Teva struggles to balance CEO, board power

The most successful companies, University of Delaware professor Charles Elson said, "have strong management and strong boards of directors."

Teva Pharmaceutical Industries Ltd. is the latest company to struggle in finding the proper balance between the two.

Teva shocked financial markets Wednesday when its board and CEO Jeremy Levin "agreed" that Levin should resign after only about 18 months in the job. Levin was hired because Teva had not been as successful since its stock reached an all-time high in 2010, but he was also the third CEO in seven years.

"If the board is too involved or the CEO dominates, sooner or later you run into trouble," said Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware's Alfred Lerner College of Business and Economics.

Teva is based in Israel, and employs about 2,300 people in Pennsylvania, including several Philadelphia suburbs. Teva leads the world in generic drug sales, but it relies on one brand-name drug - Copaxone, to treat multiple sclerosis - for about 40 percent of its revenue and, increasingly, on a deal for over-the-counter products with Procter & Gamble.

Levin's job was to lift Teva's stock and remake the company before it faces its next major revenue problem in 2014 or 2015, when Copaxone loses patent protection. The strategy included a 2012 announcement of $1.5 billion to $2 billion in yearly cuts and the Oct. 10 notice of 5,000 more layoffs.

South Philadelphia native and board chairman Phillip Frost said Wednesday that Levin and the board agreed on the strategy, "however, we have had different views on how to carry out that strategy."

Chief financial officer Eyal Desheh became acting CEO and is a candidate to keep the title. After Frost led Wednesday's contentious conference call with financial analysts about the leadership change, Desheh handled Thursday's earnings conference call. (Revenue increased 2 percent for the quarter.)

Financial markets hammered Teva's stock Wednesday, with the price of its American depository receipts falling 8.09 percent. Teva closed Thursday at $37.08, down 1.64 percent.

"You don't have to be a financial genius to see that the market was unhappy," Desheh said during Thursday's call.

Most investors worry about corporate governance only when it doesn't work.

Levin was not on Teva's board and Frost noted that CEOs of Israeli companies rarely are. Delaware's Elson said the same is true of companies based in Taiwan. U.S.-based companies often have CEOs leading the board of directors. But with plenty of examples of strong CEOs running amok unchecked by lapdog boards, Elson said the trend was toward separating the powers.

"We have a saying in our business about boards: Nose in, fingers out," Elson said. "Poke your nose into what's going on, but keep your fingers out of the day-to-day operations. It is the job of the CEO to run the company."