By David Glovin
Thursday, September 7, 2006
Time Warner Inc., the world's largest media company, won approval yesterday of a settlement of an investor lawsuit that a judge says will require the company to make changes in how it governs itself.
U.S. District Judge Shirley Wohl Kram gave final approval to the settlement of a 2002 suit that claims the directors of America Online and AOL Time Warner knew employees were violating accounting rules.
Under the settlement, Time Warner agreed to designate an independent director as chair of its nominating and governance committee. Within three years, two-thirds of the company's directors will be independent, the settlement says.
These and other changes "may enhance investor confidence by ensuring that the company maintains a healthy governance structure," Kram said in a ruling.
The suit was filed by investors on behalf of the company against directors and officers of AOL and AOL Time Warner, now known as Time Warner. Investors claimed the directors knew or ignored signs that employees disregarded internal accounting and contracting policies. They say directors and senior officers breached their duty to shareholders.
Similar allegations led to a $2.5 billion settlement of a separate investor class-action lawsuit against the company. That suit alleged securities fraud.
The settlement yesterday has two key parts: "extensive governance and compliance provisions at the board and management level" and an acknowledgement by Time Warner that the suit was "a substantial factor" in the company's ability to recover about $200 million from its director-and-officer insurers, Kram said. The money would fund the governance changes, Kram said.
Under the pact, lawyers for the investors will collect $9.6 million, which would come out of the $200 million insurance proceeds, according to court records.
Susan Duffy, a Time Warner spokeswoman, declined to comment. Patrick Morris, an attorney for the investors, did not return calls seeking a comment. Time Warner continues to deny the investors' allegations of wrongdoing, according to court records.