So, how do we get the attention of companies that we think are not doing a great job for shareholders? We take what we describe as a Gandhian approach to corporate governance. This is a form of forceful yet passive resistance that includes such methods as getting the press involved. For example, about three years ago, after we had acquired 10 percent of Santa Anita Companies, management threw up what we considered a Berlin Wall around shareholder values. The company agreed to sell to Colony Capital (where a Santa Anita director was CEO) a sizable block of stock at about $15 per share - about $15 per share less than what we calculated was the underlying value. It was an insider deal that, in our view, was not consistent with shareholder democracy.

So, what did we do? We notified the press. (We got the idea from the Pilgrims of the 17th century, who would put you in the stocks when you committed a crime to serve your appropriate tour of duty and expose you to public ridicule.) When the Los Angeles Times called, we pointed out, "It smacks of grab, grab, grab. This is not consistent with shareholder democracy." In another article, I believe I was quoted as saying the deal stinks to the high paddocks. They wrote these things, among others, in the newspaper. Finally, after three or four quotes like this, the fellow called me and said. "Mario, I don't want this company." How did that happen? Well, his son would come home from school and say, "Dad, why are they saying these things about you?"

The Gandhian approach, in our context, also means we will not show up at an annual meeting, so the directors won't get a quorum. Another tool is technology, specifically the Internet. For example, our firm was sued by a closed-end fund shareholder who, although we told him he was wrong, refused to drop the suit. So we put his name and the names of his lawyers on the Internet and laid out our observations that they were careless and sloppy in their claims against us. All of a sudden, they realized that their names were known to the world and that anyone conducting an Internet search on them would come across this information and read our views about what they did. So now they have settled with us. There are many ways we can use modern tools cost-efficiently to instill effective corporate governance.

We created a "Magna Carta of Shareholder Rights" that states what we stand for so that companies we invest in know in advance, for the most part, how we would vote.

We are in favor of
Cumulative voting
Golden parachutes (Why? Because we want management to think about harvesting for us

and not worry about the next job.)
One share, one vote
Cash incentives
Preemptive rights.
We will vote against
Greenmail, or voluntary repurchase of a hostile would-be acquirers shares at a price

significantly above market.
Poison pills, or antitakeover provisions
Supermajority voting
Blank check preferreds
Superdilutive stock options
Option resets.

CEOs frustrate me when they build moats around themselves and when the moats deal with any issue of corporate governance that precludes shareholders who have strong opinions - particularly when the shareholders have been in the stock for five or 10 years. Poison pills are a clear example of where managements, in my judgment, are creating bad will between themselves and their shareholders.

We tend to be small-company oriented, so we need to telegraph to management where it should go to earn a return for shareholders and how we would vote on that. We have a proxy voting committee consisting of lawyers and analysts who research and track the companies we have invested in. They try to find out if the management is oriented toward shareholders or trying to enrich or entrench themselves. Then panel members vote on these issues, and we document the votes and report them to the plan sponsor, as is required by law.

In closing, in the best of all possible worlds, corporate managers view shareholders and their representatives as partners, not adversaries. the best way to maintain this relationship is through truly democratic corporate governance. We believe it is an important part of our job to respond passively, but forcefully, on issues that challenge corporate democracy.