Long-distance carrier Sprint Corp. agreed to pay $50 million to shareholders and to strengthen its board of directors to settle two stockholder lawsuits.
Shareholders, led by Amalgamated Bank's LongView investment fund -- which represents union and multi-employer pension funds -- sued Sprint after its unsuccessful attempt to merge with WorldCom Inc. in 2000, alleging that executives withheld information that benefited themselves at the expense of shareholders.
The suits claimed that Sprint executives didn't disclose that regulators opposed the merger. Without that information, the plaintiffs said, shareholders were induced to buy stock at inflated prices and vote to approve the merger. Under Sprint's rules, executives were able to exercise stock options upon shareholder approval rather than waiting for the merger -- which never occurred because the government opposed it.
William S. Lerach, the plaintiffs' attorney, said the settlement will be distributed to shareholders who bought stock from October 1999 to September 2000. The agreement is subject to approval by a federal judge, who would determine how much of the $50 million Lerach's firm gets, an Amalgamated official said.
Shareholder activists said the settlement was important because of provisions that will better serve investor interests.
"This is how we're going to make things work better in the future," said Nell Minow, editor of the Corporate Library, which specializes in corporate governance.
Sprint said in a statement that the company admits no liability and that there was no finding that it violated federal securities laws. It said the changes to its board of directors are "consistent with the company's commitment to be at the forefront of 'best practices' in corporate governance."
Under the settlement, Sprint named former Hallmark Cards Inc. chief executive Irvine O. Hockaday Jr. as lead independent director, a newly created position.
"That's a very large move because of the power written into it," said Melissa Moye, Amalgamated Bank's chief economist for investments. She noted that Hockaday would be able to convene meetings, call executive sessions of the independent directors and put business on the board's agenda.
The company also agreed to a goal of having two-thirds of its directors be independent by next year's annual meeting.
Shareholder activists, including unions and other large institutional investors, have been pushing corporations for years to give more power to independent directors who would be less beholden to corporate management and more likely to hold it to account. Corporate scandals in the past few years have strengthened their campaign.
Sprint recently was the focus of a campaign by the Internal Revenue Service against abusive tax shelters. Its chief executive, William T. Esrey, and chief operating officer, Ronald T. LeMay, were audited by the IRS because of an arrangement designed to postpone taxes on profits from the options they held.
The Sprint board asked the two men to resign shortly before news of the tax shelters became public. The appointment of Esrey's successor, Gary D. Forsee, was announced Tuesday.