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sajahmeoli (61.14)

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April 26, 2011 – Comments (7) | RELATED TICKERS: FRX

Nothing like jumping in with both feet, I suppose. I was going to write about how glad I was to be here, etc, in my inaugural post but will instead talk a bit about FRX. WSJ today notes that the federal government is apparently letting the company know that it may not continue to do business with the feds--unless its CEO steps down.

The Department of Health and Human Services this month notified Howard Solomon of Forest Laboratories Inc. that it intends to exclude him from doing business with the federal government. This, in turn, could prevent Forest from selling its drugs to Medicare, Medicaid and the Veterans Administration. If the government implements its ban, Forest would have to dump Mr. Solomon, now 83 years old, in order to protect its corporate revenue. No drug company, large or small, can afford to lose out on sales to the federal government, a major customer.

This action on the part of HHS is quite troubling, as I understand it. It places the company in question between the proverbial rock and a hard place. Either the company loses its CEO or it loses a non-typical (but absolutely essential) client.

Apparently, while the company has paid a number of fines over the years, Mr. Solomon has never had a criminal complaint lodged against him, which makes the whole thing rather, well, unsettling.

While one may dispute the benefit which a particular CEO brings to a corporation, there is little question that the continuance of a chief executive is a mark of stability for most investors--unless that person is obviously running things into the ground. If the government may single out the CEO for public shaming in this manner, how might such actions reflect inequitably on the employees and shareholders of said company? 

 ***I hold no known position in FRX.***

 

7 Comments – Post Your Own

#1) On April 26, 2011 at 2:50 PM, ikkyu2 (99.38) wrote:

He's 83, so it's not like he was going to have another 20 years as CEO anyway.

What's disturbing about this is that the administration has chosen to pounce on an 83 year old man who has never been proven guilty of any wrongdoing.  They know that the sensible thing to do is retire him early and by having his board do that, they set a precedent - that Medicare is the 800-lb gorilla who will determine who and what business gets done in American healthcare.

Doctors, those of us still in practice at least, recognize this, because it was done to us decades ago.  It has been very bad for our bottom lines. 

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#2) On April 26, 2011 at 3:35 PM, sajahmeoli (61.14) wrote:

ikkyu2,

On Mr. Solomon's age, true enough (that he'll not be around for forever). But isn't that question for the board, without the government nudge?

After all, it would appear that the board still thought him the best person to sit in his office.

The government's apparent approach to this is what rankles--and is exactly what could be bad for a number of companies' bottom lines should the tactic prove successful.

 

 

 

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#3) On April 26, 2011 at 3:59 PM, lemoneater (79.38) wrote:

Is this an instance of age discrimination?

Somehow this action comes across as thuglike. I thought governmental intervention to that extent should only occur when federal law was violated. 

 

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#4) On April 26, 2011 at 4:14 PM, sajahmeoli (61.14) wrote:

lemoneater,

I would think that the CEO's age is more red herring than not. The issue really does seem to be whether government is doing more than its brief would support by punishing without (apparent) legal reason.

 

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#5) On April 26, 2011 at 4:51 PM, ikkyu2 (99.38) wrote:

I think you and I agree completely about this, sajahmeoli.  I think they intentionally pounced on an aged old man because they knew there was little risk of Forest or Mr Solomon putting up a fight.   Then, the precedent is set.

This is not the America described in the U.S. Constitution.  It is sad. 

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#6) On April 26, 2011 at 6:15 PM, chk999 (99.98) wrote:

Last September, Forest made a plea agreement with the government, under which it is paying $313 million in criminal and civil penalties over sales-related misconduct.

Forest Labs is not exactly an innocent party here. The CEO is like the captain of a ship. They are at fault if the ship hits a reef, no matter what. 

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#7) On April 26, 2011 at 8:51 PM, sajahmeoli (61.14) wrote:

ikku2,

Precendent does hold so much weight with this sort of thing, doesn't it?

 

chk999,

You are correct. Forest Labs is not innocent. They are paying penalties in accordance with a plea agreement reached over those illegal actions. If the CEO is the captain, as in your example, then the shipowners (aka board and stockholders) are within their rights to remove him. I suppose that I'm agreeing with you with regard to the CEO's responsibility--but I also believe that it is not the federal government's role to do the firing.

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