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E-Trade Expands Board of Directors

Times Staff Writer

E-Trade Group Inc., whose former leader quit in January after his lavish pay package drew outrage, took its latest step Tuesday in a bid to soothe shareholder advocates, expanding its board to 10 directors from eight.

Analysts said the Menlo Park, Calif.-based online investment firm, which also revamped its board’s compensation committee, is making progress toward achieving an independent board.

But they said the board still must convince investors of its independence through its actions, adding that shareholders also want better financial performance from the company, whose stock is off 93% from its peak in 1999. On Tuesday, the shares slid 10 cents to $4.40 on the New York Stock Exchange.

“It’s a very visible first step, but E-Trade will need to continue following this path,” said Richard Repetto, an analyst at Putnam Lovell Securities. “Management will have to be accessible to rebuild its relationship with the investment community.”

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If the board slate is ratified at E-Trade’s annual stockholder meeting May 22, nine of the directors would have no financial ties to the company. CEO Mitchell Caplan -- appointed when his predecessor, Christos Cotsakos, resigned and the company split its chief executive and chairman positions -- would remain the only director who is also an executive of the company.

Vaughn Clarke, Michael K. Parks, C. Cathleen Raffaeli and Donna Weaver were named as directors Tuesday.

Longtime board member William E. Ford is resigning April 23 and Peter Chernin, a director since 1999, will not seek reelection in May. The new directors, who will form the compensation committee, all work in the financial industry.

Cotsakos triggered an investor lawsuit when his 2001 pay package of $77 million was made public. E-Trade later scaled back the package, but the controversy lingered as some critics saw him as a symbol of corporate greed.

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E-Trade’s nonexecutive chairman, George Hayter, said the board changes would help “eliminate any shareholder concerns about corporate governance.”

Nell Minow, head of the Corporate Library, a governance-related watchdog group, said she hopes the firm has learned from the Cotsakos pay fiasco.

“When we look to see whether this company continues to be a serial offender, the first thing we’ll be watching is executive pay,” she said. “That’s the only reliable indicator of independence: You have to be able to look the CEO in the eye and say no.”

In a February interview, Caplan told Bloomberg News that his CEO compensation package includes a base salary of $650,000 and a bonus that can be as much as three times that.

E-Trade is one of many U.S. firms revamping their boards or governance guidelines in response to the Sarbanes-Oxley law enacted last year, as well as new rules at the stock exchanges and policies being pushed by pension plans. Tenet Healthcare Corp. and HealthSouth Corp., for instance, have announced recent changes, said Duke Bristow, an economist at UCLA’s Anderson School.

But Bristow cautioned investors that studies have found the link between board independence and subsequent stock performance “murky at best.”

“With many of these companies it’s not a governance problem, it’s a profit problem,” he said.


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