* Schuler and Bryson have agreed to drop legal action
* Schuler and Bryson to resign within 90 days
* Board unanimously accepts law firm findings (Recasts; adds comment from investor, lawyer; background)
By Toni Clarke
BOSTON, Sept 17 Irish drugmaker Elan Corp Plc ELN.I has managed to get two directors who challenged the company's transparency and corporate governance to quit the board.
Jack Schuler, former chief operating officer and president at Abbott Laboratories (ABT.N) and Vaughn Bryson, formerly chief executive officer at Eli Lilly & Co (LLY.N) are scheduled to resign within 90 days.
The resignations follow the resignation in April of board member William Rohn, former chief operating officer at U.S. biotechnology company Biogen Idec Inc (BIIB.O), who some investors had hoped would one day take over as chairman of the company. Neither Rohn nor the company gave an explanation for his resignation.
"The fact that you've lost three industry veterans from the board in six months is very concerning," said Matthew Strobeck, partner at Westfield Capital Management, one of Elan's biggest shareholders.
Elan shareholders have criticized the company, which makes multiple sclerosis drug Tysabri in partnership with Biogen Idec for what they perceive as mismanagement and misconduct.
The company revealed earlier this month that it had authorized an independent investigation, to be lead by U.S. law firm McKenna, Long & Aldridge, into its corporate governance practices.
But Schuler and Bryson, who joined the board last year after investors pressed the company for change, were concerned the McKenna, Long & Aldridge report would not be fully independent, and requested a parallel inquiry, according to court documents.
McKenna had conducted a prior inquiry into the company's corporate governance practices, commissioned by Elan, and given it a clean bill of health. A critical second report could potentially have raised questions about the integrity of the first report.
According to court papers, Schuler and Bryson requested an investigation be carried out by the California law firm Bird Marella, Boxer, Wolpert, Nessim, Drooks and Lincenberg. Elan denied Bird Marella access to the firm, prompting Schuler and Bryson to threaten to sue.
Elan, in turn, was granted an Irish High Court injunction to prevent the two directors from taking action, saying the move would prejudice the review by McKenna, Long & Aldrige.
Elan did not give details of the scope of McKenna's investigation, saying only that the firm "reviewed a number of matters brought to the Board's attention by certain Directors.
The company held a board meeting on Thursday and "unanimously accepted" McKenna's report, according to Elan.
"Messrs Schuler and Bryson have expressed their satisfaction with the outcome of the McKenna process," the company said in a statement.
In summary, Elan said, "McKenna Long's report found no legal breaches or other wrongdoing of any nature by Elan management, any members of its Board of Directors or its advisors."
Neither Schuler nor Bryson could be reached for comment. Scott Freeman, partner at Sidley Austin LLP, which was representing the two directors, did not return telephone calls seeking comment.
John Coffee, a professor of law at Columbia University who specializes in corporate governance, said McKenna's report "sounds like a very strong sweeping rationalization of the status quo.
"I'm not sure there would be anything else these directors could do if they believed there was a whitewash going on around them. The strongest signal a director can send if they think a company has lost all credibility is to resign."
William Ide, who headed the investigation for McKenna, Long & Aldridge, referred questions about his firm's report to Elan. Elan declined to comment further.
Elan said in its statement that Schuler and Bryson had agreed to suspend the Irish High Court proceedings "in light of the Board's support and acceptance of the McKenna report, and the ultimate implementation of its findings."
The report recommended that Elan consider the "feasibility" of voluntarily complying with U.S. domestic reporting requirements, even though it is a foreign company, and adopting a U.S. "best practices" conflicts of interest policy.
Investors, lead by Ib Sonderby, a Danish activist who runs the website www.saveelan.com, have raised multiple questions about Elan's business practices and potential conflicts of interest.
Sonderby and other investors are concerned about what they perceive to be a series of transactions designed to enrich Elan management and board members and the expense of shareholders.
The company's shares closed 0.2 percent lower at $4.83 on The New York Stock Exchange.
"The market has already decided that this is a captive board, so today's news is baked in," Coffee added. (Additional reporting by Carmel Crimmins in Dublin; editing by Andre Grenon)