The Forest Laboratories CEO, who built his company’s fortune on the antidepressants Celexa and Lexapro, faces exile from the health-care industry
Big Pharma, Big Fines
Solomon, 83, the CEO of Forest In June, under the gilded ceiling of the Gotham Hall Grand Ballroom in Midtown Manhattan, Howard Solomon was honored before hundreds of gala-goers for his contribution to the prevention of suicide among young people. Solomon is the chairman and chief executive officer of Forest Laboratories, and the event was a fundraiser for the Jed Foundation, which works with college students to promote mental health and prevent suicide. When his son Andrew took the podium, he called Solomon an appropriate honoree, “because his tenure in the pharmaceutical industry has led to drugs that save untold thousands of lives.” “One of the lives he has saved, over and over again, is mine,” Andrew continued, before summoning his father with a simple, “Dad.” The 83-year-old—with large glasses and receding hair—resembles a kinder version of Mr. Burns from The Simpsons and is a familiar figure at galas and fundraisers, whether as a trustee at New York-Presbyterian Hospital or a board member of the Metropolitan Opera and the New York City Ballet. His philanthropy and social standing are built on the wealth and reputation he has amassed in more than 30 years as chief of Forest Laboratories, a company whose success, in turn, has largely been built on one drug, the antidepressant Celexa. But Forest’s aggressive marketing of Celexa and flouting of regulations has put Solomon on a far less comfortable kind of stage, one at the center of a debate over the accountability of the pharmaceutical industry and its leadership, and the limits of government power. On Apr. 12, Solomon learned that the Office of Inspector General, or OIG, which handles the U.S. Health and Human Services Dept.’s efforts to fight waste and fraud in government health programs, is considering “excluding” him. Technically, this means exclusion from doing business with federal health programs such as Medicare, Medicaid, and the Veterans Affairs Dept. Functionally, it means a ban from the entire health-care industry. Personally, it is a censure, the equivalent of an official shaming. And for American business it seems to presage an increased government effort to hold executives accountable, making corporate misbehavior personal for leaders who may have seen monetary punishment as a mere line item for shareholders to bear. The OIG has not announced a decision, at least publicly, but the potential move is already disrupting the company. Forest is facing a proxy battle and lawsuit from Carl Icahn, the corporate raider and activist shareholder. Companies he controls have built a stake of about 7 percent in Forest, nominated four new members for its nine-member board, and are suing the drugmaker in the Delaware Court of Chancery for details on why the government is seeking to bar Solomon. Exclusion is common enough; the Health and Human Services Dept. punishes about 3,000 people a year this way, often because of criminal convictions. Solomon stands out because the Justice Dept. has never charged him with wrongdoing, nor has he ever admitted to wrongdoing, not even in Forest’s $313 million settlement last year on charges related to the marketing of antidepressants and the distribution of an unapproved drug, the thyroid medication Levothroid. If the government decides to exclude Solomon, Forest would be forced to get rid of him—or lose its business with the government. Despite the risks, an Apr. 13 company press release disclosing the notice struck a defiant tone, quoting board member William J. Candee III saying, “Mr. Solomon has always set a tone of the highest integrity from the top. … We believe the potential HHS-OIG action may well be beyond its legal authority.” Solomon submitted his response last month, according to Lesley Bogdanow, a company spokeswoman, who declined to comment further on the matter. Now he must wait for a decision from the OIG. And the drug industry is left to ask: Why Howard Solomon?
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After getting hit with an $18.2 billion judgment in Ecuador, the oil giant goes after the plaintiffs—and the Ecuadorean court system—in a U.S. court
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For a decade, Chevron has been embroiled in an epic legal battle in Ecuador over allegations that the country was used as a dumping ground for billions of gallons of toxic drilling waste. In February the plaintiffs, some 30,000 Amazon Indians and peasant farmers, won an $18.2 billion verdict in a provincial Ecuadorean court. Chevron called the case tainted by fraud and vowed to get the verdict nullified. Six months later the company has made impressive progress toward doing just that. Lawyers for Chevron, the third-largest U.S. corporation in revenues behind Wal-Mart Stores and ExxonMobil, have persuaded a federal judge in New York essentially to put the Ecuadorean court system on trial for corruption. The company is seeking a far-reaching order that would block the plaintiffs from collecting on their judgment in the U.S.—or anywhere else. The prospect of establishing a U.S. precedent for extinguishing hostile foreign court verdicts has electrified corporate lawyers and their clients. A coterie of business groups in Washington has weighed in with friend-of-the-court briefs supporting Chevron. The U.S. Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers, and the National Foreign Trade Council argue that the oil company was the victim of crooked proceedings in Ecuador. In their own joint brief, Dole Food, Royal Dutch Shell and Dow Chemical say they, too, have been hit repeatedly by mass injury suits abroad. A Chevron victory could become a powerful tool in fending off judgments in such cases. “Vigilance in ensuring that foreign judgments are rendered in systems that provide due process and impartial tribunals is a matter of growing importance in a world where international commerce will, with increasing frequency, be affected by foreign judgments,” the companies contend. Environmentalists and the government of Ecuador are siding with the plaintiffs. They argue that Judge Lewis A. Kaplan, who was appointed to the bench by President Clinton in 1994, lacks the authority to issue a worldwide order blocking enforcement of the verdict. In court filings, Ecuador’s American law firm, Winston Strawn, asserts that “Judge Kaplan’s gratuitous belittlement of the Republic [of Ecuador]’s judicial system is a wholesale condemnation of the judicial systems of the entire Latin American region.” At the heart of Chevron’s legal predicament is a massive case of buyer’s remorse. The company fought for more than eight years to get the pollution suit moved to Ecuador, believing it would be more likely to prevail there than in the U.S. When it became clear that it would lose in Ecuador, Chevron came back to U.S. courts seeking to undermine the Ecuadorean proceedings. The oil and gas producer maintains that it cleaned up any pollution for which it was responsible and that it has been unfairly targeted. The lawsuit began back in 1993 when attorneys representing the plaintiffs sued Texaco in federal court in New York, alleging the company had dumped billions of gallons of dangerous drilling fluids into rainforest streams and rivers while extracting oil from the Amazon from 1972 through 1990. Texaco denied wrongdoing and persuaded the New York court to dismiss the case, arguing that it would be more appropriate to try it in Ecuador. In 2001, Chevron acquired Texaco, and with it the pollution case. Two years later the plaintiffs refiled the suit in Ecuador, this time naming Chevron as the defendant, even though Chevron didn’t have operations in Ecuador—and still doesn’t. Years of protracted hearings overseen by a series of Ecuadorean judges culminated on Feb. 14 in the $18.2 billion judgment against Chevron. Two weeks before the verdict, however, Chevron launched a preemptive counterattack in federal court in New York, alleging in a separate civil suit that American and Ecuadorean plaintiffs’ attorneys, along with Ecuadorean judges and government officials, illegally conspired against the company. Chevron claimed its adversaries falsified evidence, intimidated judges, and even ghostwrote parts of the judicial opinion underlying the multibillion-dollar award. Judge Kaplan issued a temporary order in February forbidding enforcement of the Ecuadorean verdict. He has scheduled a nonjury trial for November on whether Chevron received a fair trial in Ecuador.
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July 12, 2011, 10:31 AM EDT By Hugo Miller (Updates with analyst’s comments in last paragraph.) July 12 (Bloomberg) — Research In Motion Ltd., scheduled to hold its annual meeting today, is facing shareholder calls for its board to take on a more active role and appoint a new chairman to lift the BlackBerry smartphone maker’s fortunes. The company’s six outside directors have made few public comments as RIM struggles to compete against Apple Inc. and Google Inc. Jim Balsillie and Mike Lazaridis, who are both co- chairmen as well as co-chief executive officers at RIM, have tried to reassure investors the company is poised to recover and they should remain chairmen. The Waterloo, Ontario-based company, coming off its worst quarterly stock-market performance in nine years, needs to make board-level changes, according to investors such as James Cole. “The team there has not executed for a prolonged period and that underscores the need for an independent chairman,” said Cole, who holds about $46 million in RIM stock as a portfolio manager at Portland Investment Counsel in Calgary. “It’s getting to the point where the executives have to be called to account and how are they going to call themselves to account? They won’t do it.” RIM’s share of U.S. smartphone subscribers dropped 4.2 percentage points to 24.7 percent for the three months ending in May from three months earlier, according to ComScore Inc., while Apple’s iPhone and handsets based on Google’s Android software both gained share and outsold the BlackBerry. Split Proposal RIM’s stock tumbled 49 percent last quarter in Nasdaq Stock Market trading, the worst three-month performance since 2002. The shares rose 91 cents, or 3.2 percent, to $28.96 at 10:05 a.m. New York time and had dropped 52 percent this year before today. Last month, shareholder Northwest Ethical Investments LP proposed splitting the roles of chairman and CEO at RIM to increase board oversight, and investors were slated to vote on the issue at the annual meeting. The proposal won support from Glass Lewis Co. and Institutional Shareholder Services Inc., proxy firms that advise shareholders how to vote on such issues. RIM managed to avoid a public showdown by persuading NEI to drop its proposal with an agreement the company would form a committee to study its leadership. The move has frustrated investors who want RIM to shake up management and respond more quickly to its competitive threats. Independent Director? “There doesn’t seem to be the urgency in addressing meaningful matters,” said Paul Taylor, chief investment officer of BMO Harris Private Banking, who oversees $14.5 billion, including RIM shares. “It seems like they committed to study the matter but have they committed to a change? Not really. It’s a bit disappointing.” RIM has said the board’s independent lead director, John Richardson, already fulfills the typical role of a chairman at other companies and ensures the directors’ independent oversight. Richardson, who is 78 and former chairman of the Ontario Pension Board, has been a RIM board member since 2003 and lead director since March 2007. RIM also said its board is “highly independent,” with six of eight directors from outside the company. Along with Balsillie, Lazaridis and Richardson, the other directors are: Roger Martin, dean of the University of Toronto’s Rotman School of Management; Barbara Stymiest, a former Royal Bank of Canada executive; Antonio Viana-Baptista, a retired, former executive at Telefonica SA; David Wylie Kerr, managing partner at Edper Financial Corp. and John Wetmore, a former head of International Business Machines Corp.’s Canadian unit. Study Until January When RIM said on June 30 NEI was withdrawing its proposal, the company said it would establish a special committee to study the board issues and put out a report by Jan. 31. Shareholders “have a right to be absolutely infuriated,” said James Gillies, a professor emeritus and corporate governance expert at York University’s Schulich School of Business in Toronto. “Their reaction of saying, ‘We’ll try and get this sorted out in six months’ doesn’t give me much confidence that they think there’s an emergency.” The move demonstrates RIM is avoiding a commitment to an independent chairman when it needs one, Glass Lewis said. “The appointment of independent board leadership does not require further study, but rather concrete action,” Glass Lewis said in a report last week. The firm also justified its recommendation for an independent chairman because of Richardson’s role on the audit committee while the company was investigated for stock-option backdating. “In our opinion, the director has failed in his oversight responsibilities,” the firm wrote in its report. Whiskey Warehouse Tenille Kennedy, a RIM spokeswoman, declined to comment and said Richardson and other directors weren’t available for interviews. The shareholder meeting is scheduled to begin at 6:30 p.m. local time in Waterloo’s Centre for International Governance Innovation, a think tank founded by Balsillie. The meeting to be held in a converted whiskey warehouse may be relatively smooth now that the chairman vote has been canceled, said Eric Jackson, president of Naples, Florida-based Ironfire Capital LLC, who has previously sold RIM shares short, betting on their decline, and no longer holds any shares. That shouldn’t be interpreted as a broad vote of confidence, he said. “I expect a lot of grumpy senior citizens rather than fund managers,” who hold the larger stakes, said Jackson. “Even if it’s a placid event, no one should be fooled that shareholders are happy.” QNX Transition Duncan Anderson, senior portfolio manager with the Manulife Dividend Fund in Toronto, said he agrees with Balsillie’s argument that RIM’s transition to a new operating system is one that “frankly few companies would have been able to survive.” RIM bought QNX Software Systems for $200 million in 2010 and first used it as the platform for its BlackBerry PlayBook tablet computer released in April. RIM is shifting its entire smartphone portfolio onto the new operating system, with its first QNX phones scheduled for release in early 2012. “I don’t think we’re appreciating the transition from the outside in,” said Anderson, whose team manages about $10 billion including about $160 million worth of RIM shares. While a public shareholder vote may be too disruptive now, Anderson said he agrees with the idea of a new chairman such a person could bring “independent thought and perhaps someone representing the board that hasn’t been involved in the growth and development. It’s not that person’s baby.” Portland Investment’s Cole said investors have waited long enough for results. Splitting RIM? “The market is generally tired of what they say and is more interested in what they do,” he said. “For 18 months, Balsillie has been saying ‘Just you wait,’ and we’re still waiting.” Mike Abramsky, an analyst with RBC Capital Markets in Toronto, said splitting the company into separate device and network businesses would improve its prospects. While such a split could be disruptive, doing nothing could be a “higher risk” especially if the new QNX phones fail to meet expectations, Abramsky wrote in a note today. “RIM’s organization, like its handsets, needs modernization,” said Abramsky, who has a “sector perform” rating on the stock. “By acting now, splitting RIM into network and handset businesses may target opportunities and unlock significant shareholder value.” –Editors: Peter Elstrom, John Lear, James Callan To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net
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Thanks to demand in Asia and legal victories in the U.S., American Indian tribes in the Pacific Northwest dominate a rich trade in giant clams called geoducks (pronounced gooey-ducks)
Captain Victor Simmons and his three daughters, Pauline, Rachel, and Stacy, all work as duckers near Olympia, Wash.
Geoduck stats
Average price of geoduck per pound
How to clean a geoduck The tribal police are tied up alongside the Ichiban, a broad, aluminum dive boat that bucks against its anchor line 300 yards offshore. Only one of the Ichiban’s two dive lines is running at the moment, trailing off the stern into the granite waters of South Puget Sound. The Ichiban’s captain, Craig Parker, stares intently as the tribal officer finishes his paperwork—capping off an inspection of the Ichiban’s safety procedures and a proficiency test to certify that all members of Parker’s crew are qualified to do their strange work 40 to 50 feet below the surface. “We did good,” Captain Parker barks over the growl of the compressors after the inspectors have gone. “Everybody passed inspection, and Connie did great.” Connie Whitener, who with her bookish demeanor seems more like a schoolteacher than a certified commercial diver, offers a shy smile, then tugs the collar of her parka against the steady rain. Like everyone on board, Whitener is a member of the 1,000-strong Squaxin Island tribe. It’s been a while since she’s worked a shift as a ducker, and she’d be prohibited from doing so if the inspectors failed her. Duckers dive exclusively for the giant, burrowing clams known as geoducks. According to Indian tribal law, you’re not a ducker if you can’t fill a 50-pound crate of clams in less than 15 minutes. Having filled her crate fast enough, Whitener will now be entitled to an equal share (split seven ways) of the day’s $25,000 harvest. An adult geoduck (pronounced gooey-duck) averages about three pounds, and while market value fluctuates daily, the overall price for these monstrous bivalves has been climbing steadily for 40 years. This spring geoducks have been going for $10 a pound on the dock at Zittel’s Marina at Johnson Point northeast of Olympia, Wash. Eighteen hours and one international flight later they can go for four times that in the markets of Shenzhen, China, where the clams are a coveted gourmet ingredient known as xiàng bá bàng, or “elephant trunk.” Prized in China for the sweet meat of the siphon, the clam’s tubular organ, and their crisp texture, geoducks are prepared as part of a fondue-like hot pot. In Japan they’re served as sashimi, mirugai, or simply giant clam. Apparently because of their resemblance to a dangling body part belonging to 50 percent of large mammals, geoducks are also reputed to promote male sexual vigor. “There’s no limit to the demand for geoducks from the Asian buyers,” says Casey Bakker, an American who has sold them for 30 years. For a decade beginning in the early 1980s, the geoduck market was like the ’49 Gold Rush played out on the sandy bottom of the sound. Trade with China was largely unregulated and conducted by a handful of duckers, among them Craig Parker’s father, Glenn, who ran the Ichiban when he wasn’t working as an electrical engineer at Boeing. “When this first started, there were only 10 or 12 [crew members] doing it,” recalls Craig, who crewed the Ichiban under his father. “It was really good money. We were making as much as $20 a pound.” Now that there are 80 crews doing it, he laments, “it’s making a living, nothing more.” Parker would rather not say how much of a living, but the math isn’t hard to figure—$6 million to $8 million per year shared by the 80 tribe members who dive—and a productive ducker can easily make $75,000 to $100,000 annually. Considering that the median income for Northwest tribes without geoduck divers falls at or near the poverty line, ducking makes a dramatic difference in the lives of the families of the 15 tribes (most with a thousand members, give or take) who engage in the trade. It’s going so well that, inevitably, there’s a fight brewing over who has rights to the geoducks and the unique terms that allow the tribes to duck without bidding on leases or paying income taxes on their harvests.
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If the software is great, says Lewis Cirne’s startup, salespeople aren’t needed In Silicon Valley, where everyone says he’s out to disrupt the status quo, the sales force is a surprisingly resilient institution, especially in enterprise software. Every two to four years, companies such as IBM and Oracle produce new versions of their flagship applications, then send out armies of salespeople to persuade customers to upgrade. Lewis Cirne, an entrepreneur who sold his business software company, Wily Technology, for $375 million in 2006, has become one of the most vocal advocates for a new type of leaner, faster business software maker. His latest company, New Relic, relies on just seven salespeople to serve more than 10,000 customers, who use its software to track the performance of websites. Cirne aims to sell his products to clients without doing much actual selling, in part by building software that is intuitive enough for a customer to install, test, and use without a salesperson’s help. Cirne claims it’s a better model for customers, who get to judge a product rather than a sales pitch, and it boosts profits. “At Wily, we were always chasing the break-even point because we had salespeople flying all over the place,” he says. New Relic’s software keeps watch over a customer’s website, tracking how fast Web pages load and how users’ experiences vary based on things like which browser they’re using and what ads are filling their page. The software then digs into a customer’s data center to find out where a hiccup is slowing a website. “It will even find a single line of code that is causing a problem,” says Rich Phillips, the principal network engineer at Apollo Group , which runs the University of Phoenix and is a New Relic customer. Others include Groupon, ATT, Zynga, and Best Western International. The sales forces at traditional business software companies spend days, weeks, and even months installing, explaining, and training customers on their products. To flip this model, New Relic has borrowed from the consumer technology playbook and made a product meant to provide enough visual pop to attract customers on its own. It’s also designed to be easy enough to use that customers can install it without the help of a knowledgeable salesperson. New Relic uses a cloud model, where customers gain access to a dashboard through their Web browser to configure and test the software. They’re then presented with a variety of colorful charts that break down the performance of their website. The product “has to be good enough that someone tweets about it,” says Cirne. In the past, customers would install this type of software in their own data centers and use it in isolation. Because New Relic’s software lives in the cloud, every day 1.5 billion data points flow from its customers to a central online repository. New Relic’s engineers crunch the data and reach out to customers to tell them if they’re missing an important piece of information or not using a potentially helpful service. That “makes a lot more sense than talking to a traditional sales guy,” says Phillips. “There are a number of startups out there that believe you can sell without a sales team,” says Asheem Chandna, a partner at venture capital firm Greylock Partners. Chandna has backed AppDynamics, a rival to New Relic, that uses the lean model for smaller customers but relies on salespeople to handle large ones. “At a certain point those customers want to look someone in the eye and have that direct relationship,” Chandna says. Kenny Van Zant, a former executive at SolarWinds, which adheres to the lean model, says that business software makers used to rely on “good PowerPoint and sales teams” to make up for a product’s deficiencies. But that “just doesn’t work anymore.” For Cirne, the debate is personal. He’s a coder who stayed up through the night writing software in the early days of New Relic and still dedicates about half his time to programming. He says a sales-centric culture can be toxic. “That tiny fraction of the company gets the trips to Hawaii and the Rolex watches,” he says. “They come back all tanned with their wonderful stories, and it’s so deflating for the rest of the company.” The bottom line: Some business software startups are making do with small sales forces by building products that are simple to install and use. Vance is a technology writer for Bloomberg Businessweek.
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