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Qwest housecleaning leads to improved ratings
By David Milstead
Rocky Mountain News
Saturday, February 17, 2007

Qwest has completely turned around its corporate-governance rating from a leading shareholder advisory firm.  Institutional Shareholder Services says Qwest outperforms 94.2 percent of the companies in the Standard & Poor's 500 and 100 percent of the companies in the Telecommunication Services group in its ratings, called the "corporate-governance quotient."

It's a markedly different evaluation from that of early 2004, when Institutional Shareholder Services, known widely as ISS, rated Qwest ahead of just 8.5 percent of S&P 500 companies.

"The ISS rating confirms the very positive steps our board has taken in recent years to constantly improve corporate governance," said Rich Baer, Qwest's general counsel.

Qwest has "declassified" its board, meaning that all directors will be up for a shareholder vote this spring.

A shareholder proposal suggested the change in 2003, and management backed it. A change to Qwest's articles of incorporation passed in 2004, and the declassification began in 2005.

Previously, one-third of the board was elected each year.  Shareholder advocates dislike that format because it makes it nearly impossible for shareholders to replace a board in its entirety.

In December, Qwest adopted a majority voting standard for directors.  Each director running for re-election must submit a letter of resignation in advance, saying they will leave the board if they do not get at least half the votes cast in the election.

Qwest previously used the same election rules as most companies.  Shareholders could either cast votes "for" a director, or "withhold" them.  As long as the director got a single vote, the number of shares withheld was irrelevant, and the director returned to the board.

ISS also noted that Qwest's board is controlled by a supermajority of independent outsiders.  CEO Dick Notebaert is the only Qwest executive who's a director, and founder and former significant shareholder Phil Anschutz and two of his employees have left the board.

Qwest is not perfect.  ISS objects when a company has not separated the jobs of CEO and chairman, and Notebaert holds both positions.

The company has appointed a lead independent director, former Dow Chemical CEO Frank Popoff.  He leads regular board sessions at which Notebaert, as a member of management, is excluded.

ISS' corporate-governance quotient has received criticism because one of its subsidiaries sells services that companies can use to learn more about the methodology.  Critics say that, in effect, ISS is making money teaching companies how to improve their ratings.

ISS spokeswoman Sarah Cohn says the criticism is inaccurate.

"The only way a company can improve its score is by improving its corporate-governance practices," she said.  "The majority of our CGQ tool is free.  ISS Corporate Services, a wholly owned subsidiary of ISS, sells Web-based tools and offers a premium tool to perform peer analysis and benchmarking."

Qwest's Baer said the company has not paid ISS for the CGQ services.



$8.45 + 2 cents,2777,DRMN_23910_5358428,00.html

David Milstead is finance editor of the Rocky Mountain News. He can be reached at or 303-954-2648.,2777,DRMN_23910_5358428,00.html