Governors in Governance
Here's an article published in Directors & Boards this month that I was interviewed for about former political office-holders serving on public company boards. The interview was prompted by a tweet I posted about former NJ Governor Chris Christie's appointment to the board of Pacira BioSciences, Inc. (Nasdaq: PCRX), a "leading provider of innovative non-opioid pain management options" based in Parsippany, NJ, back in September 2019. Christie's appointment to Pacria's board caught my eye when it appeared in DirectorMoves (a great service if you want to keep track of director appointments and departures in real-time), so I pulled up the Form 8-K filing and found some interesting disclosure. It turns out that Christie had previously acted as a consultant for the company.
According to the 8-K, prior to his appointment to the board, Christie received consulting fees from Pacria of approximately $481,000 and $320,000 in 2018 and 2019, respectively. Pacria also granted him options to purchase an aggregate of 35,000 shares of the company’s common stock (at exercises prices of $34.38 and $42.54 per share), which vest(ed) on a monthly basis through the first anniversary of each respective grant. The consulting arrangement between Christie and Pacria ended immediately upon Christie's appointment to the board.
Christie's consulting work for Pacria took place after his work as Chairman of President Trump’s Commission on Combating Drug Addiction and the Opioid Crisis, which was formed at the end of March 2017 and issued its final report at the beginning of November that same year. One of the recommendations in the final report was for Medicare and Medicaid to increase reimbursement rates for non-opioid treatment for post-surgical pain with the intent of reducing incentives for hospitals to prescribe opioids. This category of non-opioid pain treatment included Pacria’s flagship drug, EXPAREL. (According to reporting in Politico New Jersey, the federal government ultimately agreed to higher reimbursement rates for EXPAREL in some cases.)
While controversy seems to be part of the Chris Christie experience no matter what he does, even if it's spending a day at the beach, I don't see anything inherently offensive about Christie joining the board of Pacria in light of his consulting work for them and his service as Chairman of the Opioid Crisis Commission. Purely from a board composition perspective, adding Christie to this particular company's board makes sense given his knowledge of how opioids and non-opioids for pain management are regulated and the current landscape of the opioid crisis, all of which could not be more directly related to the company's business. Prior to being elected NJ Governor, Christie served as U.S. Attorney for the District of NJ. In that capacity, he had some prominent and controversial run-ins with medical device manufacturers (including one of my former employers), so there is a health care compliance element he brings to the company's board. The fact that he resides near the company's headquarters can also be considered a plus. Christie's having done, and received considerable compensation for consulting work for Pacria definitely creates director independence issues. In light of this, the company has not appointed him to any of the board's committees.
That's the backstory of how I ended up being interviewed for the article and how Chris Christie landed on the board of Pacria, the latter being highly unorthodox. It should serve as a reminder that whenever we see a former politician or other government official joining a board, we should examine how the appointment of that particular person makes sense for that particular company's board.
Having one or more directors with expertise, influence and clout in the company's industry definitely enhances a company's board. Sometimes a former government official will come with all of that, but not always. Oftentimes, it seems like appointing a former pol to the board is merely a way to rent some clout and borrow high-level contacts. Clout alone isn't a good reason to appoint someone to your board. I don't care who it is. It's like when a CEO tells you, "He's really smart, knows a lot of people and would just be a good guy to have on the board." That may have been good enough for a board seat a few decades ago, but today, that should really be seen as the bare minimum to even consider someone for a board seat. And connections can always be had by hiring that person as a lobbyist or consultant.
There are plenty of recent examples to examine when it comes to politicians leaving government and joining boards. Former House Speaker Paul Ryan joined the board of Fox Corporation. His predecessor as Speaker, John Boehner, joined the board of Reynolds American. And, former Governor of South Carolina and Ambassador to the United Nations Nikki Haley joined the board of Boeing. Going back a few years, you'll recall former Senators Bill Frist and Sam Nunn, former Secretaries of State Henry Kissinger and George P. Shultz, and former Secretaries of Defense William Perry and General James Mattis all sat on the board of Theranos Inc. at one point or another. These were all supremely smart and experienced guys with unparalleled clout and connections, but was each a good match for the board of a private start-up company in the blood-testing field? You can read the book, watch the HBO documentary or listen to the podcast to decide for yourself. SPOILER ALERT! It didn't end well.