* 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
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
"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
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
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
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
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
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
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
"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
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)