A Disgruntled Director Decides to Go Public
from Winter 1998
by Randy Myers
Imagine yourself an outside director on a board sharply divided against itself. A board with three factions, running a company whose growth is faltering. Imagine that the directors chosen by the company’s 51% shareholder seem to care little for your insights into their business—despite the fact that you have devoted your life to the industry in which they compete. Imagine, in short, that you are Agnes Varis sitting on the board of $121.5 million Copley Pharmaceutical Inc. in the summer of 1998, and that after years of dealing with this situation, you are fed up.
You have three choices:
- Keep your mouth shut, and continue to collect around $20,000 a year in director fees, not including stock options.
- Tender your resignation, and quietly go about running your own company, Agvar Chemicals Inc.
- Resign, but issue public copies of your fiery resignation letter, in which you accuse Copley’s majority owner, oechst A.G., of mismanaging Copley and failing to act in the best interest of all its shareholders.
If you are Agnes Varis, you choose the third option and soon find your story plastered over the pages of the New York Times. In that article, boardroom experts warn that you have broken an unwritten code against airing dirty linen in public, an offense that ensures you will never be chosen to sit on another board.
And because you are Agnes Varis, this doesn’t give you pause, even for a moment.
“I think people shouldn’t serve on boards if they have to fear that what they say might mean they’ll never serve on another one,” Varis says. “So what? Is board membership your life?”
To know Agnes Varis is to know that she is not a quitter, which makes her story all the more remarkable. A feisty 68-year-old, she is still chairman and president of Agvar, a maker of bulk pharmaceutical chemicals that she founded in 1970 in Little Falls, N.J. She is also president and a director of Aegis Pharmaceuticals Inc., a U.S.-based joint venture between Agvar and a Hungarian firm, Egis Pharmaceuticals Ltd. She is active in industry and trade organizations; heads two charitable foundations; serves on the board of a third; and consults with several others. In short, at an age when she could easily justify slowing down, Varis spends nearly as many hours working as most people spend awake.
In an interview with Corporate Board Member, Varis reflected on her six-year tenure on the board of Copley and struggled to understand why it went awry. She spoke frankly about what lessons it held for her and other directors who might find themselves in similar circumstances.
Corporate Board Member: In your resignation letter, you suggested that Hoechst assumed that what was good for Hoechst was good for Copley’s minority shareholders, but that you could not remember “a single instance where this turned out to be the case.” [Editor’s Note: Hoechst denies Varis’s allegations and says that its interests in Copley are the same as the interests of all Copley shareholders, which is to grow the value of the company. A Hoechst spokesperson said that every action Hoechst has taken with Copley has been designed to meet “this one and only objective.”] As an example, you note in your letter that Hoechst initiated the sale of Copley, forcing Copley to spend millions of dollars shopping itself instead of developing new products and expanding its current business. Then Hoechst abruptly called off the sale because, you say, of last-minute concerns about how it would impact Hoechst financially. Didn’t you voice your concerns about these sorts of things when they were happening?
Varis: Always. I was never parsley on the fish. But it didn’t make any difference what you said. The Hoechst-appointed directors tolerated you, but that was it. They went ahead and did whatever they wanted to do.
You stayed on the board for several years after you began to question Hoechst’s leadership. Why didn’t you leave earlier?
I almost did several times, but there was always something else to consider. When a company is in trouble as Copley was [it became embroiled in a quality-control scandal in 1993, shortly after Hoechst bought its stake, and later that year had to recall one of its products because of possible contamination], a director has to be very careful about leaving, because it may give the wrong signal to outside shareholders and employees. Sure, if you find yourself on a board with crooks, you let your feet do the talking, but that wasn’t the case at Copley.
At one point, is it true the three directors appointed by Hoechst lobbied the other directors to get you off the board?
Yes, but I challenged them on that. I said, “You’re not going to affect my reputation.” The other directors, to their credit, stood behind me.
Directors frequently disagree with each other. How were conditions worse than normal at Copley?
Look, Copley had problems, there’s no question about that. The first group of directors from Hoechst were very sympathetic guys; they came from a big company and understood what it was like to have lawsuits. They were in the chemical business and the textile business, and they knew these things [Copley’s quality-control problems] happen, and not because someone is a monster. But then they were replaced, and the next ones that came were the kind of people who looked at us as if we were the bad guys and they were the guys in the white hats. It became “them” and “us,” and that’s when we had this breakdown.
Why do you think that happened?
Many people have asked me if I think it was because of differences between our culture and the German culture, but I don’t think that was it. I think it’s because they were from a $30 billion company, and they were dealing with a $122 million company. I remember one occasion when Copley was ordering some equipment that cost, oh, $8 million or $10 million, and we didn’t really need it. I was furious. And one of the directors from Hoechst said to me, “Look, from your vantage point I understand how you feel. To you, $8 million to $10 million is a lot of money. But from my perspective, I deal with this on an hourly basis.” The equipment was purchased.
Do you welcome dissent on the other boards on which you serve?
I think dissent is the wrong word. I think what you have to do is encourage differences of opinion. We all come to our positions with different expertise, and if you have differences of opinion among yourselves and can discuss them, you may see things in a different light. At that point, you, hopefully, come up with a consensus. That’s what I’ve found on other boards.
How did all this conflict affect you personally?
It was very debilitating. You want to believe that when you walk into a boardroom you are all pulling in the same direction and toward the same cause. But when you go in and believe there are people with different agendas, it wears you out. You don’t have a minute to relax, because you’re always trying to figure out, “What are they doing this for?” Eventually, you build up internal anger over what you should have said or done. It’s not healthy. And at Copley, that was the normal way things went in that boardroom.
You could have left quietly. Why did you decide to go public with your resignation letter?
By going public, you don’t just vent your anger. You can see a psychiatrist for that. Instead, you can say, “OK fellows, you are on notice. You are now in a fishbowl, and you’d better be careful what you do from this point forward.”
Several people suggested that you had broken an unwritten code of silence among board members. Were you aware of any such code?
The first time I knew of a code of silence was on August 26 when I read the New York Times article. I’m on the board of several organizations, and I’ve never had anybody tell me that. And frankly, if I had known there was a code of silence, I’d have broken it years ago.
Did you consult anybody before going public with your story?
I talked to my husband. It was early morning, and when I told him, he went inside and brought out a bottle of champagne. He had seen the wear and tear I’d gone through by being on a board like Copley’s, where there is so much antagonism and so many bad feelings. Did I also talk to my lawyer and have him review my letter? You betcha. Did I tell him I wanted to issue a press release on it? You betcha. I just wanted to make sure I didn’t step over any legal lines, as a director or as an ex-director.
What lessons do you think independent directors at other companies might gain from your experience at Copley?
If you’re a director who believes that just showing up is enough, you shouldn’t be a director. You should do it only if you feel you can contribute something, if you can make a difference. But don’t go on the board if you think you’re going to be at odds with the other directors. You’ve got to have the same philosophical base.
Has it occurred to you that you might have played into the hands of the Hoechst-appointed directors by resigning from the board?
I’m sure they went to church and lit a $50 candle.
Looking back, would you have done anything differently?
I can’t say I would have fought harder, but I probably would have left sooner. But as I said, I worried about what people would think.
You must have owned Copley stock prior to resigning from the board. Have you sold that stock since resigning?
No, because the price is much lower than it was when I bought it.
Does it pain you to hold those shares?
No, because 97% of my wealth is not in stocks, it’s in Treasury bills, muni bonds. It’s one step above stuffing it in your mattress.
What’s been the wider response to your resignation?
I’ve had hundreds of phone calls and letters from people I’ve never heard from telling me how great I am. They’re making me out to be a folk hero, and I only thought I was doing the right thing. The investment community has become my biggest fan; I’ve heard from some big investment banking firms congratulating me for what I did. I haven’t had one phone call or letter criticizing me.
Have you been invited to serve on any other boards since leaving Copley?
There had been a few companies in my industry that had asked me in the past to serve on their boards, and I had always turned them down to avoid any possible conflict of interest. Now they’ve come back and asked, “Well Agnes, now are you ready?” I said no, I’m not ready yet. At this stage of my life, I’m not sure they need me as much as the nonprofit and educational areas need me. But I must tell you, if a small, energetic company came to me and needed someone with my experience, and I felt that I could really make a contribution, I would do that in a minute.
