Governance and Management Overhaul
Comverse is believed to be the first U.S. company to adopt a proxy access bylaw. In 2003, California-based Apria Healthcare adopted a policy to allow shareholders to submit names for inclusion on its ballot, but the company's board can reject those candidates, according to Bloomberg News. While other firms, such as HP, allow shareholders to suggest nominees, investors have no recourse if management ignores those suggestions but to wage a costly proxy solicitation.

The proxy access bylaw is among the various governance changes that Comverse has made as it tries to reassure investors. On April 20, Comverse’s board adopted a director resignation policy and agreed to ask shareholders to approve an amendment to the certificate of incorporation to provide for majority voting in uncontested director elections. As a New York-incorporated company, the firm must obtain both board and investor approval to amend its certificate of incorporation.

The board approved stock ownership guidelines, director term limits, and an independent chairman policy. The board also agreed to establish a formal shareholder advisory group to gather input from significant investors on director nominations and board composition.

During the past year, Comverse has overhauled its management and board. By the end of April, the eight-member board will include seven new directors who weren’t there when the company began a special investigation into its options practices in March 2006. Mark Terrell, who served as executive director of KPMG's Audit Committee Institute, became Comverse's chairman in July.

Terrell said the proxy access bylaw, along with majority voting and the new shareholder advisory group, are the cornerstones of the new board's efforts to enhance accountability and "remake the governance of the company in the wake of the options problem."

"We share this ideal that we are accountable to shareholders," Terrell told Governance Weekly. "We think that proxy access is in keeping with this concept of accountability."

Earlier this month, Comverse named Andre Dahan, a former AT&T Wireless executive, as CEO and president. Former CEO Jacob "Kobi" Alexander resigned last April, later fled the country, and now is in the African nation of Namibia. Alexander, who faces securities fraud and other criminal counts, is fighting extradition and has said he would plead not guilty to the U.S. charges, according to Bloomberg News. William Sorin, a former Comverse general counsel, and ex-finance chief David Kreinberg have pleaded guilty to criminal charges and are awaiting sentencing.

Dissidents Seek Special Meeting
Because of the options investigation, Comverse has not held an annual meeting since June 2005. Under federal law, a company cannot solicit proxies to elect directors at an annual meeting until it files an annual report with audited financial statements. The company was delisted from Nasdaq in January because it failed to meet its reporting obligations.

A special board committee still is investigating the company's option-grant and accounting practices. In an April 24 filing, Comverse said the latest phase of the investigation is expected to be completed in May.

On April 11, Oliver Press announced its intent to seek a special meeting and nominate Augustus Oliver and Clifford Press to the board. On April 24, the New York-based hedge fund manager and its allies filed a preliminary proxy statement that asked investors to support the dissidents' demand for a special meeting. Under New York state law, holders of 10 percent of a company's outstanding shares may demand that the company hold a special meeting within 60 to 90 days if more than 13 months have passed since the last annual meeting.

The dissidents contend that a special meeting is needed because all but one of the former directors have stepped down since the last annual meeting. Oliver Press argues that shareholders should have input as the company undertakes "major steps," such as hiring a new CEO and providing $300 million in financing so a subsidiary, Verint Systems, can proceed with a $1 billion acquisition of Witness Systems.

"We do not believe that the extraordinary circumstances the company finds itself in justify complete abandonment of basic corporate governance practices," Oliver Press says in its proxy filing. "We believe strongly that shareholders deserve a voice in the boardroom and we are starting this process with the goal of giving shareholders that voice."

Comverse, which obtained SEC permission to respond with its own proxy statement, argues that a special meeting is not in the best interests of shareholders. If such a meeting is held, management warns that it may not be allowed by the SEC to solicit proxies to support the company’s nominees, which would mean that investors would only receive proxy materials from the dissidents. "The shareholders cannot be fully informed if company cannot communicate with shareholders," Comverse said.

In a letter to shareholders, Chairman Mark Terrell said the dissidents' "hasty" demand for a special meeting is "an ill-advised distraction” and could lead to “uncertainty and instability." Terrell noted that the dissidents have held less than 1 percent of the company’s shares for less than six months.

While Oliver Press has proposed two nominees, Terrell warned that the dissidents could use the special meeting to replace the entire board, even if such shareholders don't represent a majority of the firm's outstanding shares. Under New York law, shareholders who attend a special meeting (or vote by proxy) will constitute a quorum for the purpose of electing directors, the company noted.

Instead, Comverse argues that a "more prudent course of action" is for the board to work with the new shareholder advisory committee to consider additional directors.