Valeant Pharmaceuticals (VRX) may be getting rid of its CEO Mike Pearson, but that’s only the tip of the iceberg when it comes to management throes currently playing out at the embattled drug company.
Announcing its succession plan and the addition of hedge fund manager Bill Ackman to its board on Tuesday, Valeant also aired some of its own dirty laundry, saying that its board had asked one of its members, former CFO Howard Schiller, to resign, but Schiller had refused. The company said an internal investigation had identified “improper conduct” by Schiller and another former employee that led to Valeant’s misstatement of financial results, disclosed last month.
But Schiller was quick to deny the accusations, explaining in a statement through his lawyer that he therefore “respectfully declined” to tender his resignation. “At no time did I engage in any improper conduct that relates to any restatement of revenue the company is considering,” Schiller said in the statement.
In insisting on staying against the company’s objections, Schiller is setting up for a potentially nasty fight with Valeant and its shareholders, further embroiling the company in the sort of poisonous controversy that tanked its stock price nearly 90%, and which it is desperately trying to flush out. Valeant, meanwhile, held fast in its wish to have Schiller gone, according to CNBC.
Valeant had appointed Schiller interim CEO in January while Pearson was hospitalized with pneumonia, but Schiller resumed his normal board responsibilities last month when Pearson returned from sick leave. Schiller initially resigned as CFO in April of 2015, but remained on Valeant’s board. He was re-elected to the board on Valeant’s recommendation at the company’s annual meeting of shareholders last May.
Whether or not Schiller committed the improprieties of which he is accused or if he’s merely a scapegoat, he’s unlikely now to find a sympathetic ear among shareholders—reeling from the tens of billions of investment dollars they lost in the firm’s downward spiral—who may ultimately control whether he stays or goes.
While Valeant’s corporate governance guidelines lay out the board’s procedure for considering the resignation of one of its members, it’s somewhat unclear what power the company has to force out a director who doesn’t want to resign. Valeant, incorporated in British Columbia, lays out in its bylaws that shareholders can remove directors with a two-thirds majority vote. Shareholders, particularly those with large stakes like Ackman’s Pershing Square, can typically call for special meetings to hold such a vote, but a spokesperson for the hedge fund declined to comment on whether Ackman could or would take those steps.
Schiller almost certainly will be voted out anyway at Valeant’s annual meeting this year, which has yet to be announced but is likely to happen later in the spring. Absent a recommendation from Valeant itself, shareholders would need to nominate Schiller as a candidate.
It’s also unknown if Schiller is resisting Valeant’s demands because of a desire to save face or to hang on to paychecks he receives for serving on the company’s board. The last time Valeant disclosed its board members’ salaries, it did not pay Schiller beyond his CFO compensation. But look out for that number when Valeant files its proxy form in advance of the yet-to-be-announced annual meeting, as it may shed light on Schiller’s motivations for staying.