Sanofi Faces Backlash Over Cost of Firing and Hiring CEOs
May 1, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
French drugmaker Sanofi is under fire Friday for the amount it promised to pay to oust former CEO Chris Viehbacher and replace him with then-Bayer AG exec Olivier Brandicourt, with investor advisory group ISS contacting shareholders to urge them not to vote for the two payment resolutions.
In particular, the ISS objects to an enormous joining bonus and a pension of 9 million euros for Brandicourt, as well as a $4.95 million payout to Viehbacher. The company immediately pushed back, posting on its website a statement that read, in part: "If Sanofi is taking the initiative today of contacting you directly, it is because these recommendations do not reflect a simple difference of opinion; they reflect a real error in analysis by ISS."
When Brandicourt was hired in February, controversy immediately erupted over the compensation package for Brandicourt, with several French government officials decrying the amount, calling it "incomprehensible." Brandicourt could walk off with as much as $4.5 million in a “golden handshake” payment in addition to making $4.76 million a year.
That base figure is comprised by a fixed annual salary of $1.36 million a year, which is supplemented by a performance-related bonus of between 150 to 250 percent, as well as stock options and performance shares.
That is much too sweet a deal for French government spokesman Stephane Le Foll, who told RTL radio at the time that the pay package was "incomprehensible"--especially for the country’s largest listed company.
"These people, when they have hardly taken the reins of a company--which is to say they haven't yet taken any risk--are already assured to get a disproportionate package," Le Foll said.
Former presidential candidate Segolene Royal, the current energy and environment minister, echoed Le Foll’s comments and admonished large companies, saying "some self-discipline is needed."
"Drugs are reimbursed by taxpayers, so it's all of the French people who pay into the health system and reimburse drugs who are going to pay the golden handshake," Royal said on BFM TV. "Some decency is in store, especially from a pharmaceutical company that lives off the social security system.”
The waiting game was over Feb. 19 when Sanofi named Brandicourt, most recently head of Bayer AG(BAYZF)’s healthcare business, as its new CEO.
"Sanofi undertook a rigorous selection process to identify the right person to lead Sanofi forward at an important time for our company," said Serge Weinberg, chairman of Sanofi's board of directors, in a statement.
"I am very pleased that Olivier Brandicourt will be the next chief executive officer of Sanofi," he said. "Olivier Brandicourt's strong experience combined with his international profile, deep knowledge of U.S. and emerging healthcare markets, and his capability to unite teams will provide new dynamism to Sanofi's strategy of diversification and innovation."
Long considered a front runner for the job, which has been vacant since last fall after the unceremonious ouster of former Viehbacher, Brandicourt will now officially take the reins. Sanofi’s board of directors fired Viehbacher on Oct. 29 because of “strategic differences,” including Viehbacher’s plan to sell the company’s portfolio of mature drugs worth about $7.9 billion.
Although Viehbacher was popular with shareholders because he managed to double the firm’s stock price during his tenure, management had long been at odds with him, particularly because he was the first non-French Sanofi chief executive. When he moved his family to Boston last year, spending only about a third of his time in France, the board acted to remove him.
Market watchers have already been analyzing his resume. Brandicourt, 59, originally started out as a researcher of tropical and infectious diseases, but has climbed his way up the corporate ladder, eventually finding himself at Pfizer Inc. .
There he focused on cholesterol drug Lipitor, helping the company transition it after it came off patent--a situation he may face again at Sanofi, when its insulin pen Lantus, which accounts for over 30 percent of Sanofi's profits, loses its patent later this year.
But above all, the fact that Brandicourt is French will be the largest incentive for the famously Francophonic Sanofi, said analysts.
"He has the necessary criteria to do this job. First of all, he is French and therefore well-connected in France and second, he knows the American market, which is important for a large pharmaceutical company," Norbert Janisch, fund manager with Raiffeisen Capital Management in Vienna, told Reuters on Thursday.
Because of his infectious disease background, which took him to West and Central Africa and the Democratic Republic of Congo as a doctor with the Paris Institute of Infectious and Tropical Diseases, Brandicourt will be a good shepherd for Sanofi’s emerging markets portfolio, which comprises a third of its revenue.
Brandicourt’s focus at Pitié-Salpêtrière Hospital was malaria research, and Sanofi hopes to launch a vaccine for malaria’s cousin, dengue fever, later this year.
All week, Wall Street has waited for the news, after sources said Monday that Sanofi would name Brandicourt the company's new CEO sometime before tomorrow.
Last Friday, Bloomberg cited same sources as saying that Brandicourt is currently “unwinding contractual obligations” at the German company.
Brandicourt had long been among the list of possible choices, Sanofi said last Thursday that it will name a new chief executive in mere weeks, as it attempted to put to rest rumors that the company could not find any executives willing to take the reins after it unceremoniously ousted its previous CEO last fall.
"The announcement will be before the end of the first quarter," Chairman Serge Weinberg, who has been acting CEO since Viehbacher was fired in October, said at the time.
Weinberg also said that when the company announces financial results at the end of the first quarter, Sanofi is projecting a 1.5 percent quarterly earnings per share growth and is betting that a weak euro could help push up its profits.
Sanofi has endured protracted heckling from market watchers, who have watched with bemusement as more than three potential candidates have turned down the top job at the company, after the board ousted former popular Viehbacher in a power struggle over strategy.
Indeed, Wall Street is already speculating that Weinberg may have had to publicly acknowledge in his earnings results that the company has met with unparalleled difficulty of tempting someone into their head job.
Weinberg has previously declined to comment on rumors that Smith & Nephew Inc. French chief Olivier Bohuon, Christophe Weber, the French chief operating officer of Takeda Pharmaceuticals , and AstraZeneca PLC ’s Pascal Soriot had turned down the CEO job at Sanofi.
"We have no comment on the subject," Weinberg said, because he was only speaking "in general" about the difficulty of finding top talent for the position.
In the past, Weinberg has complained that the high tax burden imposed upon companies by the French government is hindering Sanofi’s search for a new chief executive.
"The deterioration of French tax-competitiveness and the burden on companies and individuals pose a problem," Weinberg told reporters in Paris.
"It's extremely difficult to attract international executives or even bring back French ones who have left. There will be consequences if this continues, because we can't rely on patriotic sentiment or goodwill alone."
The situation was likely an ironic one for Weinberg, who was instrumental in ousting Viehbacher, only to find that candidates for the position seem to be thin on the ground. In the interim, Weinberg must fill the role himself, in addition to his duties as chairman.
"The trouble with finding a successor hinges on the fact that we don't know the real reason he was fired, and because a lot of people are asking themselves questions about the subject," said an industry insider who has spoken to some potential candidates.
"The very low pay-off he received only reinforces the idea that the reasons he was fired are not the ones that have been talked about."