July 2, 2005
Bristol Myers Squibb Deferred Prosecution Agreement
Bristol-Myers Squibb Co.'s Peter R. Dolan stands out among U.S. corporate chiefs for a singular achievement: He survived a huge corporate financial scandal and kept his job.
Within a year of being elevated to the chief executive's post in May 2001 at age 45, Mr. Dolan was embroiled in allegations that Bristol-Myers had inflated revenue by billions of dollars. Top managers had artificially pumped up sales toward the end of quarters so they could meet targets, according to the company's statement in 2003. To make matters worse, Bristol-Myers's pipeline was imploding. The cancer drug Erbitux received a rejection from federal regulators after Bristol-Myers spent $2 billion to get it. A blood-pressure drug that Mr. Dolan had said could bring in billions bombed in a clinical trial.
The wunderkind executive with a passion for management books had methodically plotted his way to the top. Just as his career looked like it was ready to disintegrate, he was rescued by a board loaded with graying former CEOs. One of them was James D. Robinson III, the former chief executive of American Express Co., who knew something about losing a prominent corporate job amid complaints of poor management.
The board, after grilling Mr. Dolan, accepted his explanations for why he wasn't directly responsible for the accounting mess. The blame fell on two departed executives who were later indicted. Even as the company stood under threat of indictment, Mr. Dolan carried out a transformation of its business, focusing Bristol-Myers on high-priced specialty pharmaceuticals and getting out of many of its old businesses.
The decision to keep Mr. Dolan remains controversial, especially since so many companies in similar circumstances replaced their chief executives. Bristol-Myers's board was given an "F" last year by the Corporate Library, a Portland, Maine, governance-research firm, for the quality of its corporate governance. Even today, Bristol-Myers shares are trading barely above the nadir they hit during the accounting fallout in 2002, and they are only one-third the price of their late 2000 peak.
But board members argue their style of corporate governance has worked. Mr. Dolan's strategy seems to be paying off, as Bristol-Myers has a solid pipeline of new drugs. The New York company has functioned smoothly over the past three years, even overcoming the sudden death last year of its much-admired research chief.
And both the company and Mr. Dolan have escaped indictment after years of investigations by the Justice Department. Last month, prosecutors and the company reached an unusual deferred prosecution agreement, under which Bristol-Myers has two years to clean up its act and prove it can operate lawfully. If it stays clean, it won't face criminal charges. Also under the terms of the agreement, Bristol-Myers made a $300 million payment to a shareholder-restitution fund and Mr. Dolan gave up the chairman's post to Mr. Robinson.
The DPA requires Bristol Myers Squibb (BMS) to retain an independent monitor, and the company agrees that no attorney client privilege will attach to the monitor’s work. The monitor will be in place for two years, and BMS must implement all of the monitor’s governance and compliance recommendations, unless the United States Attorney’s Office agrees otherwise. And BMS must provide compliance training for all personnel whose work touches on the company's financial internal controls.
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