Memo From Valeant CEO Doesn't Answer Question: When Is He Back?

  • Boards have become more forthcoming with CEO health updates
  • Valeant says CEO on road to recovery, but little else

Valeant Pharmaceuticals International Inc.’s investors heard directly from Chief Executive Officer Michael Pearson this week for the first time since late December, when he was hospitalized with severe pneumonia. The memo, while welcome, offered little on his current condition or the timing of his return to work.

By today’s standards, Valeant’s disclosure practices may fall short, according to Donna Dabney, recently retired executive director of the Conference Board’s governance center, especially for a company that’s under fire for drug-price increases and controversial distribution practices. In recent years, publicly held companies, required by securities laws to disclose material information that could affect decisions to buy or sell shares, have often erred on the side of transparency.

Micahel Pearson
Micahel Pearson
Photographer: Scott Eells/Bloomberg

“Public companies should inform investors quickly if their CEO is seriously ill and keep them updated because that’s material information,” said Dabney, a former vice president at Alcoa Inc., who spent three years at the Conference Board convening meetings with top executives about governance issues. “And doing this is especially important at a company like Valeant that’s facing other problems.”

American corporations have become more forthcoming about the health of their leaders after Apple Inc. investors criticized the iPhone maker for keeping former CEO Steve Jobs’ pancreatic cancer under wraps, despite two extended medical leaves before his death in 2011. Shareholders now expect companies to give information not just about the illness, but, if needed, about who’s in charge and for how long while the chief executive is unable to do the job. Goldman Sachs Group Inc. CEO Lloyd Blankfein demonstrated this level of transparency when he disclosed his lymphoma in September shortly after receiving the diagnosis, and said he planned to continue working while he was undergoing treatment.

Since Jan. 6, board member Howard Schiller, a former chief financial officer, has been running the drugmaker on an interim basis. Schiller said Jan. 13 that Pearson’s family, while keenly aware of the interest in his health, asked Valeant to respect his privacy while he recovers. Valeant declined to comment for this article.

Pearson, 56, who’s long been viewed as the architect of Valeant’s past success, was trying to win shareholders’ trust back when he fell ill. Shortly before he was hospitalized, he was meeting investors in Newark, New Jersey, talking up the prospects for drugs like female libido pill Addyi and toenail fungus drug Jublia.

On Christmas day, the company announced that Pearson was being treated for severe pneumonia, without elaborating. At first, Valeant put management of the embattled drugmaker in the hands of a team of executives, before appointing Schiller.

The stock has declined about 20 percent since Pearson’s hospitalization was announced. The company hasn’t given many further details on Pearson’s medical condition, saying that the timing of his return was uncertain, which the CEO repeated in his memo this week, adding he was on the road to recovery. Meanwhile Schiller is scheduled to appear next week before Congress at a hearing on drug prices.

Sharing Medical Tests

Other executives’ medical woes highlight the difficulty of balancing transparency at large corporations with the privacy of their leaders. When Jamie Dimon of JPMorgan Chase & Co. revealed that he had throat cancer in a letter to shareholders and employees in July 2014, he said his treatment plan would take place at Memorial Sloan Kettering Cancer Center and would include about eight weeks of chemotherapy and radiation. He even shared the tests he had undergone that led to his diagnosis. 

United Continental Holdings Inc. was at first criticized for taking too long to confirm the hospitalization of CEO Oscar Munoz, 57, in October, and disclosing he had suffered a heart attack only after that news was reported by the Wall Street Journal. The company said subsequently that directors were waiting to learn about the severity of the heart attack and whether they’d need to appoint an interim CEO before making an announcement. Since then, United has provided updates on his health, including a heart transplant this month. Munoz, who was hospitalized just five weeks after being named CEO, has said he plans to return to work back full-time by the end the first quarter.

CEOs must recognize that “as head of a public company, your expectations of privacy have to be different than those of an average worker,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’s a fundamental governance issue.”

Respect Privacy

It’s not always easy. Valeant is doing the best with what information it has shared and has met its duties to investors, said Nomura analyst Shibani Malhotra.

“I know there is a lot of speculation around what is going on, but this is a situation where you have to respect Mike Pearson’s privacy that he’s ill,” said Malhotra, who recommends buying the shares. “As investors, obviously we care about stocks, but as investors, we also have to understand that there is a human side to this too.”

Medical privacy laws limit the information that can be revealed without the individual’s consent, and nothing in U.S. market regulations requires the release of specific information about the health status of company leaders, according to James Cox, a professor of corporate and securities law at Duke University in Durham, North Carolina. Companies aren’t obligated to disclose how soon an executive may be returning, Cox said.

“They’ve got to be careful,” he said. “You can’t be too optimistic.”

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