At the annual meeting of Novartis’ shareholders, to be held on 6 March 2007, Ethos has decided to oppose the re-election of Mr. Hans-Jörg Rudloff, Chairman of the Remuneration Committee, because for several years the Company has maintained a remuneration policy which is not in line with best practice rules. At the same meeting, Ethos will abstain from re-electing Mr. Daniel Vasella, Chairman and CEO, given that there is no justification for the combination of the two functions.
Ethos has regularly expressed concerns about certain aspects of Novartis’ remuneration policy and about the combination of functions of Chairman and CEO. Since Novartis is unwilling to change its practice, Ethos wishes to send a signal by opposing Mr. Rudloff’s re-election and by abstaining from re-electing Mr. Vasella. In so doing, Ethos does not question the competence of either person, but instead expresses the disagreement of numerous institutional shareholders unsatisfied with the remuneration policy and corporate governance at Novartis.
Regarding executive pay, Ethos is pleased to note that the 2006 Novartis annual report is more transparent than past issues. It is nevertheless unacceptable that Mr. Vasella and four other senior executives should be entitled to severance payments amounting to three years’ pay, or five years in case of change in control. Such «golden parachutes» go totally against the rules of corporate governance best practice. Moreover, the exceptionally high level of remuneration of the Chairman of the Board does not seem reasonable. It is therefore appropriate not to re-elect Mr. Rudloff, who is responsible for the establishment of remuneration policy in his quality of Chairman of the remuneration committee.
The combination of the offices of Chairman of the Board and CEO is acceptable only in exceptional circumstances and for a limited time. A detailed explanation is necessary to maintain shareholder confidence. Unfortunately, Novartis has provided no explanation of why its Board of Directors has consistently opted for the combination of functions. Despite the various measures put in place to offset the concentration of power in the Chairman’s hands, Ethos will nevertheless abstain from re-electing Mr. Vasella, considering that this solution is no longer justified.
Should Novartis change its remuneration policy or modify its position on combined offices, Ethos may reconsider its voting recommendations.
