Directors of Integral can't ignore sales talk


Dennis Kozlowski resigned as CEO of Tyco International as he was about to be indicted on tax evasion charges. Scooter Libby resigned as Dick Cheney's chief of staff after being indicted on charges he lied about the leak of a CIA agent's identity

David Edmondson lied about academic credentials on his resume and, according to the Fort Worth Star Telegram, faced charges of driving while intoxicated. He resigned Monday as RadioShack CEO.

Steven R. Chamberlain, on the other hand, was indicted this month in Howard County on two felony charges for alleged sexual offenses involving a 14-year-old girl in his Columbia home. Yet he's still running Integral Systems Inc. of Lanham as its chairman and chief executive.

But probably not for long.

Chamberlain, 50, "maintains his innocence and has stated that he will vigorously fight the charges," Integral said in a regulatory filing last year. (His lawyer didn't return my calls yesterday.)

Nevertheless, events are converging on Integral in a way that even its comatose board can't ignore.

Washington financier Bonnie K. Wachtel, an Integral director who declined to run for re-election this year and has criticized Chamberlain for not disclosing his legal problems earlier, continues to push for the company's sale. She hints something will come of her efforts.

"I have received support from other shareholders," she told me Monday. "The story isn't over. ... Keep watching for developments."

Last week, New York-based Mellon HBV Alternative Strategies disclosed it had bought a $25 million (now worth $33 million), 12 percent stake in Integral and was also agitating for a sale.

"We propose to replace the current board with a slate that will oversee in an orderly fashion the hiring of an investment bank to effect the sale of the company," Mellon HBV boss William F. Harley III said in a Feb. 16 letter to Chamberlain.

Grant Thornton LLPresigned last month as Integral's auditor. Integral has said there were no disagreements over accounting practices, but it's rarely a good sign when auditors jump ship, and it adds to pressure on the board.

Even Chamberlain seems to admit a sale of Integral is not out of the question, and the stock market certainly expects it.

"There are other investment bankers that we are discussing utilizing," Chamberlain said in a conference call last week, according to a transcript.

In what capacity, he didn't say, but the most logical reason to hire an investment bank would be to auction off Integral. Anticipation of a sale has driven Integral's stock from less than $20 a share two weeks ago to a $26.04 close yesterday.

Too bad it looks like it will take this extraordinary outside pressure to get Integral's board, which has said it disagrees with dissident director Wachtel, to do something.

Directors should have demanded Chamberlain step aside at least temporarily last summer, when they learned he was implicated in a sexual misconduct allegation and had failed to inform them for weeks.

He was charged in June with misdemeanor sex and assault offenses that allegedly occurred in 2003 and 2004. But directors didn't find out until August - and then only when somebody tipped off Wachtel, according to her letter to the board. The misdemeanor charges were dropped this month and replaced with felony charges.

"Usually a member of the board - usually the one who has the best relationship - takes the CEO aside and says, 'Look, I think you need to step aside until this is adjudicated,'" said Ralph Ward, a corporate governance specialist and publisher of Boardroom Insider, an industry newsletter.

True, Chamberlain owns about 3.5 percent of Integral's stock. Yes, he was an Integral co-founder and no doubt is important to its satellite software business. No, he has not been convicted and is presumed innocent. His legal problems appear to be purely personal, which Wachtel has said was his rationale for not telling the board.

Doesn't matter. How can he concentrate on running a public company with a stock-market value of $280 million when he's fighting felony charges that could put him in jail?

"It sounds like there's enough damage that it's not salvageable," especially since Chamberlain doesn't appear to have been up front with the board, says Susan F. Schultz, chief executive of the Board Institute, a corporate governance consultant. "It isn't a question of fairness or legality; under the law, it's what's best for the company and shareholders."

And in the post-Enron push for corporate accountability, she adds, "I am offended when someone tries to delineate the personal from the business, because I think they are seamless. The integrity of the individual is a critical factor."

If boards can't figure that out on their own, shareholders will let them know.

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