Is Progenics Board Fight Really About Shareholder Oversight of Boards?

The battle for board seats at Progenics Pharmaceuticals provides insight into what shareholders and proxy advisors believe determines boards’ effectiveness. However, it could also be a continuation of the argument for greater shareholder oversight of boards.

Velan Capital, one of Progenics’ largest shareholders, has engaged in a public campaign asking fellow shareholders to vote against re-election of the boards’ two-member compensation committee at its annual meeting scheduled for July 11. Velan, which specializes in investing in companies in the healthcare sector, proposes replacing the two directors with two of its own nominees. Proxy advisory firms have also weighed in on whether such a move is warranted, emphasizing different aspects of governance deemed important.

In a letter to shareholders last month, Velan stated, “the sole members of the compensation committee own zero shares of common stock and support flawed corporate goals, which we believe incentivizes the dilution of stockholders for the personal gain of executives and directors.” The public accusation that directors are shortchanging investors for their own gain is damaging to the entire board, not just those directors targeted for removal. In this case, the accusations revolve around the timetable the board sets for positive stock performance and how directors and executives are compensated and held accountable if performance fails to meet projections. Velan claims the standards set by Progenics were not in the best interest of shareholders.

Velan’s letter blasts specific business moves approved by the board in detail and it also questions why other moves were not made.  By having this dispute in public, the company is exposing the strengths and weaknesses of its board and business plans to competitors, regulators and shareholders, which may result in unintended consequences in the future.

Comments from ISS reacting to Velan’s call for a board shakeup gives some additional insight into what proxy advisory firms scrutinize when director seats are challenged by shareholders. In a press release, Velan quotes from an ISS report on the withhold campaign against the two Progenics directors:

“As chairman, [Peter] Crowley is most accountable for overseeing a company that has promising assets but has struggled to create shareholder value, perhaps due to a lack of urgency in developing and commercializing its products. While leading the Nominating & Corporate Governance Committee, [Michael] Kishbaugh [sic] has pursued a less than robust refreshment of the board, as shown by three of the six independent directors having been on the board for at least 10 years – during which the company has largely failed to create value for shareholders.”

In this case, ISS placed emphasis on the board’s ability to create shareholder value, to demonstrate urgency in business operations and to seriously maintain board refreshment practices when evaluating whether to vote “for” or “against” the reelection of the targeted board members. Ultimately, ISS concluded that Velan “has made a compelling argument that board level change is warranted, with the ultimate goal of enhancing shareholder board oversight.”

Corporate boards should take note that this situation has resulted in a proxy advisory firm validating a call for “shareholder board oversight.” Serving on a board that has been sighted for oversight by its investors could have an effect on future board appointments.

It’s noteworthy that proxy advisory firm Glass Lewis supported Progenics’ arguments that shareholders should vote “for” the two directors targeted for removal. In a press release, Progenics quotes from a Glass Lewis report on the withhold campaign against its directors:

“…we are ultimately inclined to suggest the bulk of the issues in question here, including those related to shareholder returns, pipeline development and aggregate corporate governance, tilt toward the perspectives promulgated by the board. We further emphasize that the Dissident has, to date, offered no alternative strategies or plans despite its clear attempt to turn over a bulk of the board in favor of its own nominees, several of which are directly employed by or otherwise affiliated with Velan.”

However, even with the vote of confidence from Glass Lewis, it’s unclear which proxy advisory firm shareholders will side with, especially when stock performance has been waning. Shareholders will decide what happens at Progenics on July 11. But directors may want to consider that shareholders now appear to be even more likely to push for oversight of the board when stock price is stagnant and key areas of corporate governance are neglected.

Velan’s letter can be found here: https://www.savepgnx.com/api/v1/files/60f884e8-d60f-4321-a078-08d6e8d5b29b

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