Reading Proxies for Fun and Profit
Nevertheless, when they reached Turner at Colorado State University and described their plan, he was intrigued. After checking their bona fides and extracting guarantees that, as director of research, he'd be free to call 'em as he saw 'em, he quit his safe teaching job and joined the start-up. "Sometimes I question my own sanity. So does my wife," Turner says with a laugh. "There were other opportunities that would have allowed me to make a lot more money. But they did not involve a public interest on behalf of investors. When you look at Enron and see the damage that did: People lost their jobs. People who worked hard all their life and thought they had retirement taken care of all of a sudden have to flip burgers. ... I despise that with a passion."
Next, they needed a company name. Since the founders were unknown, they took parts of the names of two of their heroes, the influential SEC Chairman William O. Douglas (hence, Glass), and Justice Louis D. Brandeis, famous for the quip "Sunlight is said to be the best of disinfectants" (Lewis, their preferred spelling).
As soon as they'd written a few sample analyses of proxies, they made their first sales call: to the nation's biggest activist investor, the California Public Employees Retirement System, or CalPERS. When Ted White, then CalPERS's chief of governance, saw examples of Glass Lewis's proxy reports, he was sold. "They were really good," says White.
Dissing Disney. With stamps of approval from Turner and CalPERS, Glass Lewis's business took off. It didn't hurt that the company soon earned free publicity when Taxin and Turner made harsh comments about some famous executives and directors. In 2004, for example, Glass Lewis called for the ouster of both Disney CEO Michael Eisner and Disney board member George Mitchell. The former Maine senator was "an ill-advised choice" because both he and his law firm had done business with Disney, Taxin charged. While Eisner eventually resigned, Mitchell remains chairman. A company spokesperson dismissed Taxin's comments as publicity-seeking.
To meet booming demand for advice on all sorts of companies, Glass Lewis went on a hiring spree. Now, Glass Lewis has 100 employees, including enough international lawyers, accountants, and investment bankers that the company can provide analysis and voting recommendations on the proxies of 12,000 companies from 65 countries.
And it has branched into investment advice. Turner's forensic accountants mine financial reports, merger documents, and insider-trading filings to find warning signs. In January, for example, Turner's crew noticed subtle accounting maneuvers at SafeNet, a Belcamp, Md., computer encryption firm. Some of SafeNet's recent profits seemed to stem from little more than changes in accounting assumptions. Glass Lewis issued an alert to clients. A few weeks later, SafeNet's stock started to plunge from the low 30s, and the company restated its earnings. In April, the chief financial officer resigned. The company's stock now trades for about $21 a share. The company didn't respond to requests for comment.
In collaboration with executive compensation expert and Harvard law Prof. Lucian Bebchuk, Glass Lewis has also created an index that overweights companies with good corporate governance. The board accountability index generally outperforms the S&P 500 by about a third of a percentage point, Glass Lewis says. Taxin expects the index to be available for investments from large money managers within six months.
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