AFL-CIO Wants Forest Labs CEO To Resign
9 CommentsBy Ed Silverman // May 16th, 2011 // 11:06 am
One of the nation’s big unions and a shareholder in Forest Laboratories has asked the board to request the resignation of ceo Howard Solomon. The move comes in response to the recent disclosure that Solomon faces being excluded from participating in federal healthcare programs by the US Department of Health and Human Services Office of the Inspector General.
The feds took that step not long after a subsidiary, Forest Pharmaceuticals, pleaded guilty to obstruction of justice, distributing an unapproved drug and illegally promoting two other meds. As part of its deal, Forest made a $313 million payment that included $164 million in criminal penalites, and signed a corporate integrity agreement (back stories here and here).
“These are very serious matters and, at the very least, raise a serious question about the lack of proper management oversight,” the AFL-CIO wrote in a letter this morning to the Forest board. “While we recognize that Mr. Solomon was not personally accused of wrongdoing, we believe that the chairman and ceo should be held accountable for major regulatory compliance failures by company subsidiaries. Part of the job of chairman and ceo is to manage the company and its subsidiaires to prevent wrongdoing.
“Moreover, we believe that Mr. Solomon should resign rather than bring litigation to prevent his exclusion from participation in federal healthcare programs by the Office of Inspector General…Such an exclusion from federal healthcare programs could dramatically harm shareholders if Mr. Solomon remains an executive of Forest Laboratories and the company is unable to sell pharmaceutical drugs to Medicare, Medicaid and the Veterans Administration.”
The AFL-CIO Reserve Fund, by the way, owns 208 shares of Forest Labs. UPDATE: We asked the AFL-CIO for further explanation and Robert McGarrah, who is the counsel in the AFL-CIO Office of Investment, wrote us that “circling the wagons around Mr. Solomon, as the Board now appears to be doing, protects no one but Mr. Solomon.
“These are serious crimes. To say, as Forest’s General Counsel does, that, ‘Numerous other major pharmaceutical companies have plead guilty to much more egregious offenses, and none of them has faced the exclusion of a senior executive who has not himself been convicted of a crime or pleaded guilty to a crime (see here),’ is to ignore the law and argue that what Forest did under Mr. Solomon is nothing more than business as usual. Good corporate governance is critical to our capital markets. We will do our utmost to protect the retirement savings of working families.”
According to the union, the AFL-CIO Office of Investment works with Taft-Hartley labor union retirement funds with over $400 billion under management and public employee retirement funds with over $3.5 trillion under management. All of the retirement funds are broadly invested, as well as the AFL-CIO Reserve Fund, in the S&P 500.
We have asked Forest for a comment and will update you accordingly.
industry insider
I think that Mr. Solomon should resign if the AFL-CIO tells us where Jimmy Hoffa is buried.
Justice in MI
Clarification if possible: Is Forest _Labs_, as opposed to Forest Pharma, potentially barred from gov. contracts?
If the latter, would this have a significant impact on the gov. dealing with Forest, the broader company?
Thanks.
Ed Silverman
Hi Justice,
Nice to hear from you. Hopefully, this answers your question, or at least part of your question…
http://oig.hhs.gov/publications/docs/press/2011/factsheet_051011.asp
Regards
ed
Justice in MI
Hi Ed,
Honestly, I’m still unclear. Hopefully, someone can help me translate the OIG statement.
I understand that Solomon himself could be excluded. But I still don’t know if Forest the whole company could be (although I assume the AFL-CIO probably knows what they’re doing…well, much of the time.)
I was thinking of the Pfizer cases when Upjohn and Pharmacia pled guilty, also “subsidiaries.” And this, of course, impacted their proud parent company’s ability to contract with gov. not at all.
Ed Silverman
Hi Justice,
As I understand it, the OIG interest missive pertains to excluding Solomon, as opposed to Forest Labs or its subsidiary. And when Forest first disclosed the OIG letter, there was reference only to Solomon.
Cheers
ed
Justice in MI
Thanks, Ed. If that is correct, then the AFL-CIO’s concern is without foundation. There is no likelihood that Forest, as a company, would be excluded from contracts, and thus no impact on share price, and thus no impact on “retirement funds for working families.”
(As opposed to unworking families, of which I’ve known many….)
harpy
Hi Justice - here is what you’re looking for, I believe:
“No program payment will be made for anything that an excluded person furnishes, orders, or prescribes. This payment prohibition applies to the excluded person, anyone who employs or contracts with the excluded person, any hospital or other provider where the excluded person provides services, and anyone else. The exclusion applies regardless of who submits the claims and applies to all administrative and management services furnished by the excluded person.”
that’s from OIG’s explanation of the Exclusion Program to be found here. as we all know by now, fines and CIAs do not seem to be working to keep fraud in check so OIG is pulling out bigger guns. even so, they are not excluding companies as of yet, but hitting key executives. if and when OIG or pharma decides to stop settlement agreements, we’ll see something interesting, ‘cos a felony conviction of a company carries a mandatory exclusion. which is why up to this point we’ve only seen settlements and, now, misdemeanor pleas.
max
At 83 years of age he should have retired years ago, so it’s time he went now before he falls over in his chair!
No one can go on for ever not even Howy.
Max
industry insider
Max, how many times did you have to hit the “select/delete” key to erase those cockney profanities that were no doubt in your mind when you were composing thism e-mail? I thought we embarrased you off these boards.
I’m on a break from a conference on algae. Learning all about different kinds of slime. You could probably have given one of the lectures.