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Chris Viehbacher, Chief Executive Officer Of Sanofi Interview
Chris Viehbacher Photograph by Scott Eells — Bloomberg via Getty Images

Sanofi’s CEO ouster: A snowball of bad judgment calls

Oct 30, 2014

Smooth successions and no surprises are what employees and shareholders want—but that’s not what the board at French pharma company Sanofi has delivered.

Early on Wednesday, the board issued a statement saying, “The Board of Directors held a meeting Wednesday, October 29 at 8am and decided unanimously to remove Christopher A. Viehbacher as Chief Executive Officer of Sanofi,” after six years of service.

That stood in contrast to the board’s statement on Monday, which said the board had “no agenda item regarding the succession of Chris Vienhbacher.”

A spokesperson for Sanofi could not provide any information on what might have changed over the course of those two days (beyond the statements the board provided).

According to Sanofi’s most recent 20-F filing with the SEC, the person responsible for board communications is Serge Weinberg, its chair. That chair has now become CEO as well.

On a conference call mid-day on October 29, Weinberg said that “leaks organized in the press” on Sunday had “forced” the board to make its decision Wednesday morning more quickly than it might have, to avoid “uncertainty” among shareholders and employees.

But who initiated the leaks to the media? And, given those leaks, why did Weinberg say what he said on Monday? Perhaps he wished to put off communicating with Viehbacher, but how can that help his credibility with shareholders or employees going forward?

Mid-day Wednesday, Weinberg disputed aspects of the media’s account of the CEO’s ouster but confirmed that the board had complaints about Viehbacher’s lack of communication with the board and deficits in execution and management style.

Lack of communication with a board is a terrific fault for any CEO, and one that boards should not tolerate. Boards naturally don’t want to be surprised, and they want a full flow of information from management and others in order to do their jobs. Weinberg said Project Phoenix, a Sanofi initiative related to the sale of mature drugs in Europe, was “an illustration” of the communication lapses. The board found out about the project in the press, Weinberg said, and would have nixed it had they known.

Clearly, CEOs have responsibilities to communicate to the board. Boards and independent chairs, however, also owe the CEO candid and timely communication in return.

Many boards today want the executives they work with to be forthcoming but have not clearly specified to the CEO what they want to know, when they want to know it, and in what form. They’ll complain after the fact that they’d like to have heard more about some topic, but they never made clear in advance what they wanted or needed.

Of course, great CEOs anticipate their board’s needs. But boards need to help out. Many boards could be far more useful if they did what boards are supposed to do: look beyond the day-to-day and anticipate the trends that will shape the company’s future.

In the Sanofi board’s case, it’s all too clear that there were lapses in communications and oversight. During Wednesday’s conference call, Weinberg said the board had discussed concerns about Viehbacher in mid-summer. But according to several news sources (including Les Echos, Bloomberg, the Financial Times, and Reuters) it was just last month that Viehbacher got a whiff of the board’s discontent and wrote a letter to them on September 4 making the case that he should stay on as CEO.

Boards often have a hard time confronting CEOs each step of the way and saying no when they should. Between CEOs and boards, things often snowball from there.

Viehbacher moved from France to Boston in June, which caused some communications difficulties, Weinberg admitted. But regarding where the CEO lived, Weinberg showed how little the board was in charge and his own ambivalence about the board’s level of oversight. He said Viehbacher moved to Boston without any disagreement from the board. In fact, Weinberg described it as a personal decision.

Unless the company is run entirely outside an office, where a CEO chooses to live will affect their managerial effectiveness. It’s not a personal decision. CEOs should not be off-campus and boards have to weigh in and say no to requests that could hurt the company or its stakeholders.

According to Sanofi’s 20-F filing, the chair “shall ensure that Directors have access on a timely basis to clear and appropriate information required for the performance of their duties.” If Viehbacher was in Boston, maybe Weinberg should have moved there too.

Now the board is looking for successors mainly from the outside, Weinberg said. A well-thought out succession plan was apparently not a top board priority.

As it sets about finding a new CEO, it would behoove Weinberg to consider his own role in this mess and the board’s efficacy. For example, Sanofi’s board reviews its performance only once every three years, according to the 20-F. Also, these days, effective boards meet in executive session at each board meeting and give the CEO solid feedback straightaway; something that Sanofi was not doing. Independent chairs should be providing guidance and constructive criticism week-to-week and even day-to-day, if need be.

Other practices at Sanofi also fly in the face of good governance. One example? Directors “may choose to be represented by another Director at meetings of the Board of Directors.”

In-person attendance at board meetings fosters far better communication and deliberations between board members, but it looks like Sanofi directors appear to attend these meetings by call or video so regularly that the company has set up a separate pay scale based on their location. “The attendance fee payable to a Director who participates by conference call or by videoconference is equivalent to half of the attendance fee received by a French Director who attends in person,” the 20-F filing states.

I’m not sure why a director’s country of origin has any effect on director pay, but certainly the policy does nothing to foster the image Weinberg tried to convey on Wednesday: that Sanofi is an international company, not a French one.

Abrupt CEO ousters reflect poorly on a company’s governance. But on the call, Weinberg said he believed governance worked well at Sanofi. The role of governance is “not to solve problems when they are obvious to everyone. It’s to assert the risk factors that could increase and generate further problems at a certain stage. It’s the duty of a board to evaluate this,” he said.

How true. And too bad then that he and the board waited so long to address CEO succession, until the problems hit the press and the board was caught with no plan.

Listening to Weinberg you get a sense of his own imperiousness. On the call, he chided the press for “spin,” and, given his explanations, said there are “no other issues than the ones we have described, so there is no reason to have any sort-of speculations.” He told one analyst that the call was not the place for him to provide a CEO job description.

Given this backdrop, what CEO will jump at the chance to work with Weinberg? That’s the million-dollar question. Sanofi and Weinberg are clearly grasping at straws.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.

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