Doing the right thing, sort of

September 13, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

This is how to hold a corporate executive accountable.

Bristol-Myers boss Peter R. Dolan did poorly by shareholders, regulators and ultimately his board of directors. So they fired him.

That wasn't so hard, was it? Corporate America, take notes.

From May 1, 2001, when Dolan became chief executive, to yesterday, when Wall Street celebrated his ejection by buying the stock in herds, Bristol shares lost 56 percent of their value.

The company's vaunted diabetes drug, Pargluva, flopped and had to be scrapped. So did a blood pressure drug called Vanlev.

An accounting scandal that preceded Dolan's promotion to CEO cost the company $800 million in criminal and civil settlements and put the company under supervision of federal monitors. Wall Street analysts complained that Dolan overpaid to buy DuPont's pharmaceutical business. He also overpaid for a stake in ImClone, the company that got Martha Stewart in trouble.

Then he completely blew an attempt to protect Bristol's huge Plavix franchise, getting outsmarted by an obscure Canadian generic medicine company.

The Canadian outfit, Apotex, had challenged Bristol's exclusive right to sell Plavix, an anti-clotting drug. Bristol and Plavix partner Sanofi-Aventis appeared to fend off Apotex with a March agreement delaying a generic version of Plavix until 2011.

Actually, the agreement was a trap. Apotex had to comply only if U.S. regulators approved. If they didn't, it would emerge smelling even prettier than it did before the deal was signed.

Not only did the Federal Trade Commission reject the agreement; the Justice Department raided Dolan's office five weeks ago as part of an investigation of whether the deal violated restraint-of-trade laws.

Under the accounting-case settlement, Bristol had to avoid any misbehavior or face new penalties.

Now Apotex has begun selling generic Plavix, creaming Bristol's earnings for the rest of the year (although a judge temporarily halted the sales). Bristol has given up key rights to sue Apotex for damages by virtue of the March agreement. And the federal government has set off a criminal investigation.

An ordinarily incompetent CEO might have avoided one or maybe two of those outcomes. Dolan got the hat trick. You are the weakest link. Goodbye.

OK, maybe this isn't a perfect case of accountability. Maybe Dolan should have been canned years ago. Maybe Chairman James Robinson III, who himself resigned under pressure as American Express boss in the early 1990s, shouldn't have said, "Peter has done a superb job in turning around the company," and, "He has the full and complete confidence of the board" five weeks ago.

Maybe it shouldn't have taken the threat of new litigation under a federal monitor and what amounts to corporate probation -- resulting from the previous accounting scandal -- to get the board to act. Maybe Dolan shouldn't get millions in parting gifts. But this looks like some sort of progress compared with what else is going on.

Over at Hewlett-Packard, an outrageous and potentially illegal attempt to plug boardroom leaks has resulted in a minor reshuffling of the board and promotion of the CEO to chairman.

Patricia Dunn, the non-executive board chairman who ordered an investigation in which detectives used fake identities to get phone records of journalists and board members, does not resign, as she should. Instead she gets demoted to a regular director.

She says she was unaware that the detectives would use "pretexting," a nice term for lying to obtain private records. The FBI and Justice Department are investigating the matter, The Wall Street Journal reported yesterday.

Mark Hurd, Hewlett's CEO and president, gets the additional title of chairman of the board, giving him the kind of sweeping power that many corporate governance specialists recommend against.

At Lanham's Integral Systems, the gap between misdeed and consequence was even greater.

CEO and Chairman Steven R. Chamberlain resigned last spring before pleading guilty in Howard County to a misdemeanor sex offense involving a teenage girl. Then, once Chamberlain's lone board critic had left, the company paid him a generous severance and turned around and hired him back as a consultant for $25,000 a month through the end of this year, according to a filing with the Securities and Exchange Commission.

The Bristol-Myers board did not handle its duties expeditiously or without fault. But next to the Integral Systems board, it looks almost responsible.

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