In the ENHANCE shareholder derivative action (called Cain v. Hassan, now pending in the federal District courthouse in Newark, NJ), the former chairman of the compensation committee of legacy Schering-Plough board of directors, one Hans Becherer (pictured at right, and the single longest serving director at Schering-Plough, at the time of his departure in mid 2010) will be sworn under oath, and asked about (among other matters) the basis for his mega-grants of very cheap stock options (at $18.85 per share) in May of 2008, to Carrie Cox, Fred Hassan, Tom Sabatino, Tom Koestler and Bob Bertolini, among others.
At that time, Schering-Plough was reeling from the delayed ENHANCE study results disclosure, yet he voted these executives boatloads of additional mid-year discretionary compensation — in the form of cheap stock options, due to a market price decline they had collectively caused by mismanagement of the disclosure of the study results, it is alleged. That stock option grant helped push Fred Hassan’s payout, on the bust-up/merger with Merck, to over $235 million*, from what would have been closer to $170 million, all in one fell swoop. Astonishing.
From the amended Cain v. Hassan complaint, then:
. . . .The Pharmaceutical Leadership Board (“PLB”‘). comprised of the highest level of Schering executives, existed within the Schering-Plough Research Institute (“SPRI”), the division with responsibility for research on new and existing drugs. Included among its membership were Officer Defendant Chief Financial Officer Bertolini, and the Insider Trader Defendants Executive VP and President of Global Pharmaceutical Business, Cox, Chief Executive Officer Hassan, and President of the SPRI, Dr. Koestler (among others). . . .
Therefore, if there was ever a moment for the Board to be on red alert that it had to exercise its oversight role diligently to ensure lawful, ethical conduct by management, it was this moment: [REDACTED] the results of the ENHANCE trial, positive or negative, were highly material infonnation. The federal securities laws and the Company’s commitment to ethical management required this information to be disseminated in a timely, professional manner to investors and all other stakeholders, with no profiteering permitted from insiders trading on inside knowledge and no foot-dragging permitted by officers concerned about achieving their incentive compensation targets. . . .
[Instead,] over 5,500 employees were terminated, ten percent of Schering’s 55,000 employees. Defendant Hassan was quoted as stating: “We are taking the tough actions that are needed to respond to a tough situation.” While public investors, who overpaid for a falsely inflated stock, employees, who were downsized, and patients, who overpaid for an ineffective product, all faced a tough situation, the Board members and the wrongdoers did not. . . .
As the bust-up of Schering-Plough unfolded — per this story, we learned in 2009 that Gary Lawson, head of global compensation and HRIT at Schering-Plough — was retiring in late 2009. That was particularly interesting, especially since he was a recent high-ranking alum of Wyatt Wheeler.
Regular readers may recall that Wyatt Wheeler was the firm where Ira T. Kay (pictured, at right), Hans Becherer’s designated compensation consultant, resided. Cozy.
Of course, Hans Becherer was the Chairman of Schering’s Compensation Committee of the Board — he oversaw Ex-CEO Hassan’s (and the other executives’) pay, and bonus opportunities. Very. Cozy. [Finally, and as indicated above, he is to testify under oath, and under cross examination, about all these matters before Halloween, 2011 — by an order entered Wednesday in Cain v. Hassan — the ENHANCE “Breach of Fiduciary Duties” and shareholders’ derivative action.]
Moral of this story: when public companies don’t restrain themselves (especially as to mulitple hundreds of millions of dollars in golden parachute pay to CEOs who so mismanage a company that there is no real alternative, except to solicit, and then accept, a low-ball bust up bid), the SEC, and the securities litigation plainftiffs’ bar, will step in and do it for them.
Halloween sure seems apt, no?
* The increase is due to post-bust up increases in New Merck stock values on the NYSE (from $26, to around $33, by merger time). These May 2008 $18.85 options were outsized, by any measure.