A pioneering effort by one company in the area of corporate governance I'm not sure I fully comprehend the cover of the Leggett & Platt 2002 report, though presumably the photograph is a play on the theme, "headed to new heights." You see, a young boy is held atop his father's shoulders, next to a street sign, "Leggett Rd." (New heights—get it?) What's more, the cover isn't explained until Pg. 3 of the shareholder letter—the feeling within the diversified manufacturer no doubt that it was self-explanatory. That reservation aside—and that the report, with 100 points, just barely achieved "world-class" status for the second year in a row*...other than that, the report is exemplary because of how it addresses what it labels "current issues"—specifically involving the new, with-it trend concerning corporate governance. My impression after analyzing early-arriving 2002 reports is that most tend, at best, to pay lip service. Leggett & Platt, though, illuminated the subject so extensively as to convince of its substantive sincerity (as contrasted to a will-o'-the-wispish "touching base" to impress stockholders and the financial community). L&P convinced with these words, among others: "Companies are known by the reputation their employees earn. Through the years Leggett's employee-partners have earned a reputation, and set a high standard, for honesty and integrity. Those are deeply held, fundamental values of our firm—tenets we will adhere to even if they somehow prove disadvantageous in the marketplace. "Because of this, it distressed us last year to learn of management misdeeds perpetrated on investors by a small number of corporations. We are encouraged to see investors more closely scrutinize all firms' accounting practices and governance policies. "Leggett shines under the light of close examination. First, our pension plan remains over-funded in the aggregate despite three years of stock market declines. Few Fortune 500 firms can make that statement. "We have consistently applied, and will continue to employ, conservative pension assumptions. "Second, we are in compliance with all new corporate governance rules. Indeed, we were already following good governance practices, and therefore found it easy to confirm to the new rules. We have had a majority of independent directors on our board for several years, and all of our key board committees consist solely of independent directors. "Third, we issue stock options to a broad group of employee-partners each year, and in 2003 will begin recording those options as an expense item. In addition, a large group of executives collectively forfeits $5-7 million of cash salary each year to acquire additional stock options (through a company sponsored plan). "And, fourth, we have a long history of high quality earnings, including restructuring costs as a normal part of doing business (not as "nonrecurring" costs), have recorded only two special charges in the last 25 years (for a total of $31 million), and in contrast to most acquisitive firms, we took no goodwill write down for implementation of FAS 142." (Which essentially deals with how companies account for goodwill.) I could go on, but this gives you a feel for what one upstanding company is doing, far ahead of the curve to one observer's eye. And not because it got caught with its hand in the till. * Its 1999 report scored a measly 57 points. L&P's 2000 book? A much-improved 91 points with ultra-forceful theme support (though I must confess I found trying to match who was who in the mix of executive and employee photos confusing).

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