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Siebel Settles Investor Lawsuit

The software maker agrees to add another outsider to the board, adopt more checks and balances and limit stock-option issuance.

August 27, 2003|From Associated Press

SAN FRANCISCO — Siebel Systems Inc. said Tuesday that it would adopt more checks and balances to settle a shareholder lawsuit alleging the business software maker's board of directors had become too chummy.

The agreement requires San Mateo, Calif.-based Siebel to add another outsider on its nine-member board and expand the committees that oversee executive compensation and corporate governance.

To guard against conflicts, Siebel also pledged to limit the stock options given to its directors and submit its stock option plans to an annual review by an external auditor.

By making the concessions, Siebel rids itself of a potentially expensive lawsuit while the company struggles to recover from a prolonged sales slump.

The suit, filed by Teachers' Retirement System of Louisiana, had been scheduled for a Nov. 3 trial in San Mateo County Superior Court.

The reforms represent Siebel's latest attempt to appease shareholders indignant about the gains reaped by insiders as the company's once-soaring stock crashed.

Siebel's shares have plunged by 92% since peaking at $119.88 in 2000, wiping out nearly $47 billion in shareholder wealth.

The changes dictated under the settlement represent "a very large step in the right direction for a board that had a reputation for being one of the worst around," said Stuart Grant, a Delaware attorney representing shareholders.

Siebel will pay Grant and the other shareholder lawyers up to $900,000 as part of the settlement.

Grant predicted the changes would become a model for others facing shareholder pressure to create more vigilant and responsive boards.

The company had branded the lawsuit as meritless, but nevertheless welcomed the changes caused by the shareholder action.

"We've always had a long track record of strong corporate governance initiatives and disclosure practices," said Jeff Amann, Siebel's general counsel. "This settlement gave us an opportunity to strengthen those already strong practices."

The investor suit depicted Siebel's board as a clubby clique that shirked its duty by doling out millions of stock options in violation of the company's approved compensation plan.

Options generated huge profits for many Siebel insiders, led by the board's chairman, Tom Siebel, who reaped $311 million from the options that he exercised during the three years ended in 2001.

Tom Siebel defended the gains as his just desserts for building a software giant with revenue of $1.6 billion last year.

Despite the company's recent troubles, many of Siebel's longtime shareholders are still ahead on their investment.

The company went public in June 1996 at a split-adjusted $1.06 per share. Siebel's shares fell 23 cents Tuesday to $9.87 on Nasdaq.

Scornful shareholders argued the board shouldn't have given Tom Siebel so many stock options because he has long been the company's biggest shareholder, giving him plenty of incentive to do a good job. Siebel owns an 11% stake in the company.

Tom Siebel tried to mute the criticism in January by surrendering 26 million stock options valued at $56 million.

But that wasn't enough to stop the shareholder lawsuit. In July, the shareholders intensified the pressure on the company by winning the right to pursue punitive damages against Siebel's wealthy and well-connected board.

Besides Tom Siebel, the company's directors include brokerage pioneer Charles Schwab; former Republican National Committee Chairman Marc Racicot; Nobel Prize-winning economist A. Michael Spence; and Eric Schmidt, chief executive of online search engine Google Inc.

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