Shareholder agitators Nell Minow, Agnes Varis, and Sharon Manewitz shun the "Wall Street rule" -- if you don't like the stock, sell it. Instead, to the dismay of executives, these women have worked against top management to force change and to boost revenues and the value of their stock. Shareholder activism is increasing. Other rabble-rousers include Providence Capital's Herbert Denton and Greenway Partners LP's Alfred Kingsley, who have harassed, harangued, and fired underperforming board members. The controversial actions of these shareholder activists have drawn international notice and illustrate three points central to the changing role and composition of corporate boards. The reactions they have provoked show how hard it can be to motivate or oust ineffective board members; how difficult life can be for directors who air their own views; and how frustrated shareholders are with inefficient board practices dumped by the smartest companies years ago. Rebels With A Cause Nell Minow looks for losers with potential. A principal at activist money-management firm Lens Inc., Minow wants companies with strong products and underlying values that are performing poorly. Headquartered in Portland, Maine, Lens manages $100 million and developed a following when its founder Robert Monks ran for a seat on the Sears Roebuck & Co. board in 1991 in hopes of calling attention to the retailer's weak operations. Minow fishes for lackadaisical CEOs and rubber-stamp boards. "Governance vulnerability" is key so Lens can buy enough stock to make an impact. Companies meeting Minow's criteria include Juno Lighting Inc. in Des Plaines, Ill., in which Lens holds a 6% share, as well as Waste Management Inc. and Temple-Inland Inc. Frustrated shareholders write to Minow asking her to look into foundering companies in which they have a stake. She has more than enough prospects, but Lens limits its holdings to a handful of public companies to better focus on turning them around. Typically after Minow decides to become involved, Lens buys substantial shares, and Minow shoots off a letter to a top executive letting him or her know of Lens' stake. She prefers to be cooperative and nonconfrontational, but most management changes don't happen politely. She raises concerns about the way the company is run and then requests a meeting with the CEO. When, as in the case of Juno Lighting, her request goes unfulfilled, she lets executives know she will be attending the annual meeting and includes a list of questions she plans to ask. Sometimes tempers flare at those meetings. When Minow attended one in Boston for Stone & Webster Engineering Corp., she demanded each board member stand up and explain to shareholders why none held more than 200 shares in the company. She thought they all could afford more so she asked them why they regarded the company as a bad investment. "I don't think there's anything wrong with asking a billionaire why she hasn't invested more in a company where she is on the board," Minow points out. Lens helped to remove eight board members and two CEOs from Stone & Webster during a three-year period. The changes proved to be exactly what the market wanted. The engineering company's stock price jumped from $27 to $47 from 1994 to 1997, when Lens held shares. Now Minow's glare focuses on Juno Lighting. She charges it is run like a private company with poor capital allocation. Its board fails to make independent decisions, and the company lacks a candidate to succeed the founder and CEO, she says. In a letter to Minow dated May 19, 1998, Chairman and CEO Robert S. Freeman promised to add two more independent members to its board, but hasn't yet. Minow vows to keep pressing. Minow offers several suggestions for what she likes to see in a board of directors. She wants directors to hold a significant personal investment in the company, guaranteeing a vested interest. She likes directors to be paid in company stock. As she remembers one analyst quip about board members who are also significant shareholders, "You've never seen calculators come out so fast." Boards should get together at least four times a year and ideally after each shareholders' meeting. Following reports of accounting irregularities at Cendant Corp., Livent Inc., and Waste Management, Minow pays closer attention to the board's audit committee, which she thinks should be composed of outsiders with business experience. "If I see a former government official and a university dean I know the CEO doesn't want the audit committee involved in operations," she says. Minow cares more about skill sets than she does about race or gender. "It's been my sad experience that if you pressure a company to add women and minorities, they tend to go to two categories that I least like to see on boards: former government officials and academics," she explains. Outspoken Agnes Varis also holds strong views on what's needed for a board to work. She never expected those views would turn her into a shareholder heroine. For six years she served on the board of Copley Pharmaceutical Inc. in Canton, Mass. Herself an entrepreneur, the founder of Agvar Chemicals Inc. in Little Falls, N.J., Varis spoke out when she disagreed with other directors. She became more vocal after Hoechst AG became a majority shareholder in 1993. Frustrated with what she saw as mismanagement by the German giant -- Copley's share price halved from the time Hoechst bought a stake until 1995 -- Varis protested. She alleges that three other board members, whom she calls Hoechst "yes-men," tried to force her off the board when she raised unpopular views. Varis ended up quitting on her own accord in July. She outlined her complaints to The New York Times, which published them in a two-page article. "I got calls from all over the country. People sent me faxes saying, 'It's time someone speaks out for the little guy,'" recalls Varis, still a Copley shareholder. Controversy swirls around the firebrand's resignation. Gene Bauer, Copley's executive vice president and general counsel, pointed out that after Varis' boisterous departure the company's stock climbed 50%. Two things are certain: It drew a good deal of attention, and the fact that the general public found out about it was unusual because most directors maintain a club-like code of silence. Varis heard from sitting directors at other companies, who told her that her resignation inspired them to raise their voices against decisions they believed to be wrong. She also received invitations to join other boards. Varis offers certain criteria for her dream board: It should include experts in the company's core field (scientists in Copley's case). She also calls for visionaries and directors with financial experience. Perhaps most important, Varis wants people who are willing to speak up for what they believe in and what's best for shareholders and employees. "When you're a director, what goes on in the boardroom stays there, and it comes to a point where [the silence] is used as a way of tying you down," she protests. Sharon Manewitz, managing director of New York-based TIAA-CREF's special-loan unit, took calls from different parts of the world after her division drove out an entire board of directors. "We were just doing our job in connection with a troubled situation where we hoped for maximum recovery [of our investment]," she says. To the rest of the world, TIAA's step proved more than routine. "We even got calls from the European press," acknowledges Manewitz. TIAA-CREF, the country's largest pension system, realized one of its investments was in trouble in 1991 when it learned the cafeteria chain Furr's/Bishop's Inc. had overleveraged itself and couldn't service its debt. TIAA turned its original loan into equity and began working with Furr's to reorganize. In conjunction with other shareholders the fund added new members to Furr's board, but two restructurings and seven years later, Manewitz's division, which functions like a collection agency within TIAA, concluded that Furr's situation had not improved. In May 1998 the pension system took the unprecedented step of driving out Furr's entire board. "There was serious infighting and resignations. It just seemed as if the board had its own agenda," says Roi Chandy, a special-loan-unit director, who worked on the Furr's case. Other investors felt the same way. When the vote took place to replace the Furr's board with the pension system's slate, TIAA's choice won approximately 80% of the votes. Executives at Furr's now see TIAA's dramatic change as positive. "In retrospect, it was a very good move," remarks Furr's Chairman Suzanne Hopgood. "The company is moving forward quite smartly. We have announced a new president with more than three decades of experience in the restaurant industry and a $20 million restaurant-renovation program." Experts believe that now that an institutional investor has shown the way, others will follow in firing inefficient boards. "Most institutional investors, instead of looking for a fight, compromise behind closed doors. The Furr's/Bishop case is a milestone," observes Robert Newbury, deputy director of the Investor Responsibility Research Center, Washington. Golfing Buddies Need Not Apply Most public companies that are responsive to shareholders and marketplace changes probably won't face situations such as those prompted by Minow, Varis, and Manewitz. Leading business organizations including the Conference Board and the National Assn. of Corporate Directors have conducted surveys and issued guidelines to help companies meet demands of today's shareholders including directors' full disclosure of other commitments and CEO succession planning. One change witnessed by Ram Charen, author of Boards at Work (1998, Jossey-Bass), is board members organizing sessions without the CEO. "They're meeting to discuss performance. Is the CEO's poor record for three years an issue of industry competition, the global economy, or mismanagement? Then you see actions taken," he says. IndustryWeek's own survey of manufacturing CEOs reveals that the board's power -- over both the CEO and operations -- is growing. One respondent, Sidney Taurel, president and CEO of Eli Lilly & Co., points out, "Our board is more deeply involved in such issues as strategic planning, reviews of our R&D strategies, and succession planning. We have formalized this closer relationship through the adoption in 1997 of principles of corporate governance, which represent corporate best practices, adapted to Lilly." Another CEO of an S&P 500 company, who preferred to remain anonymous, illustrated his board's independence with an example of the way it sought advice from a consultant on executive compensation. Following the consultant's suggestions, the company changed its top-level pay, tying it more to stock performance. That alteration prompted the CEO to shift the company's risk profile to achieve greater returns. Slowly outsiders are learning what goes on behind board-room doors and are calling on corporations to change certain practices. Concerned about their own reputations, many directors refuse to rubber stamp the ideas of CEOs. Other factors influence the composition of boards. Companies confronting the Year 2000 glitch might bring on a board member steeped in information-technology knowledge. Others might add a director to beef up expertise in an industrial segment or geographic area. Gillette Co., for example, recently announced that Marjorie M.T. Yang, chairman of Hong Kong's largest garment manufacturer, the Esquel Group of Companies, and well connected in the Greater China region, has been elected to its board of directors. These changes to the composition and role of corporate boards are not unique to U.S. corporations. Both TIAA and Lens are active in Europe. In IW's CEO survey, one-third of respondents who noted a boost in the board's power came from outside the U.S. "In Europe, there's an increasing awareness of the role and responsibility of boards. Shareholder expectations have increased, and this automatically changes the way the board operates," reports Peter Zbinden, president of the elevators and escalators unit of Schindler Holding AG in Hergiswill, Switzerland. In Japan, Hiroshi Haruta, the new president of Citizen Watch Co. Ltd., credits the recent appointments of young directors and officers with rejuvenating the board and allowing him to "escape from the conservative bondage to cope effectively with the new age." Activists such as Minow, Varis, and Manewitz also are trying to free executives from the conservative bondage of clubby boards. Vijay Govindarajan, professor of International Business at Dartmouth College's Amos Tuck School of Business Administration, who directs its Global Leadership 2020 program, complains that corporations, especially those in the U.S., tend to be ethnocentric. "They take the business models developed here and export them, and that misses the real potential for global expansion," he explains. That global mind-set starts at the board level, and all those companies that aren't stacking their boards with experienced, imaginative thinkers -- willing to express unpopular opinions -- will struggle in next century's marketplace. "I don't believe that a company will be relevant by the year 2010 if its board doesn't have a global, diverse outlook," he warns.