Power Sheet – March 22, 2016

-Valeant CEO J. Michael Pearson will step down as soon as the board finds a replacement. That’s hardly a surprise, with the stock down 90% since last August, including a drop of over 50% last week. But the company’s problem is much worse than poor management. It’s credibility. Valeant also announced yesterday that it misstated its financial results for four consecutive quarters starting in late 2014 after saying last week its 2016 profits would be lower than expected and it might default on its debt. Oh, and it accused its former CFO – who left last year but came back to be interim CEO while Pearson was out with pneumonia – of “improper conduct,” which he denied, and asked him to leave the board, which he refused to do. So a different director resigned in order to make room for Bill Ackman, the activist investor whose fund owns 9% of Valeant.

The big leadership take-away from the tumultuous day: The board blamed “tone at the top” and “the performance-based environment” for the problems. Translation: Pearson set targets and demanded they be met; some employees decided they had to cook the books in order to meet them. That kind of environment, created entirely by the leader, isn’t unusual. As usual, it produced a disaster.

-Apple CEO Tim Cook introduced a bunch of tweaked products and new or upgraded software at a major event yesterday, but his most important leadership act was raising the issue of privacy. As the world knows, Apple and the FBI have been fighting over whether Apple should be compelled to write new software that would let the FBI open a phone used by one of the San Bernardino shooters. Turns out the issue may evaporate for now if the FBI really has found another way to open the phone, as it announced yesterday. But Cook didn’t know about that when he took the stage, and I’ve got to guess that every lawyer in the world would have advised him not to say anything about the issue yesterday. He spoke up anyway, framing his stance as a patriotic duty: “We did not expect to be in this position, at odds with our government, but we believe strongly that we have a responsibility to help you protect your data and protect your privacy. We owe it to our customers and we owe it to our country. This is an issue that impacts all of us, and we will not shrink from this responsibility.”

Not that Cook is being selfless. Security is one of the iPhone’s strongest selling points. But it’s also true that he didn’t have to pick this fight; if he had acceded to the FBI’s request before any of it went to court, most customers would never have known. And he has no idea how all this will turn out. But as CEO he decided it was time to resolve this issue, and it probably is.

-Marriott CEO Arne Sorenson raised his offer in the bidding war for Starwood. The story so far: Starwood announced last fall it was exploring “strategic alternatives;” several suitors showed up; Marriott made the deal to buy the company; last week CEO Wu Xiaohui of China’s Anbang Insurance, which has been paying high prices for hotels, topped Marriott’s price for Starwood, which accepted the new offer. Now Sorenson has topped Wu, and Starwood has accepted. Will Wu counter? And if so, can Sorenson go still higher without overpaying? That will be the crucial test. Too often in corporate bidding wars, the “winner” ends up losing.

One of the all-time great business leaders, former Intel CEO Andy Grove, died yesterday. Please see Adam Lashinsky’s tribute, plus a remembrance by Time Inc.’s Norman Pearlstine and an exclusive inside view of how he dealt with his cancer diagnosis, by two men whose lives he shaped.

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Valeant's Case Study

Valeant CEO steps down 

J. Michael Pearson will be replaced at the pharmaceutical company he led to impressive heights before it all fell apart starting last August. He became CEO in 2008, growing the company through acquisitions. Valeant became one of the fastest growing pharma firms, but a strategy of buying niche medicines and multiplying the price, plus an unusual arrangement with pharmacy company Philidor, led to the stock's collapse and Pearson's eventual downfall. Valeant will search for a new CEO. USA Today

Valeant asks board member to resign 

The company has asked Howard Schiller to step away from his post, which he has refused to do. Schiller, former CFO of the company, served as interim CEO while Pearson was on medical leave at the beginning of the year. The company says it discovered "improper conduct" by Schiller and another former employee, which led to misstated financial results. Schiller denies the accusations, which is why he's refusing to give up his board seat.  Fortune

Bill Ackman gets a board seat

Activist investor and noted Valeant supporter Ackman will now have a chance to make changes from the inside. He has supported the company through the drug pricing scandal and Philidor hiccup but has signaled recently that he was impatient with the lack of progress. He steps onto the board as Schiller's fight could bring more damaging attention to the company, further impairing its ability to right itself.  Valeant

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