Schwab Co.; George Shaheen, former chairman and CEO of Webvan, perhaps the biggest dot-com bust; and Eric Schmidt, chairman and CEO of search-engine company Google.

"I think you need to have a few directors who don't have the Silicon Valley mentality when it comes to executive compensation and have maybe a little more of a different view on what the relative value of folks doing a job is worth," said Stuart Grant, an attorney with Grant & Eisenhofer, who handled the case for the Louisiana fund. "Maybe some Yankee frugality might be a nice ingredient to have in a board."

Grant said the fund succeeded in accomplishing its two goals with the suit: redressing past wrongs and changing the corporate governance to prevent future wrongs. As to past wrongs, Grant suggested that Tom Siebel's request to cancel his 26 million options -- which the company granted -- was a reaction to the fund's suit.

In the past, Grant said, the company's chairman of the board -- also Tom Siebel -- decided when to give the board options, and the board set Siebel's salary. Grant said the new rules are designed to break up that cozy relationship. "If you force transparency and accountability, generally you get better decisions," Grant said.

Shares of Siebel shed 34 cents, or 3.4%, to $9.76 in recent trading.