Clovis Shareholder Sues Over Directors’ Lofty Pay
By
Law360, Wilmington
A
Clovis Oncology Inc. shareholder on Wednesday told the Delaware Chancery Court in a derivative
suit the biopharmaceutical company pays its directors more than twice
as much as its competitors do even as Clovis struggles to turn a profit.
Shareholder John Solak said nonemployee board members have been paid more
than $400,000 a year on average for the past five years without allowing
shareholders to vote on the compensation plan.
“The nonemployee director defendants’ compensation is unwarranted
and grossly excessive in comparison to other companies of similar size,”
the complaint said.
Clovis has paid its nonemployee directors an average $429,163 a person
annually between 2012 and 2016, while Fortune 50 companies pay their directors
a median total of $281,667 a year and S&P 500 companies pay an average
$277,237 to each director, according to the filing. The complaint notes
Clovis is not a Fortune 50 company or part of the S&P 500, but rather
a member of the small-cap Russell 2000 Index.
For a sample of companies with a market capitalization between $1 billion
and $5 billion, the median total director compensation was $200,000 in
2016, the filing says. Clovis’ market capitalization is about $2
billion, according to
Securities and Exchange Commission filings.
The directors’ compensation packages include a $50,000 annual cash
retainer, stock options established when Clovis filed for an initial public
offering in 2011 and committee membership fees, according to the filing.
The compensation plan “does not contain any director-specific, meaningful
limitations on director compensation,” and lacks shareholder approval,
the complaint says.
Solak said in the complaint the board members’ compensation “wastes
valuable and limited corporate assets,” noting Clovis has accumulated
more than $1 billion in losses since making its public debut. Analysts
surveyed by
Thomson Reuters estimate the company will continue to report a loss for fiscal 2017 and 2018.
“The board’s self-dealing compensation practice lacks any
modicum of alignment with the long-term interests of the company,”
the complaint said.
Solak is alleging breaches of fiduciary duty, waste of corporate assets
and unjust enrichment. He’s seeking to recover the alleged excessive
compensation and reform the directors’ payment packages to restrict
“egregious compensation” and reflect the company’s financial
performance and long-term interests.
Representatives for Clovis declined to comment. Counsel for Solak did
not respond Thursday to a request for comment.
Solak is represented by Blake A. Bennett of
Cooch and Taylor PA, and Jeffrey M. Norton and Roger A. Sachar Jr. of
Newman Ferrara LLP.
Counsel information for the directors was not available Thursday.
The case is John Solak v. M. James E. Barrett et al., case number 2017-0362, in the
Court of Chancery of the State of Delaware.
--Editing by Aaron Pelc.