Actelion On The Defensive: Corporate Governance White Paper

First, there were just words. Then there was a maiden dividend, the first of regular payouts to shareholders. Now there's a white paper on good corporate governance. Whether or not Elliott Advisors, a new-ish, almost-6% shareholder in Actelion, succeed in their (apparent) mission to force the sale of the company, they've certainly done a good job, it seems, reminding the company of its duties to its shareholders.

We're not taking sides here. Far from it. We dislike short-term, profit-seeking hedge funds just as much as the next (average) man (or woman) who isn't getting part of the spoils. (And Elliott, for the record, claims it's a long-term investor).

But Actelion's responses thus far to Elliott's Feb. 3 public missive, calling for CEO Jean-Paul Clozel and for Chairman Robert Cawthorn to step down from the board, and accusing the Swiss biotech of poor corporate governance, hint that perhaps management wasn't quite doing enough previously to explicitly reassure investors that they do, indeed, consider all the strategic options and judge each in terms of shareholder value, rather than against Clozel's personal, and well-documented, drive for long-term independence.

To the latest defense weapon, then: two dozen slides highlighting the company's super-high corporate governance standards, by Cawthorn.

"Eight out of nine of our board members are independent," shouts the slick slide-deck (Clozel is the odd-man out, which is why Elliott wants him off). We meet regularly and consider input and feedback from shareholders, it says. (We're paraphrasing a little.)

But not content with emphasizing its own (high) standards, Actelion's board is arguing that it's corporate governance is BETTER than your average U.S. standards. Under Swiss law, the full board is called to make more major strategy decisions than is the case for U.S. companies; Swiss companies need shareholder approval for many more actions than their U.S. counterparts, the deck claims, including dividends and issuing new equity.

If that isn't enough, the white paper goes on to essentially remind Elliott and their ilk of the power that they do have, as significant shareholders, over the composition of the board. Firstly, investors owning at least 1.5% can submit proposals for adoption at the AGM. Second, Swiss law allows a majority of voting shareholders to force directors out without cause, giving them "a powerful tool to assure their ongoing satisfaction with the Board." (In the U.S. removing directors requires a supermajority vote in most cases, says the paper).

It seems the corporate governance system is working rather well, then; no doubt Elliott will continue to leverage all the rights granted to it as a large shareholder. The company's May 5 AGM should be an interesting event.

Meantime, Actelion's board will be hoping that enough other investors join Rudolf Maag's camp: the 4.2% shareholder on March 7 became the first to speak out in support of the company's standalone strategy.

image by flickrer Ran Yaniv Hartstein under creative commons