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First Quarter 2008 N I T First Quarter 2008 N I T CORPORATE E L L GOVERNANCE U B RECORD $600-MILLION FEATURE 1 RECOVERY OBTAINED IN San Diego San Francisco Los Angeles CARDINAL HEALTH CASE New York Boca Raton A $600-million settlement for shareholders all purchasers of Cardinal common stock during Washington, D.C. in the securities fraud class action against Ohio’s the October 24, 2000 through July 26, 2004 class Philadelphia biggest drug distributor, Cardinal Health, Inc., period. was approved in October. As uncovered by plaintiffs’ counsel in the (800) 4494900 The settlement is the largest ever obtained course of investigating the fraud and conducting www.csgrr.com in the Sixth Circuit and represents a significant pre-trial discovery, insiders knew that Cardinal’s recovery for the class achieved by lead plaintiffs long run of double-digit growth was coming to Amalgamated Bank, as Trustee for the LongView an end in 2000. To create the misleading impres - Collective Investment Fund, LongView 600 sion of continued growth at historic high rates INSIDE: Small Cap Collective Fund, LongView VEBA 500 and meet market expectations, defendants embarked and LongView Quantitative Fund; California on a scheme to reclassify zero-margin bulk Ironworkers Field Trust Funds; New Mexico transactions as profitable operating revenue. Feature 1: State Investment Council; and PACE Industry During the class period, the misclassification Record $600-Million Union-Management Pension Fund . Recovery Obtained in of revenue had the intended effect of inflating Cardinal Health Case 1 “Judge [Algenon] Marbley’s approval of this Cardinal’s stock price to levels as high as $74 per settlement is a tremendous victory for the share - share. Beginning in May 2004, however, the Feature 2: holders that were victimized by Cardinal Health’s company was forced into making a series of Lead for Tots 2 fraudulent activity,” said plaintiffs’ attorney embarrassing disclosures: first, that the SEC had Henry Rosen . Feature 3: launched a formal investigation; second, that the Robert A.G. Monks Cardinal is a drug middleman with a huge investigation focused on Cardinal’s misclassifica - Standing Up to the market share of the multi-billion dollar pharma - tion of revenue; and third, that Richard Miller, Corpocracy 3 ceutical distribution business, buying from “Big Cardinal’s CFO, had been forced to resign. In the wake of the scandal, Cardinal’s stock price Departments: Pharma” manufacturers and reselling and distrib - uting drugs to nationwide pharmacies like CVS lost 40% of its value, settling at $44 per share. Litigation Update 45,6,7 and Walgreens. As far as investors knew, Cardinal’s Class members’ claims had to be filed by business was booming – until the company’s 2004 December 13. The claims administrator is Settlement Update 6 announcement that it was under investigation currently reviewing and processing the claims, Recommended Reading 7 by the SEC for revenue misclassification. and will distribute the settlement proceeds to claimants once this process is complete. Calendar of This announcement and subsequent restatement Upcoming Events 8 of earnings triggered a sudden decline in Cardinal’s In re Cardinal Health, Inc. Sec. Litig. , No. C2- stock price during mid-2004, resulting in approx - 04-575, Final Settlement Hearing (S.D. Ohio Oct. imately $3 billion in losses for investors. The 19, 2007). victims filed a class-action lawsuit on behalf of Lead for Tots By Al Meyerhoff Contaminated by lead, millions of toys have been What’s been the Congressional response? Tepid. FEATURE 2 recalled by the federal Consumer Products Safety After “ l’affaire spinache ,” Senator Dick Durbin (D-IL) Commission (CPSC), from Barbie ® to SpongeBob and Representative Rosa DeLauro (D-CT) introduced SquarePants™ to Thomas & Friends.™ More are likely legislation consolidating all food safety issues into one on the way to a Toys “R” Us or Wal-Mart near you. agency with a “food czar.” The bill remains in commit - These events are not aberrations. They are the tee. “Lead for Tots” has sparked cries of outrage. consequences of a failing and outdated regulatory CPSC Chief Nancy Nord appears on television more regime – inadequate to safeguard even domestic often than Hillary Clinton. Congressional committees production, and now overwhelmed by the global drag bureaucrats in for “oversight.” But – if you’ll economy. Food and consumer products manufac - pardon the expression – “Where’s the Beef?” tured in US fields (yes, food is now “manufactured”) What’s a concerned consumer to do? Boycott toys? and factories are at least subject to US quality control Stop eating tuna? Give up beef? Pass the spinach? and (infrequent) inspections. Not so for No. None of that would work. The source the fields and factories of China, India of exposure to toxic contamination – air, and elsewhere; inspections at the border water, food or consumer products – is irrele - are little more than a fantasy. vant. E. coli is not only in spinach, it’s in Our regulatory “safety drinking water. Lead (its elimination from net” is broken. It was sewn gasoline a success story) is ubiquitous, in the If government together and then patched over air, food, home and workplace. several decades by the likes of And there is no stopping globalization doesn’t protect us Upton Sinclair, Ralph Nader and and millions of products pouring in from from poisoned Congressman Henry Waxman – countries with even greater problems. tacked together with overlap - Consumer groups are calling for more food and dangerous ping laws and conflicting inspections at the border and changes in products, then why standards – the Food and Drug trade agreements because – should our hog- Act, Consumer Product Safety Al Meyerhoff tied Congress ever actually legislate – new have government Act, Poison Prevention Act, Refrigeration laws are open to challenge as “non-tariff trade barri - at all? Safety Act and many others. Whether it’s ers.” All of these reforms are necessary. But so is food for humans, toys for Billy or kibble for self-defense. After Union Carbide’s Bhopal disaster, Fido, this net has too many holes: (1) a lack Clean Air Act amendments created the Toxic Release of scientific toxicity data on “what’s it do” Inventory (TRI), establishing a “right to know.” Major for pesticides, mercury, lead, E. coli and dozens of polluters were required to test their emissions and other toxins and pathogens; (2) an enormous lack of disclose amounts to those exposed. From the glare residue chemistry data for “what’s there,” especially for of this sunlight, dramatic reductions occurred. imported goods; (3) when contamination is found, the This same approach should now be used for cow is always already out of the barn, the hamburger consumer products. Companies like Toys “R” Us, Mattel already on the barbeque; (4) a lack of regulatory and Wal-Mart have made profits in the billions, and power to adequately punish offenders , initiate effective have profited again this past holiday season (although recalls or stop distribution; and (5) absence of central - perhaps a tad less). They should be required to test ized decision making, no single health- based their products extensively for dangerous chemicals – standards, far too much “process,” and a dearth of and disclose the results to their customers. So should money. If government doesn’t protect us from other manufacturers of consumer products. The poisoned food and dangerous products, then why power of information – and the market – will do the have government at all? rest. Congress knows how to write such a law. They While China is catching most of the heat, the global have done it with TRI. Time to do it again, by economy has simply made matters worse. When chil - amending a now nearly useless 30-year-old Toxic dren’s toys present a possible health hazard, agencies Substances Control Act. like the CPSC placate, rather than protect, announcing Or we can stay the course, relying on neutered one “recall” after another, each more a sham than the bureaucrats and corporate inaction. We do so at our last. (How many parents know precisely when they own peril, however, and should keep in mind the bought a toy with what lot numbers?) Agencies recently expressed views of Mattel Chairman Robert routinely leave products on the shelves – and in Eckert: “The company discloses problems on its own people’s homes – for weeks after a problem is found. timetable because it believes both the law and the Last summer, some one million pounds of shrimp, [CPSC] enforcement practices are unreasonable,” the catfish and eel from China went straight through an Mattel head said. Mattel should evaluate hazards FDA “import alert” to America’s supermarkets. internally before alerting any outsiders, “regardless Recently, the USDA waited 18 days before recalling of what the law says.” Oh really . ground beef found to contain deadly E. coli O157:H7. Eventually, 21.7 million pounds of beef were recalled – An environmental lawyer, Al Meyerhoff is the the second largest in US history. That’s enough for 80 former director of the Natural Resources Defense million “Quarterpounders” – which, if laid end to Council’s Public Health Program. end, would reach . well, a very long way. 2 First QUARTER 2008 Robert A.G. Monks Standing Up to the Corpocracy Standing tall is a way of life for Robert A.G. Monks. clarity and beauty in the statutory language that the Physically imposing at six-foot-six inches, Monks holds pensioners’ estate must be managed ‘for their exclu - FEATURE 3 equal stature as a powerful force for shareholder sive benefit’ and that fiduciaries must consider ‘solely’ activism, fighting in the arena of corporate governance. the interest of beneficiaries.” Many consider Monks Monks’ decades-spanning career took him from board - a “Father of ERISA.” rooms to government and back.
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