Novartis Is Negotiating Consulting Agreement With Vasella

Novartis AG (NOVN) is negotiating a consulting agreement with outgoing Chairman Daniel Vasella, the company’s top lawyer said three days after the drugmaker scrapped an accord to pay Vasella as much as $78 million for not competing with Novartis after he steps down today.

The outcome of the consulting talks will be made public, General Counsel Felix Ehrat said at the company’s annual shareholder meeting today in Basel, Switzerland. Vasella, 59, won’t be paid for his role as honorary chairman, though will have an office, administrative support and security, Ehrat said.

Shareholders questioned Vice Chairman Ulrich Lehner and Novartis executives today about the non-compete agreement, which caused an uproar in Switzerland last week, two weeks before voters cast ballots in a March 3 referendum to limit executive pay. The company announced that the agreement existed, without disclosing financial details. The blog Inside Paradeplatz revealed the amount involved on Feb. 15, and the company subsequently confirmed it.

Without the leak, “then no one would have known about the gigantic sums you were talking about,” Dominique Biedermann, executive director of Ethos, a foundation that advises institutional investors on corporate governance issues, said at today’s meeting. “That leaves a very bad impression of how the board of directors works here. We had the impression none of you have the courage to stand up to” Vasella.

‘Fierce Reproaches’

Vasella had offered to donate the payment to charity. The agreement called for him to receive as much as 12 million Swiss francs ($12.9 million) annually for six years.

“The heated reactions and fierce reproaches against me for the much-discussed non-compete agreement have certainly left their mark on me,” Vasella told shareholders today. “They show two things: I made two avoidable mistakes. The first one was to negotiate the non-compete agreement in the first place, and the second one was that waiving the payment and donating it to charity would be regarded as positive.

‘‘I carry responsibility and that is why I accept public criticism.’’

Vice Chairman Ulrich Lehner defended the decision to award the pay for not competing.

‘‘We are still convinced it was essential to include a non- compete in the contract and provide appropriate compensation,’’ he said today.

Shareholders, in a non-binding vote, approved a new compensation system at Novartis. Biedermann had urged a vote against the system, saying the pay for Chief Executive Officer Joe Jimenez is too high. The CEO’s compensation in 2012 was 13.2 million francs.

They also elected Joerg Reinhardt, a former Novartis executive who later ran the health-care business at Bayer AG (BAYN), to succeed Vasella on Aug. 1. Lehner will serve as chairman until then.

To contact the reporters on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net; Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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