'Not been pretty': Novo Nordisk faces rare shareholder rebuke over board shake-up

By Jacob Gronholt-Pedersen and Maggie Fick

COPENHAGEN/LONDON (Reuters) -Novo Nordisk faces a shareholder backlash on Friday as the Danish drugmaker's minority investors prepare a protest vote against a board shake-up forced through by its dominant shareholder, the Novo Nordisk Foundation.

The Foundation, which holds 77% of voting rights, plans to install its chairman, Lars Rebien Sorensen, as Novo's new board chair. It wants to make the firm more aggressive in the obesity drug market as U.S. rival Eli Lilly streaks ahead.

The move has split investors, with some saying it was key to regain lost momentum and others raising governance concerns.

"From the outside, it has not been a pretty process, tarnishing the company's image," said Claus Berner Moller, vice president for Danish equities at ATP, Denmark's largest pension fund, which will back the changes despite governance worries.

"It's natural for a large shareholder to take action when the company faces pressing market challenges."

BEST POSSIBLE SOLUTION TO A BAD SITUATION

The shake-up follows a 70% share price plunge and mounting pressure from copycat drugs and Lilly's GLP-1 weight-loss drug Zepbound, which has outpaced Novo's Wegovy. It's a sharp reversal from 2024 when Novo was Europe's most valuable firm.

Jefferies analyst Michael Leuchten said he could not think of a precedent for "this sort of non-orderly board transition". The Danish foundation structure, also used by Maersk and Carlsberg, is normally known for its stability.

Norway's sovereign wealth fund - Novo's third-largest shareholder - said it will abstain from Friday's vote, while the California State Teachers' Retirement System (CalSTRS) plans to oppose the proposed board candidates.

Proxy adviser Institutional Shareholder Services (ISS) recommended abstaining, citing the Foundation's unilateral overhaul with limited accountability to minority shareholders.

Some investors, however, are backing the changes. Anders Schelde, chief investment officer at Denmark-based AkademikerPension, which holds $190 million in Novo shares, called it "the best possible solution to a bad situation".

BOARD OUSTER RAISES CORPORATE GOVERNANCE CONCERNS

Novo appointed Mike Doustdar as new CEO in late July, after the Foundation pushed for speed, frustrated by what it saw as a passive board. Doustdar has cut jobs and made an aggressive move to buy U.S. obesity biotech Metsera, though ultimately lost out on the deal to U.S. peer Pfizer.

"We believed urgency was key," incoming chair Sorensen, a former Novo CEO himself, said last month, defending the relatively quick appointment of Doustdar. The outgoing board pushed for a more comprehensive CEO search and had hired an external search firm to lead it.

Two former executives, who both presented to the board under outgoing chairman Helge Lund, said the old board had been too hands-off and not had enough tough dialogue with and oversight of management.

Another former insider said the board overhaul process had been "disappointing". "This could have been a gradual process ensuring proper succession and qualifications," the person said.

Novo, in a statement to Reuters, said that a "rigorous and comprehensive" CEO search was carried out, and it welcomed engagement with shareholders.

Erik Bennike, head of equities and credit at PensionDenmark, which holds some $372 million of Novo shares, said he planned to vote for the board change to help "address the challenges facing Novo Nordisk", though criticised the way it was handled.

"We agree that the process leading up to the general meeting has given rise to some concerns regarding good corporate governance," he said.

(Reporting and Jacob Gronholt-Pedersen in Copenhagen by Maggie Fick in London; Editing by Adam Jourdan and Elaine Hardcastle)