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Oust case { September 17 2002 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2002/09/17/technology/17AOL.htmlhttp://www.nytimes.com/2002/09/17/technology/17AOL.html
September 17, 2002
Some Directors Said to Seek Ouster at AOL
By DAVID D. KIRKPATRICK
Several directors of AOL Time Warner are seeking to oust the company's chairman, Stephen M. Case, and he is resisting their challenge, according to three people close to the board.
The directors may seek Mr. Case's removal as early as a board meeting in New York on Thursday. But Mr. Case wants to remain chairman, AOL Time Warner executives close to him said, and he will probably have enough support to forestall an open challenge at the meeting. Shareholders will have the opportunity to vote on his position at the company's annual meeting in the spring.
Under the terms of the merger Mr. Case negotiated for AOL to acquire Time Warner, a vote of three-quarters of the board is required to unseat him as chairman, so he needs only 3 allies on the 14-member board to withstand a challenge. "There is no basis for any rumors that Steve Case is leaving," said Edward Adler, a spokesman for AOL Time Warner.
AOL Time Warner executives have acknowledged over the last few months that Mr. Case has come under fire from several institutional shareholders angry about his role as chief architect of AOL's acquisition of Time Warner. Shares of the combined company have fallen more than 70 percent since the deal closed because of disappointment with the merger.
Once promoted as an engine to turbo-charge Time Warner's old-media business with digital distribution, the merger has instead dragged the company down as growth has stalled. And this summer, the Securities and Exchange Commission and the Justice Department started investigations into whether AOL improperly inflated its results before the merger, raising the possibility that AOL may have misled Time Warner shareholders.
Gerald M. Levin, the former chief executive of Time Warner who agreed to the merger, resigned as chief executive of the combined company in January. Then this summer, Robert W. Pittman, the chief operating officer and Mr. Case's outspoken lieutenant, resigned as well. With Mr. Pittman gone and the accounting investigation advancing, disgruntled shareholders have refocused their criticism on Mr. Case, the last executive from AOL among top management.
Shareholders seeking Mr. Case's ouster contend that his association with the merger now detracts from AOL Time Warner's credibility on Wall Street and demoralizes executives from the Time Warner divisions. They say that Time Warner shareholders and employees now feel he duped their company into an unfair merger. They also say he made $100 million in profit on sales of AOL Time Warner stock while many shareholders and executives held on and watched their investments evaporate.
Mr. Case has, meanwhile, adopted a largely behind-the-scenes, advisory role at the company, making his current contributions to the company hard to discern, his critics say.
Some major shareholders have lobbied the board for an ouster. Two people who said they had discussed the matter with John C. Malone, whose holding company, Liberty Media, is one of AOL Time Warner's largest shareholders, said he would support a removal. A spokesman for Liberty Media declined to comment.
Mr. Case has also lost some support on the board. With Mr. Pittman's resignation, each side of the company has seven directors. A person close to Ted Turner, another of the largest shareholders, said he now favored Mr. Case's removal. Mr. Turner was a Time Warner director; he supported Mr. Case, the person said, until the allegations that AOL may have inflated its results emerged this summer. Mr. Turner could not be reached for comment.
The movement to oust Mr. Case is being pressed by some of the directors from the Time Warner side of the company, according to people close to the board. The Time Warner directors include Stephen F. Bollenbach, chief executive of Hilton Hotels; Carla A. Hills, chief executive of Hills & Company; Reuben Mark, chairman of Colgate Palmolive; Michael A. Miles, chairman of Philip Morris; and Fay Vincent, former commissioner of baseball.
Last night some people close to the board said two directors — James L. Barksdale, who joined the AOL board when the company acquired his business, Netscape, and Daniel F. Akerson, chief executive of XO Communications — could no longer be counted on to back Mr. Case.
But Mr. Adler, the AOL Time Warner spokesman, said its chief executive, Richard D. Parsons, who is a former Time Warner executive and director, still supports Mr. Case. In a recent statement responding to questions about Mr. Case's role, the company described him as Mr. Parsons's "primary thought partner and sounding board on a wide range of issues." It added: "As C.E.O., Dick ultimately is responsible for managing the company, but he welcomes and seriously considers Steve's advice and counsel."
Mr. Case's supporters argue that he adds an important perspective on the company's biggest problem, which is improving the performance of the AOL division. They note that Mr. Case has demonstrated a knack for long-term strategy by beating better-financed competitors like Microsoft to build AOL into a new-media behemoth.
Some of Mr. Case's supporters note that he proved his business acumen by negotiating a deal to acquire Time Warner, a company with four times AOL's revenue, on terms extremely advantageous to his own shareholders. Although Mr. Case sold shares in 2001, a spokesman pointed out that he bought a million shares in February.
Supporters also say that AOL's problems — the accounting that has come under scrutiny and the over-optimistic promises that disappointed Wall Street — both arose in 2001, when he was acting as chairman and was removed from hands-on direction of the company's operations. But Mr. Cases's critics say the problems began when he was running AOL and that as chairman of the combined company he was still responsible.
Because he negotiated a rule requiring a three-quarters majority to remove him, Mr. Case needs only a few allies on the board to keep his job. People close to the board say he can rely on at least two directors who are his close friends — Kenneth J. Novack, the vice chairman and a lawyer for AOL who helped negotiate the merger, and Miles R. Gilburne, a venture capitalist who advised Mr. Case on strategy at AOL.
Mr. Case most likely also has the support of Frank J. Caufield of the venture capital firm Kleiner, Perkins Caufield & Byers, which provided financing for AOL, although some of Mr. Case's opponents said they considered him a possible swing vote. Mr. Caufield could not be reached for comment.
For now, under the terms of the merger agreement, just three votes besides his own is more than the one-quarter needed to hold on to his seat as chairman. As a result, one shareholder pressing for Mr. Case's removal said the effort would probably take months. Mr. Case, for his part, appears to believe he can convince the unhappy board members and shareholders of his value to the company before the annual meeting in the spring, according to people close to the board.
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