Influential proxy adviser Glass Lewis has urged investors to vote against the reappointment of the chief executive and chair of Illumina, the world’s largest gene sequencing company, saying the pair have failed to take responsibility for the “value crimping” acquisition of cancer-screening group Grail.
The recommendation that shareholders withdraw their support for chief executive Francis deSouza and chair John Thompson is a boost for activist investor Carl Icahn, who has launched a proxy battle against Illumina’s board over what he describes as its “reckless” purchase of Grail.
Glass Lewis said shareholders should instead back two directors proposed by Icahn, arguing that the Illumina board appeared “disconcertingly disinclined” to accept any clear responsibility for the “costly, distracting and value-crimping” decision to close the Grail transaction against the wishes of EU and US antitrust regulators.
The proxy adviser said its recommendation reflected its unease over Illumina’s operating performance, value creation and overall corporate governance.
In a report, Glass Lewis gave Illumina an “F” grade for its executive pay programme following the board’s decision to almost double deSouza’s total pay in 2022 despite a drop in its share price.
The proxy battle follows a tumultuous 18 months for Illumina, whose market capitalisation has plunged from $75bn in August 2021 when it acquired Grail to just over $30bn this month.
Illumina is appealing against orders by the EU and the US Federal Trade Commission for it to divest Grail and faces a potential fine from Brussels of 10 per cent of its annual revenue for closing the deal without regulatory approval.
Illumina shares increased as much as 7 per cent on Wednesday following the news.
Glass Lewis said its recommendation on the chief executive and chair was underpinned by its concern over the board’s decision to take the rare step of closing the Grail deal in the face of objections from regulators.
The proxy firm said Icahn had failed to prove certain assertions he made about governance matters, including that Illumina’s Grail transaction was “rife with related-party style conflicts of interest”. But it said the board’s defence of its decision to appoint Thompson as chair of the company was “rather weak”, given his relationship with deSouza prior to joining Illumina.
Thompson was chief executive of Symantec at the time of its February 2006 acquisition of IMlogic, a company founded and led by deSouza. Both men worked together at Symantec for several years following the deal, which provided a “significant windfall” to deSouza, according to the report.
Glass Lewis said the “optics” surrounding the historical relationship between deSouza and Thompson should have contributed to the selection of a comparably qualified alternative candidate unfettered by personal or professional connections to Illumina’s sitting CEO.
Illumina said it disagreed with Glass Lewis’s recommendation: “The election of Carl Icahn’s nominees would be disruptive to our core business. We recommend shareholders vote in favour of all of Illumina’s highly qualified nominees.”
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