All Over the Board - Internet/Web/Online Service Information

Industry Standard, The, Feb, 2001 by Mark Schapiro

Shareholder activists are using the Web to crank up me neat on corporations. Some demand social reforms; others push for maximizing profits.

As a finance professor who runs his own mutual fund, Aaron Brown sees more than his share of business plans. So it didn't take him long to spot a weakness in the strategy of Employee Solutions, a human resources company that serves tech-related businesses and associations. Given the booming economy and its demand for temporary workers, Brown figured that an outfit like Employee Solutions should be flying high. But last April its stock was in the doldrums, and management was preparing to renegotiate an $85 million debt that, in Brown's view, was a bum deal for shareholders.

Unlike most investors, Brown had a plan to fix the company's problems -- and perhaps make a few bucks in the process. He began buying up shares on the quiet. Then, last May, after notifying the company and the Securities and Exchange Commission that his fund owned 4 percent of Employee Solutions' stock, he turned up the heat with his new Web site, eRaider.com.

Brown began flaying Employee Solutions' business strategy on eRaider's message boards, and used the Web to reach out to other shareholders -- eventually recruiting investors representing one-quarter of the company. He then used eRaider to direct a campaign in which these investors deluged company headquarters with faxes pledging support for an alternative plan proffered by Brown.

Employee Solutions relented and invited Brown to participate in restructuring. Soon thereafter, it announced the resignation of longtime board member Robert Mueller to make way for representatives of the new investors. "Aaron Brown raised a lot of questions, and I think the company has been handling them well," says Dan Matsui, a spokesman for the firm that handles Employee Solutions' investor relations.

Brown, who teaches at Manhattan's Yeshiva University, and Martin Stoller, an economist at Northwestern, co-founded eRaider last spring as a tool to wrest control of underperforming companies from management and deliver it to shareholders. "Stockholders have the legal power to run the company Problem is, they don't know it' says Brown. "They get information and exercise control in a deeply filtered way. But with instant access to information and analysis, that is changing rapidly."

The Internet, in fact, is coming to haunt corporate executives, who face an online pincer movement from shareholder activists on both ends of the ideological spectrum. On one side are those inspired by corporate raiders like Carl Icahn and T. Boone Pickens (Brown's idol, he admits), who use the Net to pressure execs into tightening up the bottom line. ERaider is perhaps the most colorful in this approach, but a handful of new sites, including InvestorsBullhorn.com (its slogan: "Democracy for Capitalists") and Corpmon.com, also encourage shareholders to get active in companies they own. On the other side are social reformers -- including Shareholder Action Network, SocialFunds.com and Interfaith Center on Corporate Responsibility (ICCR.org) -- that use the Web to rally shareholders and pressure corporate management to heed environmental, labor and human rights issues.

While the agendas of these factions often conflict, the capitalists and social reformers have one thing in common: Each recognizes the Web as a critical tool for making companies accountable. "The Internet is smart and flexible, while big companies are mostly pretty stupid," reads Brown's welcome to eRaider visitors. "While business is trying to take over the Internet, the Internet will take over business."

Perhaps. The Net is certainly haven for stock-owning rabble-rousers. In the newsletter of Institutional Shareholder Services, which provides proxy voting services, company VP Richard Ferlauto reported last February that stock owners who cast proxy votes online are up to three times more likely to vote against management. "People who use the Net to manage their accounts are generally more engaged," explains Ferlauto. "Active investors using the resources of the Net would probably use all the tools available to influence corporate management."

ERaider could serve as a model in that regard. Inspired by co-founder Stoller's inability to get any answers from a failing company in which he owned a stake, the site overflows with revolutionary zeal. While profits are paramount, the cofounders are equally passionate about their ideological mission: to radically alter the relationship between shareholders and executives.

By Brown's estimate, just 15 to 20 percent of stock owners pay any attention at all to the companies they own. To allay this, eRaider employs a rotating cast of several dozen academics and financial analysts who steer discussions on the site's boards and recruit fellow raiders. After a company is targeted, all of its stockholders are contacted and invited to participate in the online discussions. "The Internet makes it possible to combine the expertise of shareholders who together often have far greater expertise than management," says Brown. "And they have only one common self-interest: higher profits."