A legal tactic used by Mylan, the Dutch drug manufacturer listed in the US, which invoked Dutch company law in an attempt to repel a shareholder proposal seeking a stronger clawback policy, has raised concerns among members of the Investors for Opioid Accountability (IOA).
The proposal, downgraded to a discussion item on the ballot at the AGM last month, was backed by the majority of shareholders who could support it — but not vote for it.
In the words of Mylan, the company solicited “shareholder views through the proxy card as a contribution to the discussion at the AGM”.
Mylan has been engulfed in the US opioid crisis and is a defendant in more than 1,500 cases consolidated in the Ohio federal court. For more on the opioid crisis, see here.
In addition, Mylan has settled with the Department of Justice for $465m regarding drug overpricing and it is a defendant in other cases of alleged misconduct.
In light of these risks, the UAW Retiree Medical Benefits Trust, the US auto workers’ plan, filed a proposal urging Mylan to strengthen its clawback policy so that the board could recoup remuneration from executives not only if they commit misconduct themselves but also if they fail to oversee risks.
Michael Melbinger, a partner at law firm Winston & Strawn, noted that the language of the resolution read as a “pre-emptive strike” to give plaintiff lawyers the ability to sue again.
Melbinger told RI that a clawback policy that covers such a type of conduct (“responsibility to manage or monitor conduct or risks”) would force the board to claw back compensation from senior executives if there is any finding of liability in the ongoing opioid litigation.
“In the likely event that the board does not claw back an amount that is satisfactory to the unions and plaintiff lawyers, they would sue again,” Melbinger said.
Mylan sought without success an endorsement from the Securities and Exchange Commission (SEC) in the US, to prevent the proposal from being included in the ballot. It argued that it would be contrary to Dutch law, the country of registration, where a 3% threshold of share capital applies for filing shareholder resolutions.
As the SEC refused to grant this “no-action relief”, Mylan decided to keep the proposal, but rather as a non-voting discussion item “to solicit shareholder views through the proxy card…indicating whether you would support an amendment to the clawback policy”.
In response, the union-linked CtW Investment Group urged shareholders to vote against the chair and members of the nominating and governance committee.
Tejal Patel, Corporate Governance Director at CtW, told RI that Mylan has chosen in other instances to avail themselves of US securities laws, for instance, when it comes to advisory votes on say on pay and their frequency.
“It’s a bit strange that they suddenly invoke Dutch law. It diminishes shareholder rights and Mylan isn’t exactly known for promoting that,” Patel said.She added that by relegating the proposal to a non-voting item, Mylan is placing the clawback question in a grey area which is so far being used by the company to not disclose the percentage level of support garnered by the proposal.
Ken Bertsch, Executive Director at the Council of Institutional Investors, which represents asset owners, told RI:
“Real costs from a shareholder accountability standpoint.”
“The Netherlands has limited shareholder rights in certain key respects, and so Mylan’s reincorporation there had real costs from a shareholder accountability standpoint. That certainly is true in some other respects, and also with regard to shareholder proposals if Mylan’s claims on Dutch law in this regard are accurate.”
At Eumedion, the Dutch corporate governance and sustainability forum, Executive Director Rients Abma, disagrees with Mylan’s interpretation and regrets that the SEC has not explained its decision.
Abma told RI: “The board of a Dutch listed company always has the possibility and discretionary authority to place a shareholder proposal on the AGM agenda even if the shareholder did not reach the minimum statutory capital threshold for submitting a shareholder proposal.”
Proxy advisors ISS and Glass Lewis recommended shareholders to support the non-voting item.
ISS stated that a robust clawback policy is only as good as shareholders’ ability to monitor its administration.
ISS said Mylan’s current policy doesn’t require disclosure of the circumstances behind a decision not to pursue recoupment in cases of misconduct or failure to manage conduct or risk.
“More transparency about the board’s use of that authority is a reasonable request,” ISS stated.
Glass Lewis noted in its recommendations that Mylan said it will disclose vote tallies in a manner that is very similar to a shareholder proposal.
“We believe that shareholders should consider this Discussion Item in a manner similar to how they would consider a shareholder proposal. However, it is unclear what steps the company intends to take should the proposal receive majority shareholder support,” Glass Lewis stated.
In its 8-K filing with the SEC, Mylan has so far not disclosed the percentage of support for the item as a shareholder proposal would have required.
Asked about the results of the proposal, Mylan referred to the 8-K filing where it only states that “a majority of the proxies received indicated support for the Shareholder Proposal”.
Among shareholders that have expressed support for the proposal from the UAW trust are PGGM, Norges Bank Investment Management, CalPERS, CalSTRS, the Florida State Board of Administration, British Columbia Investment Management Corporate, the Ohio Public Employees Retirement System, Calvert Research and the New York City Pension Funds.