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Settled Siebel Suit Triggers Corporate Governance

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Posted August 26, 2003 By Clint Boulton     Feedback

The enterprise software company settles a suit and institutes tighter control over corporate governance in the face of a government crackdown on accounting misdeeds.

Enterprise applications maker Siebel Systems settled a class-action lawsuit Tuesday for $900,000 and took steps to make sure it doesn't put itself, or shareholders, into like situations with the creation of corporate governance initiatives to provide better guidance to the public.

Siebel decided to adopt new governance measures upon settling with the Teachers' Retirement System of Louisiana (TRSL), which alleged that the San Mateo, Calif. outfit violated company rules for granting stock options by exceeding the cap set on the number of options it was allowed to grant and issuing options at below market value without expensing the difference in price.

As part of the settlement, Siebel has agreed not to oppose the application to the court by TRSL's attorneys for reimbursement of their legal fees in connection with the lawsuit. Officially, the settlement is subject to court approval.

Siebel has undertaken a number of measures to make sure this does not happen again, including adding a new member to its board of directors, who will be nominated at the company's next annual stockholders meeting; creating more specific criteria for the choosing of future directors; and ensuring that the "compensation committee" is comprised of independent directors.

Additionally, Siebel also plans to expand the size of the board's compensation and nominating and corporate governance committees; limit the compensation of directors to a pre-set level disclosed in advance to shareholders; disclose the date on which directors will receive stock options; and provide annual disclosure of the value of options granted to directors and the company's five highest paid employees.

One TRSL lawyer was happy with the changes.

"We are enormously pleased that Siebel Systems and its board understand the paramount importance of corporate governance as a means of protecting shareholder interests," said Tommy Reeves, General Counsel of the TRSL. "The new governance protocols represent changes that we believe should serve as a model for other companies."

Siebel's move is the latest in a series of changes businesses have been making to ensure better disclosure of relevant information to shareholders. The move stems from pressure from government agencies who are cracking down on enterprises for accounting improprieties.

Siebel's changes are particularly salient at this time, as MCI has just been ordered massive corporate governance changes after an accounting scandal sent it into bankruptcy protection and erased more than $180 billion in shareholder value. The former WorldCom is slated to exit Chapter 11 bankruptcy protection this fall.

Also, Computer Associates just announced it plans to shell out $144 million to settle three separate class-action lawsuits related to accounting misdeeds.

The news has to come as a bit of a relief for Siebel, who competes in a sector fraught with confusion since June, when two of its biggest rivals, PeopleSoft and Oracle , touched off a pernicious power struggle.

The fear, doubt and uncertainty caused by the hostile actions have impacted the sales cycles of a handful of applications companies because customers are unsure what will happen next. Siebel has held its own in the meantime, while the opponents wait to hear from government agencies about how their dispute.

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