Sanofi CEO Faces Labor Headwinds As Unions Eye Bottom Line

Sanofi CEO Faces Labor Headwinds As Unions Eye Bottom Line
June 26, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Sanofi CEO Olivier Brandicourt may be facing some headwinds on the horizon, after he told French labor representatives that he will be presenting a five-year strategic plan for the drugmaker in November that will take into account local drags on its bottom line.

Brandicourt will unveil that plan, which is likely to include adjustments to staffing levels, along with Sanofi’s third quarter results. The news has Wall Street and shareholders alike nervous, because French unions are notoriously difficult to negotiate with—and perennially prone to striking.

Adding fuel to the fire is news that Brandicourt reportedly told a meeting of union leaders that the Sanofi will be looking closely at its French industrial site costs, which have been a drag on the drugmaker’s gross profits. Reuters attributed that report to a union official who was at the meeting and asked not to be named.

Brandicourt is also likely to face intense scrutiny after weathering a firestorm for the massive pay package he received when he came to Sanofi in February.

Sanofi came under enormous fire in France for the amount it promised to pay to oust former CEO Chris Viehbacher and replace him with then-Bayer AG exec Brandicourt, with investor advisory group ISS contacting shareholders to urge them not to vote for the two payment resolutions.

In particular, ISS objected to an enormous joining bonus and a pension of 9 million euros for Brandicourt, as well as a $4.95 million payout to Viehbacher. The company immediately pushed back, posting on its website a statement that read, in part: "If Sanofi is taking the initiative today of contacting you directly, it is because these recommendations do not reflect a simple difference of opinion; they reflect a real error in analysis by ISS."

When Brandicourt was hired in February, controversy immediately erupted over his compensation package, with several French government officials decrying the amount, calling it "incomprehensible." Brandicourt could walk off with as much as $4.5 million in a “golden handshake” payment in addition to making $4.76 million a year.

That base figure is comprised by a fixed annual salary of $1.36 million a year, which is supplemented by a performance-related bonus of between 150 to 250 percent, as well as stock options and performance shares.

That is much too sweet a deal for French government spokesman Stephane Le Foll, who told RTL radio at the time that the pay package was "incomprehensible"--especially for the country’s largest listed company.

"These people, when they have hardly taken the reins of a company--which is to say they haven't yet taken any risk--are already assured to get a disproportionate package," Le Foll said.

Former presidential candidate Segolene Royal, the current energy and environment minister, echoed Le Foll’s comments and admonished large companies, saying "some self-discipline is needed."

"Drugs are reimbursed by taxpayers, so it's all of the French people who pay into the health system and reimburse drugs who are going to pay the golden handshake," Royal said on BFM TV. "Some decency is in store, especially from a pharmaceutical company that lives off the social security system.”

Although Viehbacher was popular with shareholders because he managed to double the firm’s stock price during his tenure, management had long been at odds with him, particularly because he was the first non-French Sanofi chief executive. When he moved his family to Boston last year, spending only about a third of his time in France, the board acted to remove him.

In the past, Sanofi Chairman Serge Weinberg has complained that the high tax burden imposed upon companies by the French government hindered its search for a new chief executive.

"The deterioration of French tax-competitiveness and the burden on companies and individuals pose a problem," Weinberg told reporters in Paris.

"It's extremely difficult to attract international executives or even bring back French ones who have left. There will be consequences if this continues, because we can't rely on patriotic sentiment or goodwill alone."


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