Document x1k708GNOGjpnD0ep1DoRZEVm

Bad Chemistry Mr. Bolduc's abrupt departure spurred much concern among big shareholders \ about the direction of the 139-year-old, $5 W.R. Grace Is Roiled billion-a-year industrial company. They credit Mr. Bolduc for improving earnings By Flap Over Spending by refocusing Grace on its core specialtychemicals and health-services businesses. In doing so, he jettisoned pet subsidiaries And What to Disclose of Mr. Grace, who had led the company into fields as diverse as ethnic restaurants, energy, cattle breeding and sport stores. Departed CEO Made an Issue On Wednesday, institutional investors expressed their concerns in a meeting with Of the Chairman's Perks, Thomas A. Holmes, a 71-year-old Grace Son's Use of Grace Funds director who has been named acting Mentor and His Protege Part president and CEO. Jeffrey Cianci, an analyst at Bear The Grace Commission won plaudits a decade ago for an assault on waste, perks and dubious spending in the federal gov ernment. Some say J. Peter Grace's com pany could use the same advice. Documents obtained by The Wall Street Journal indicate that Mr. Grace, the 81- By Wall Street Journal staff re porters James P. Miller, Thomas M. Burton and Randall Smith. Stearns, sees "a good chance" insti tutional holders could propose their own partial slate of directors for a com ing election. But the deadline for doing that is today. .,, J. Peter Grace Mr. Bolduc's bold restructuring report edly wasn't the cause of the rift between him and his mentor. It sprang at least in year-old chairman of W.R. Grace & Co., part from an effort by Mr. Bolduc to rein in and his son, J. Peter Grace m, have been the senior Mr. Grace's longtime perks and the personal beneficiaries of hundreds of thousands of dollars in company expendi spending patterns, according to people familiar with the company. tures and perquisites that the company And one director, Charles H. Erhart Jr., didn't disclose. said in an interview yesterday that the Reports prepared for directors say a company formed by Peter Grace m used board had learned of allegations of sexual harassment against Mr. Bolduc by female about $1.3 million of a W.R. Grace subsidi employees. (When Mr. Erhart was called ary's funds for working capital without again later at the same home phone num proper authorization. Meanwhile, his fa ber, he denied havingever spoken to a Wall I ther, who retired as chief executive officer Street Journal reporter.) . at the end of 1992 after 47 years and now is Part of Mr. Bolduc's cost-reduction pro ill with lung cancer, has continued to gram was cutting off capital to the hotel- receive such company-paid perks as $165,- services unit run by Peter Grace m, 000 annually for full-time and part-time according to associates of Mr. Bolduc. Late nursing care, $200,000 annually for secu last year, Mr. Bolduc decided that a num rity guards, $74,500 annually to maintain a ber of transactions, including those with New York apartment largely for his fam Peter Grace m, needed to be disclosed to ily's personal use, plus a full-time cook. the Securities and Exchange Commission. "The very things the Grace Commis By raising that issue, he touched off what sion said about the government were true became the odd spectacle of dueling out u within Grace," says Jack Shelton, an ex side-counsel reports, commissioned by g employee and head of American Breeders i X Service, a cattle-breeding business Grace sold last year. "The corporate culture had <3 gotten mired down, lazy and fat." Those perks and the younger Mr. * Grace's business dealings recently helped * spark a heated internal debate pitting the elder Mr. Grace against the company's * president and CEO, J.P. Bolduc. It culmi himself and by the senior Mr. Grace. Mr. Grace's report, prepared by the New York law firm of Milbank, Tweed, Hadley & McCloy, was finished in Janu ary. Simultaneously, a legal opinion writ ten for Mr. Bolduc by another New York firm, Proskauer Rose Goetz & Mendel sohn, concluded that various payments "exceeded the threshold requiring disclo nated suddenly a week ago in Mr. Bolduc's sure of personal benefits to a CEO." resignation, attributed by the company to "differences of style and philosophy." 9 Mr. Bolduc, 55, had been a protege of b z the senior Mr. Grace, helping him run the Grace Commission, the company and a > range of Catholic charities to which Mr. Grace has been a generous contributor. X But the two men slowly turned into adver J saries oyer the past few months. Grace's 22-member board, which in cluded Mr. Bolduc, decided it needed to get a reality check in the form of its own legal report. It hired a third New York law firm, Patterson, Belknap, Webb & Tyler, which submitted its report to the board at the beginning of February. That document, written in part by former federal Judge Harold R. Tyler Jr., said Grace "would be >o Please Turn to Page A10, Column 1 A10 THE WALL STREET JOURNAL FRIDAY. MARCH 10.1995 Bad Chemistry: Grace's President Clashed With Company Chairman Continued From First Page taking a my aggressive poaMon" not to disclose some of the senior Mr. Grace's perks, such as nursing care. Me, Erhart. who besides being a direc tor is a former Grace president, said in his initial interview yesterday that Mr. Bolduc and the senior Mr. Grace "certainly didn't scream and yelkat board meetings" over their differences about disclosure. But he added in the approximately lb-minute in terview that the disagreements, while "not a major part" of Mr. Bolduc's leaving the company, "may have been a part" Many of Grace's board members are retired executives who are longtime asso ciates of the chairman. In 1993, Grace, which is based In Boca Raton, Fla., raised the pay of outside directors from 93.090 per board meeting and 9900 per committee meeting to a flat 924,000 apiece annually plus 92.000 for each board meeting and 91.000 per committee meeting. Last year's proxy statement showed that Grace paid five directors hefty con sulting fees ranging from 985.000 to9595,- 000. A spokes woman says one of those has since ended. When the se nior Mr. Grace ceded his posts as CEO and president at the end of IMS, the company gave him a one-time pay ment of 95 million, and his severance package includes a yearly pension of 91 JJ>.BoUac million. The company also pays Mm a consulting fee of 950.000 a month. The Grace directors accepted Judge Tyler's recommendation - and Mr. Bol- needed to disclose some of the matters at issue to the SEC. The company spokes woman says Grace "is In the process of preparing disclosure documents to comply with SEC regulations.'' Grace's proxy statement for 1994 Is expected to be Died with the SEC within a few weeks. Some of the matters considered for SBC disclosure involve Grace's plan to sell its Grace Hotel Services Corp. unit to HSC Holding Co. - formed by the younger Mr. Grace, who is in his 50s. Judge Tyler concluded that, an balance, "the use by HSC of up to 91.3 million" of Grace Hotel Services funds "was not properly author ised" by either the subsidiary or W.R. Grace. But Judge Tyler acknowledged there is a dispute over this and said the matter didn't require disclosure. The Proskauer law firm's discussion of these transactions was more pointed. "We understand that without authorisation, the son used approximately 91J million" of Grace Hotel Sendees funds "to pay bills of HSC and for other purposes. When this was discovered by company officials in Novem ber 1994. the son resigned as chairman" of Grace Hotel Services "and HSC agreed in writing to repay the funds diverted to it." Proskauer's report says that as of Jan. 17, $1 million had been paid back and 9381.000 was being held in escrow pending final accounting of the matter. Proskauer concluded that this use of funds should have been disclosed. Peter Grace m couldn't be reached for com ment. Company-paid benefits of the senior Mr. Grace include a private mine hired after he had hip-replacement surgery in January 1990 due to the effects of cancer. The Proskauer document reported, for example, that in July and September 1991. Mr. Grace - then still CEO - went on trips to Asia and that the company paid 910,198 for the nurse who traveled with him. Also, that year he made several trips to Singer Island. Fla., and the company paid about 56.800 for the nurse's travel expenses, the report s&id. It added that Mr. Grace's health-insur ance carrier found the nursing payments not medically necessary and wouldn't pay the bills. W.R. Grace's Directors J.RutorSnca. 81. cowman o(WR. Gaea and tormarCEO Thams/UMan. 7l.KMgW.R GnctCEO and radrad cttvman and CEO of inganod-ftand Co. Qm* C. Oacty. 74. mrad pendant <ri Samoa Hatonal Labowtonaa. EdwwdW. Ddffy. 68. rvorad CEO of Marine Mirtand Santo toe. HanM A. Ectanai. 73. rttad coalman and CEO of AUantc Mutual insunnca Co Ckortas H. MartJr.. 69. ratnd W.R. Grata Jaata V. Mat, 70. pradaat at Jamas W. Fnck Aaaoaatat. a consuHno Mm tocolasts. CaaMtoa L Naapan. O. wcutwtvcaprwdam of W.A. Grata. OardaaJ. toapMyv 54. tormtr US. tanaor from Now Hampton, toundarot Humonray Grand toe. Gouft p. Jttotot, 10. tormar CEO of MavopoMan UtatoaunncaCo. Vkftoto A. Kwnky, 41. prtarttnt and CEO of KatmayAaaoaaat.anwniiroato ftantong torn. Paar *. lya*. 51. vet daman of fidatoy Manapawam A Raaaaith Co. Ratal C. Mawtof. 71. daman ot Vaptoia fitoi Corp AnaKNtaa. 79. CEOofMRihanACo. Jata I. PWppa, 62. a prana wwator. HMUaa total Prtoaa, 81. tormar Armour 6 Co. CEO. Jala A. Psatcfetf. 74. ratmd daman of Marshal A Malay Corp. BmN. pyM, 77. rahrad amor vict pnaMaM of cuw 0. SMw mssimJr., 75. s W.R. Ones coosiMnL Erase* J. SvWvm. 74. mnd Borom Inc CEO. OML. TaMct. 77. l wnsm conusant M tarnwr R.H. Msey 6 Co. wa coamun. According to the Proskauer report. Mr. Bolduc about three years ago told the senior Mr. Grace the company shouldn't pay for the nurses any longer, and Mr. Grice agreed. Nevertheless. Mr. (Rice continued to submit the nursing bills end they were paid. For each of the past five yesrs, thecompany his peid shout 9185.000 for full-time ind part-time mines used by Mr. Grace, the report laid. Tbe mines' payments weren't reported in questionnaires prepend by Mr. Grace as a company director tod submitted to company finindtl officers. ' Judge Tyler's report concluded that payments for a 92.1 million New York apartment, which requires about 274.500 annually to maintain, and a930,000-a-year cook also should be disclosed. The apart ment. his report notes, hasn't generally been available to other executives. The Proskauer document indicates that In Oc tober 1986, Mr. Grace's wife listed henetf, her huhsnd and their then-24-yearoid son as the people using the apartment. The apartment, in the River House, bars corpo rateownership of apartmentsand requires that its units be used solely for residential purposes, the report noted. The Proskauer document said the full time cook prepares meals for tbe senior Mr. Grace and his secretaries at the apartment and at his office and she deans the apartment. Judge Tyler's report urged the com pany to file a "corrective amendment" to its 1992 annual 10-K disclosure shout the previously undisclosed perks, hit use of the corporate aircraft and any other possible benefits or amngements. The law Rim noted that "it is. of course, quite possible'' such a filing would trigger an SBC inquiry "focusingon the company's position that it properly omitted disdoaure of arrange ments' with Mr. Grice. The law Rim added that "there can. of course, he no guarantee that the staff of the SEC would agree with the company's analysts" and suggested that company officials meet informally with the SBC staff before the documents are filed. While Mr. Bolduc won the battle over disclosure ot these Grace-family relation ships to tbe company, he tat the war. Allegations against him surfaced soon af ter Mr. Bolduc successfully convinced the board that such disclosure was necessary. Mr. Erhart, the director and former presi dent. said yesterday that some women employees had complained about alleged sexual harassment by Mr. Bolduc. He didn't idler specifics. Mr. Bolduc won't comment on any of these allegations, his lawyer, Gerald Walpin. said yesterday. "Since he is no longer with the company, he feels it Is not appro priate lo comment" on company matters, Mr. Walpin said. A person dose to Mr. Bolduc contends that the departed CEO never had a chance even to know who the accusers were or what specifically they had alleged; Ibis person describes the allegations as "an attempt to shng mud on Mm." Mr. Erhart. who said the accusers didn't want their identities to become public, added In his initial interview yes terday that the hoard overwhelmingly de cided the allegations were significant enough to warrant asking for Mr. Bolduc's resignation. Only Mr. Bolduc and one other director disagreed. Mr. Erhart says. Mr. Bolduc isn't leaving empty-handed, however. The companysaid yesterday that he will receive about 920 million in his exit nackaie. including the repurchase for about 212 million of about 270.000 shares of WJL Groce stock be owned outright. In addition, he will receive 93 million In Incentive compensation lor 1994 and other long-term compensation, and about 95 mil lion to buy out Ms multiyear contract. -Rickard Gftm contributed to tftss article.