Refer back to the box entitled Exhibit 6 which discussed the establishment of executive stock ownership requirements at Dendrite International. Many business press outlets, such as Business Week and Fortune, publish articles that are critical of the corporate governance practices, particularly executive compensation, of one firm or another. Using these outlets, identify a recent example of a company that has been criticized for its governance practices and determine whether executive or director stock ownership was a factor in this criticism. What action plan for remedying this situation would you propose?

Exhibit 6

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As an illustration of a recent adopter of an executive stock-ownership plan, consider Dendrite. Dendrite (DRTE), a leading supplier of specialized software to the global pharmaceutical industry that was founded in Australia in 1986 and is now headquartered in Bedmaster, New Jersey, implemented a formal stock-ownership plan for its twenty senior-most executives and all of its nonemployee directors. The new program mandates ownership of Dendrite stock, ranging from 15,000 to 100,000 shares, depending on the executive's position. The ownership requirements set by Dendrite are based on owned common stock, not stock options. Ownership of the predetermined number of shares must be achieved within 5 years, with an initial number attained in three years. Restrictions have been placed on the receipt of additional equity-based compensation and sale of Dendrite shares until ownership commitments are attained. The executive participants may obtain shares through purchase on the open market, receiving incentive compensation in shares or exercising options and holding shares. In addition to instituting share-ownership requirements, Dendrite also made changes to its executive compensation program. Executives may now elect to receive incentive compensation in stock instead of cash. If the executive elects to receive stock, these shares are restricted from sale for 1 year, and the executive will receive a number of options equal to the number of restricted shares. Replacement options will be granted for shares used to exercise vested options. By the start of 2005, Dendrite's executive stock ownership plan was fully in place. In addition, all of Dendrite's directors-executive and independent-owned at least some Dendrite stock, further aligning the board, top manager, and shareholder interests. While Dendrite is in a highly competitive and dynamic industry, it is notable that since beginning the implementation of the executive stock ownership plan in 2000, the firm has managed to garner shareholders a strong return. For instance, as of the end of 2005 shareholders had earned a 3-year average return of 28 percent, versus the S&P 1500 return of 12 percent. Standard and Poor also ranked the firm among the top tier of its peers, in terms of overall performance and outlook. Is an executive stock ownership plan an easy pathway to competitive advantage? Probably not, but at least it is an important lever in a firm's corporate governance repertoire to provide executives and directors an incentive to see that the right strategy is being executed well.