Activist shareholders are questioning whether a corporate governance expert–and McKenna Long & Aldridge partner–was independent enough to effectively probe disclosure practices and possible conflicts of interest at Irish drugmaker Elan, Reuters reports.
The fresh round of shareholder unrest was touched off by news that a recently released report detailing the results of the McKenna-led investigation had cleared company executives of acting improperly in their business dealings.
The 90-page report, which the drugmaker has not made public, “found no legal breaches or other wrongdoing of any nature by Elan management, any members of its board of directors, or its advisors,” according to a company statement.
While the Elan board accepted the report, not everyone was happy with it. Non-executive directors Jack Schuler and Vaughn Bryson–who had expressed skepticism about McKenna’s independence and had made an unsuccessful push to hire a different firm to conduct a separate inquiry–have quit their posts. Despite their abrupt departures, Elan stated that Schuler and Bryson “expressed satisfaction with the outcome of the McKenna process.”
At the center of the Elan drama is McKenna partner R. William Ide III, a former general counsel of the Monsanto Company, who specializes in compliance issues and internal investigations. Ide led the internal Elan probe along with Brendan Cahill, a corporate partner at Irish firm William Fry.
Elan hired Ide and Cahill about a year ago in the wake of a deal that saw Johnson & Johnson acquire an 18.4 percent stake in the Irish drugmaker for $1 billion. (Cahill Gordon & Reindel, Elan’s standing outside U.S. counsel, advised the company on the transaction along with Irish firm A&L Goodbody.)
As previously reported by The Am Law Daily, the J&J deal upset some Elan shareholders who were already unhappy with company management because they felt key details of the transaction had not been disclosed. Danish activist investor Ib Sonderby, who runs his own Web site calling for change at Elan, became especially vocal upon learning that as part of the deal J&J had obtained the right to acquire most of an Elan unit focused on developing treatments for Alzheimer’s disease.
Around the time of the J&J deal, Elan announced the nomination of three new directors–including Bryson and Schuler–to its board to replace retiring members as part of a settlement with activist shareholders.
Reuters reports that Sonderby, Bryson, and Schuler all criticized the wisdom of hiring McKenna. Sonderby specifically questioned Ide’s ties to former Elan general counsel Richard Collier, who now serves as an executive vice president and senior adviser at the company. (Elan’s current GC, John Moriarty, Jr., took over in March of this year.)
Sonderby, Reuters notes, has zeroed in on what he calls a longstanding relationship between Ide and Collier that stems from their dealings during the negotiations leading to Monsanto’s $50 billion merger with Pharmacia & Upjohn in late 1999. In the wake of the merger, Collier became general counsel of the newly merged entity, while Ide became GC of a subsidiary until late 2001, when he returned to private practice.
Ide told Reuters that he never worked for Collier while in-house at Pharmacia. The two men, Ide said, had an “arm’s length relationship.” Ide also told Reuters that he was recommended to Elan by the general counsel of another one of his clients and that while McKenna had done some preliminary work for the company in 2005, it was for a potential assignment that never came to fruition.
Elan itself rejected any notion of a conflict of interest in hiring Ide and McKenna. In an e-mail to Reuters, the company called any questions about the links between Ide and Collier “beyond ridiculous” and cited Ide’s extensive credentials.
Ide is indeed highly regarded in the corporate governance field. A past president and general counsel of the American Bar Association, Ide also served as a member of the ABA’s task force on corporate responsibility. He currently serves on the boards of Baton Rouge-based chemical company Albemarle Corporation and Atlanta-based fast-food firm AFC Enterprises (owner of Popeyes Louisiana Kitchen).
Ide declined to speak with The Am Law Daily about his work on behalf of Elan, but a lawyer familiar with the matter who is sympathetic to McKenna, says that the nature of Ide’s history with Collier should not preclude the firm’s retention to compile an ethics report.
“You can’t litigate or negotiate against somebody and never be hired by them again?” the attorney asks. “I’ve always recommended that if a lawyer on the other side beats me in litigation, I’d probably want to hire him next time. You always want to know something about [someone] you’re hiring, especially if you’ve seen them in action.”
Reuters, however, quotes several corporate governance experts who suggest that the mere appearance of a conflict should have prompted Elan to look elsewhere for an outside firm to handle the internal investigation.
Before they announced their intention to resign earlier this month, Bryson and Schuler hired Los Angeles firm Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg to conduct their own parallel investigation of Elan along with McKenna. But Elan successfully obtained an injunction from an Irish High Court preventing the two renegade directors from pursuing their own inquiry.
Sources tell The Am Law Daily that McKenna, known for its political connections, was hired because of its ability to bridge legal issues facing a company with operations in both Ireland and the U.S. When confronted with differences between Irish and U.S. law, these sources say, investigating attorneys deferred to the highest standard of the two.
