TeleTruth

Teletruth news analysis, August 30th, 2005

An article in the Financial Times, ” Verizon rejects MCI governance condition”, By Stephanie Kirchgaessner, August 25 2005,
http://news.ft.com/cms/s/cf83db44-1591-11da-8085-00000e2511c8.html

states that Verizon’s Board of Directors is independent and is not subject to specific corporate governence as part of the MCI deal. “Verizon, the US telecoms giant, has set a closing condition on its $8.5bn takeover of MCI. It will not be subject to corporate governance principles that were adopted by the former WorldCom following its accounting scandal and emergence from bankruptcy”

The article also states that “The principles, which at the time were hailed as a model for other companies, also call for a company’s board to consist entirely of independent directors other than the chief executive, and gave shareholders the right to submit resolutions and nominate board members”.

And it claims that “Nine of Verizon’s 11 directors are independent, including Mr Seidenberg.”
.
However, a letter to the Verizon shareholders by the Bell Tel Retirees, dated April 2, 2004 tells a different story. :
“At least six of the 11 Verizon directors nominated on the 2004 proxy have what we view as material financial
relationships with the Company or its officers, directly or through their firms.

Did it change in 2005?

- BOARD COMPOSITION: ITEM NO. 4 URGES THE BOARD TO
NOMINATE DIRECTIONS SUCH THAT, IF ELECTED, A TWO-
THIRDS MAJORITY OF DIRECTORS WOULD BE TRULY
INDEPENDENT. PROPONENTS PROPOSE A DEFINITION OF
“INDEPENDENT” COMPARABLE TO THE STANDARD ADOPTED
BY THE COUNCIL OF INSTITUTIONAL INVESTORS.

At least six of the 11 Verizon directors nominated on
the 2004 proxy have what we view as material financial
relationships with the Company or its officers,
directly or through their firms. In addition to CEO
Seidenberg, we believe that at least five outside
directors are non-independent due to board interlocks,
or because their own employer receives substantial
grants, fees, or business from the Company, or did in
the very near past.

- Richard Carrion is the CEO of a bank that is
Verizon’s co-investor in Puerto Rico Telephone, in
which Verizon owns a majority share.

- Robert Storey is partner in a firm providing legal
services to Verizon.

- Joseph Neubauer is Executive Chairman and former
CEO of ARAMARK, where Verizon President Lawrence
Babbio participated in setting his compensation
until last year as a member of the board
compensation committee. Verizon’s Board finds him
non-independent (see 2004 proxy, page 3).

- Hugh Price was, until last year, CEO of a nonprofit
that received millions of dollars in grants from
Verizon and included Verizon CEO Seidenberg on its
governing board (Seidenberg has since left the board).

- Sandra Moose, until year-end 2003 was Senior Vice
President of a firm paid at least $3.5 million for
consulting services since 2000.

A more independent board is particularly needed at
Verizon. The Corporate Library rated Verizon’s Board
as one of the “ten worst” among 1,700 U.S. companies
in its 2003 Board Effectiveness Ratings, stating that
“the contracts and compensation policy for both
Seidenberg and former co-CEO Lee contain virtually
every example of excess and lack of control that
could be found at a U.S. corporation, as well as a
few that can be found nowhere else.

Although the Company argues that a substantial
majority of the board is “independent” under the
NYSE’s new minimum standard, we believe that outside
directors should not be considered independent when
they have non-trivial financial relationships with
the Company, or its officers, different from
shareholders generally. By voting for this
proposal, we believe shareholders send a message that
an independent director is a person whose
directorship constitutes his or her only connection
to the corporation.