"These are definitely steps in the right direction. Replacing the chairman, reducing the board of directors, and the appointment of Jean-Michel Halfon are all good steps, but they are too little, too slow," Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) minority shareholder Benny Landa told "Globes" today, in response to the changes on the company's board announced on Wednesday.
"The current directors are not being replaced fast enough," said Landa. "We'll have to wait another year for the injection of new blood into the board, and that's not good. There is no problem with a board of 12-13 directors, that's normal, but there should be a faster turnover. We shouldn’t have to wait years. A responsible director would get up and say, "I am vacating my position for the good of the company."
Landa, who reportedly owns several tens of millions of dollars worth of Teva shares, is the person who ignited yesterday's announcement. Several months ago, dissatisfied with Teva's corporate governance in view of the ouster of former CEO Dr. Jeremy Levin, he became an activist and made several demands of Teva as the head of a group of mostly US investors. The demands included reducing the size of the board and the appointment of directors with experience in the global pharmaceutical industry. These steps are now being partly implemented. The activism has been successful, but Landa is not satisfied.
On Wednesday, Teva announced that chairman Dr. Phillip Frost would retire at the end of the year, the reduction of its board from 15 to 13 directors, and the nomination of a new director, Halfon, who has extensive experience in the global pharmaceutical industry. Directors Chaim Hurvitz, Dan Suesskind, and Dafna Schwartz will not be re-nominated when their terms expire this year.
Landa says that when a director is elected for a three-year term, he cannot be forced out before then. "Without amending the articles of incorporation, they cannot be replaced. That's bad, because if a director is not functioning, you need a 85% supermajority of shareholders to replace him," he says. "I expect caring and Zionist Israeli directors to stand up and say, 'I am voluntarily leaving. The company needs someone else'."
"Globes": What are the chances of that happening?
Landa: "It won't happen for a lot of reasons. Among other things, Teva's directors receive huge financial compensation, as well as having the honor that goes with being part of what may be the most prestigious board of directors in Israel. It's very hard to personally step aside for the good of the company."
The appointment of Halfon, who has experience at Pfizer Inc. (NYSE: PFE; LSE: PFZ) is a positive step, in Landa's opinion, but it's not sufficient. "We need many more than one out of 13 directors with pharmaceutical experience," he says. "I think that the appointment of Erez Vigodman was excellent. He's an exceptional man, a real leader, an outstanding manager with an open mind, and he has all the skills to succeed big-time. But this isn't a one-man show, and because he does not come from the pharmaceutical industry, he needs a board where he'll have partners, mentors, people whom he can consult and debate with. With all due respect, directors who are urologists, professors, and bankers are not the right partners. The company needs a very professional board."
Who do you think should succeed Frost as chairman? Is vice chairman Amir Elstein a worthy candidate?
"I don’t wish to personally mention this or any other appointment. The company needs a chairman of stature from the global pharmaceutical industry. I fear that Teva won't find, or even look for, a chairman of global stature. The last thing that it should do is to appoint 'one of our own', a current director who did not come from the pharmaceutical industry. That would be a step backwards."
Why do you fear that Teva won't look for such a chairman?
"Because it did not announce a change in the articles of incorporation, which is another disappointment for me. This is very flawed corporate governance, because it’s absurd that an 85% majority is needed to replace a director. Only a third of the directors are replaced each year, so many years are needed to make substantial change. It isn't to protect the company from a takeover, but for the directors to dig in, to protect them from their shareholders. It's wrong and unacceptable. It's simply a bunker-like articles of incorporation. That is why there is concern that, like the protective articles of incorporation, the directors are looking out for each other, raising concern that they will appoint a new chairman from the current board."
Despite Landa's considerable criticism, he emphasizes that the current steps announced yesterday are important. "I don’t want to denigrate the steps taken. I am very pleased," he says, "but it's not enough and not fast enough."
Do you feel personal satisfaction that you caused these changes as a minority shareholder?
"There is satisfaction, but it's very limited. Teva is Israel's flagship, and that is how it should be run. Its future and success are dependent on the right strategies and acquisitions. A skilled CEO is not enough for that; you need partners to help, people who understand the subject. That is not this board of directors."
What will be your next step as an activist?
"Wait and see."
Published by Globes [online], Israel business news - www.globes-online.com - on June 19, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014