ILJIN SNT Sends Letter to Shareholders of Aurinia Highlighting Governance Failures and Director Conflicts and Responding to Misleading Information
June 10, 2019
Shareholders Urged to Vote Their GREEN Proxy or GREEN VIF to Strengthen
Board with Three New, Highly Qualified Independent Nominees
VICTORIA, British Columbia–(BUSINESS WIRE)–ILJIN SNT Co., Ltd. (“ILJIN”) today sent a letter to shareholders
of Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH, TSX:AUP) (“Aurinia”
or the “Corporation”), highlighting the governance failures and
director conflicts under the current board of directors, correcting
misleading information disseminated to shareholders by Aurinia on June
7, 2019 and urging shareholders to vote their GREEN proxy or GREEN VIF
to strengthen the board.
ILJIN, a founding shareholder of Aurinia which together with certain
affiliates holds an approximately 14% ownership interest in Aurinia, is
seeking support for three exceptional nominees for election as directors
at the annual meeting: Dr. Robert Foster, Mr. Soon-Yub (Samuel) Kwon
and Dr. Myeong-Hee Yu. These director nominees represent an
independent and highly experienced minority slate of directors who are
committed to bringing both good governance and their technical, business
and scientific expertise to the progression and ultimate
commercialization of Aurinia’s impressive pipeline of pharmaceutical
solutions.
Young-Hwa Kim, Chief Executive Officer of ILJIN, said, “At this pivotal
moment for Aurinia, it desperately needs an independent, experienced
board of directors that is aligned with shareholders’ interests and can
effectively support management with the execution of a long-term
strategy to realize voclosporin’s tremendous potential. The status quo
is unsustainable. Shareholders cannot afford to continue with a
revolving door of CEOs, bloated executive compensation or a myopic,
all-or-nothing strategy, all of which are the legacy of the current
board, handpicked by its former chairman, Mr. Richard Glickman.”
Mr. Kim also noted, “We were disappointed to read Aurinia’s recent press
release which criticized ILJIN, its longest and most committed
shareholder, as an ‘activist,’ for having the audacity to propose
numerous standard-practice governance improvements that are critically
necessary to introduce independence to a conflicted and myopic board. To
also deliberately misrepresent that ILJIN is seeking to control the
board of directors demonstrates disregard for the truth and disrespect
for shareholders. As we have communicated consistently and repeatedly,
ILJIN is nominating a total of only three directors and has specifically
recommended shareholders withhold their votes from Dr. Hyuek Joon Lee,
ILJIN’s current board representative.
“Aurinia is simply trying to scare shareholders into maintaining the
status quo for the benefit of the Glickman cadre of conflicted
directors. Aurinia’s future is in shareholders’ hands, and we ask them
to support our minority slate at the upcoming annual general meeting,
and not succumb to this misdirection and fearmongering.”
Shareholders are urged to read the circular and vote ONLY the GREEN
proxy or GREEN VIF on or before 5:00 p.m. (Mountain time) on June 21,
2019, so that it can be deposited in advance of the proxy cut-off.
Shareholders who have already voted and wish to change their vote in
support of the three independent nominees can do so by simply executing
the Green proxy, as a later dated Green proxy will cancel an earlier
vote. Shareholders requiring any assistance in executing their GREEN
proxy or voting instruction form, can call Gryphon Advisors Inc. at:
1-833-266-0365 or 1-416-661-6592 or email [email protected].
For ease of voting, shareholders are encouraged to visit www.AHealthierAurinia.com
and click on the “Vote Now” button. A copy of the information circular
is available on Aurinia’s SEDAR profile at www.sedar.com.
The full text of ILJIN’s letter to fellow Aurinia shareholders follows:
June 10, 2019
Dear Fellow Shareholders,
As you know, ILJIN SNT Co., Ltd. (“ILJIN”, the “Concerned
Shareholder” or “we”) and its affiliated companies
(collectively, the “ILJIN Group”) are significant
shareholders of Aurinia Pharmaceuticals Inc. (“Aurinia” or the “Corporation”)
and long-time, enthusiastic believers in the commercial potential of
voclosporin.
We have for nearly six years remained behind the scenes, attempting to
quietly and constructively improve Aurinia’s corporate governance and
related executive compensation matters, board composition, operational
acumen and financial management through active engagement with Aurinia’s
board and management. For the past two and a half years in particular we
have made repeated, good-faith efforts to engage Aurinia on these
issues, including identifying no fewer than 27 distinct deficiencies and
potential improvements on the basis of prevalent corporate governance
practices among Aurinia’s peers, including the adoption of executive
share ownership guidelines, director share ownership guidelines and
clawback policies.
To date, the current board has enacted NONE.
Against this backdrop of protracted attempts to facilitate positive
organizational change, all with nothing to show for it but a string of
broken promises, ILJIN finally determined to enlist the assistance of
other shareholders to reconstitute a minority of the board to drive the
changes that are so badly needed.
To support ILJIN’s call to action, we mailed you an information circular
dated June 2, 2019 (the “ILJIN Circular”) containing a
comprehensive analysis of Aurinia’s current governance, independence,
compensation and other problematic practices that we believe
conclusively demonstrates the depth of the organizational dysfunction
that must be uprooted for Aurinia to thrive. To the extent you have not
yet reviewed the ILJIN Circular we would invite you to visit www.aHealthierAurinia.com
or www.sedar.com
under Aurinia’s SEDAR profile or reach out to our strategic shareholder
advisor and proxy solicitor Gryphon Advisors Inc. at: 1-833-266-0365 or
1-416-661-6592 or email [email protected].
On June 7, 2019, Aurinia finally responded to the ILJIN Circular.
Regrettably, though not unexpectedly given our experiences over the past
several years of attempted engagement, Aurinia elected to:
-
both deny there is anything wrong
with their corporate governance practices while simultaneously
committing to hollow promises of improvement; -
denigrate their largest
shareholder, ILJIN, as an “activist” notwithstanding the litany of
obvious deficiencies that ILJIN has identified in good faith over many
years of patient ownership and the investment of over $60 million; -
blame ILJIN for this costly and
unnecessary proxy contest; -
knowingly mischaracterize our
nomination of three independent nominees with no prior relationship to
ILJIN or each other as an attempt to gain control of the board; -
attack our minority slate as
lacking commercialization expertise when it has as much or
more commercialization expertise than the directors ILJIN would
propose to replace; and -
attack ILJIN’s flexibility and
attempts to find a complement of directors that would be agreeable to
Aurinia in a negotiated compromise board, while foisting upon
shareholders an 11th hour nominee pulled from Mr.
Glickman’s rolodex and professing to have run a comprehensive board
refreshment process.
Aurinia’s response to the ILJIN Circular can leave absolutely no
doubt:
YOUR BOARD IS CONFLICTED AND REQUIRES IMMEDIATE CHANGE
Management’s claims of a “board renewal” are spin.
While the company has presented shareholders with a narrative of change
borne out of an ongoing evaluation of board composition, nothing could
be further from the truth.
It is clear that Aurinia only undertook a limited board refreshment in
the immediate run-up to the annual general meeting this year because the
board realized that its repeated stonewalling of ILJIN’s requests for
change were coming to a head and it was hopeful that it could present
shareholders with a believable story of self-improvement.
Second, it is just as clear that this board refreshment process was
half-hearted, having begun by identifying its own current corporate
solicitor, Mr. Stephen Robertson, as a suitable independent nominee,
only to then trump the insanity by now offering shareholders Aurinia’s
former solicitor and long-time colleague of Mr. Glickman, Mr. R. Hector
MacKay-Dunn.
Are shareholders to believe that countless worthy candidates were
considered and ultimately rejected by this board because they failed to
meet the unimpeachable degree of expertise, accomplishment and
independence resident in Aurinia’s two corporate solicitors?
To present Mr. MacKay-Dunn as the face of a new, independent board only
affirms the issues of the current board. Even a cursory review of his
professional history reveals that Mr. MacKay-Dunn is a long-time trusted
lieutenant of Mr. Richard Glickman. His addition to the board would
serve as just one more brick in the wall of hand-picked Glickman
affiliates that stands in the way of the adoption of any meaningful
reforms and makes a mockery of any professed concern for independence.
Plain and simple, this is not an independent board – it is a legacy
of relationships
The chart below illustrates the web of interconnected relationships
between each of the current board members (excluding ILJIN’s
representative, Dr. Joon Lee) and former Chairman and Chief Executive
Officer Mr. Richard Glickman.
Aurinia Board of Directors Web of Interconnected Relationships (See
Graphic Above)
What is the net effect of these interlocking relationships? Let us give
you one example.
On Friday, May 24, 2019, we provided our advance notice to Aurinia in
respect of our intention to nominate independent directors for
consideration by shareholders at the upcoming annual general meeting.
Rather than engage in constructive discussions with us, the Aurinia
Board felt it imperative to inform Mr. Glickman (no longer a director or
officer of the company) of this material, non-public information to
which he very quickly called one of our highly qualified and independent
nominees to berate him for standing for election.
If you needed confirmation as to lack of independence of this board from
the self-interested influences of Mr. Glickman, this example shines
bright as a warning to all shareholders.
Aurinia’s Reluctant Governance Improvements – Baby Steps where
Strides are Needed
Given how complacent Aurinia has been in relation to its deficient
governance practices over the past several years, it is somewhat
surprising how quickly it has trumpeted its very recent governance
improvements. What Aurinia has conveniently neglected to mention,
however, but which should be obvious to shareholders now, is that all of
such changes are the result of ILJIN’s pressure. Without constant
pressure and the potential for public embarrassment, Aurinia’s board of
directors would undertake no meaningful improvement.
Each of the following, for instance, was undertaken only after sustained
pressure from ILJIN over a period of months:
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1. |
Separation of Roles of Chairman and Chief Executive Officer – |
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2. |
Advisory Vote on Executive Compensation – ILJIN had also |
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3. |
Change Board Composition to Improve Independence – Although |
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Each of those changes had to be forced upon an unwilling board of
directors. Unlike Aurinia’s current directors, ILJIN’s three nominees
can be expected to proactively implement best practices for corporate
governance and executive compensation rather than begrudgingly adopt
face-saving cosmetic changes. Aurinia deserves directors that are
more interested in your best interests than defending their legacy and
relationships.
The Hallmark of the Company Has Been a Revolving Door of CEO’s and
Bloated Compensation
In its six years of existence post-Isotechnika, Aurinia has had six
CEOs. On the other hand – and at the core of many of the concerns ILJIN
has about Aurinia’s governance – the Corporation had only one Chairman
during every one of these CEO appointments, Mr. Richard Glickman.
It is clear that the CEO position has been nothing but a revolving
door for Aurinia during Mr. Glickman’s reign as Chairman. Regardless
of the stage of Aurinia’s growth, its success in achieving objectives or
its massive potential, CEOs under Mr. Glickman and his board haven’t
stuck around.
This revolving door has to stop moving. Mr. Glickman is now
retired and should no longer be influencing strategic direction and the
success of its current CEO, but this is clearly not the case. Under the
current web of Mr. Glickman’s hand-picked directors, including his
anointed successor Mr. George Milne as Chairman, the same dynamics that
have led to the constant departure of prior CEOs and Aurinia’s current
sky-high executive compensation and muddled operational strategy will
continue to play out in the boardroom.
We shareholders cannot allow this to continue. The
Corporation, which should be governed and operated with a focus on
shareholder wealth creation, is instead operated as if it were Mr.
Glickman’s private company. It is incumbent on shareholders to
add independence and experience to our board to ensure that Aurinia can
benefit from the stability and consistency of a single, unifying CEO
during this critical period of transition.
Not only is the revolving door of CEOs bad for continuity, the efficient
discharge of strategic priorities and market perception, it has been
unbelievably costly for Aurinia and its shareholders. After serving for
a short period, these individuals keep their large stock options or make
arrangements to extend the exercise of their stock options. Each time,
shareholders have been left with nothing but poor performance and
severance costs. There can be no doubt that Aurinia’s board has failed
to provide the appropriate strategic oversight and support necessary to
retain its CEO and enable them to succeed, and has repeatedly paid for
its failures through annual golden hellos and goodbyes to the benefit of
insider CEOs.
From its first full year following the merger with Isotechnika through
to and including 2018, total compensation paid
to the five highest paid executive officers grew a total of
approximately 23% to over $5.0 million.
Regrettably this trend continues under the current board of directors.
With the hiring of Aurinia’s new CEO, base salary for the CEO has gone
from US$504,000 to US$650,000 (with a one-time potential cash bonus of
US$250,000 if Mr. Greenleaf survives under Mr. Glickman’s watchful eye
for more than a year), with equity compensation increasing from
1,050,000 to 1,600,000 stock options. Those
represent single year increases of nearly 30% on salary and over 50% on
equity compensation.
Finally, Aurinia’s Future is in Shareholders’ Hands
In our years of dialogue with the Aurinia board and management about the
Corporation’s challenges, our message has remained constant. We believe
that Aurinia requires, and its shareholders deserve, a board of
directors that:
-
Embodies corporate governance best practices, rather than flouting
them. -
Aligns board and executive compensation and expenses with
shareholders’ interests, rather than rewarding non-performance. -
Demonstrates true independence from one another and management
(current and former), rather than looking out for each other first. -
Supports and accelerates the Corporation’s strategy execution, rather
than sitting idly by as the Corporation potentially squanders its
tremendous opportunity.
Upon their successful election, we expect that our nominees, through the
Governance & Nomination Committee and the Compensation Committee, as
applicable, will help implement governance and compensation best
practices at Aurinia to unlock shareholder value and rebuild shareholder
confidence, as laid out in detail in ILJIN’s information circular in
connection with the upcoming Annual General Meeting of Shareholders to
be held on Wednesday, June 26, 2019, available at www.AHealthierAurinia.com.
ILJIN’s Highly Qualified, Independent Nominees
ILJIN has nominated three independent directors to strengthen the board,
remove conflicts and give Aurinia shareholders control of their company:
-
Dr. Robert Foster is largely responsible for the discovery of
voclosporin, the keynote drug upon which Aurinia’s pipeline of
pharmaceutical products is based, and was the former CEO of both
Isotechnika Pharma Inc., a predecessor to Aurinia, and Aurinia itself.
Dr. Foster is one of the most respected pharmaceutical scientists in
the world and brings a proven ability in the discovery, development
and commercialization of pharmaceuticals. -
Mr. Soon-Yub (Samuel) Kwon has extensive experience advising
both domestic and international healthcare-related companies over a
broad range of transactional and regulatory matters. He brings over 30
years of legal and business acumen to his role as director. -
Dr. Myeong-Hee Yu has over 30 years of extensive international
biotechnology experience, both as a researcher and through numerous
advisory and committee roles within government and private industry.
She has played a key role in the development of Korea’s biotechnology
industry, earning numerous national and international awards and
publishing over 120 articles in major scientific journals.
Aurinia has misleadingly stated that ILJIN is nominating three
directors, which when taken with ILJIN’s existing representative Dr.
Hyuek Joon Lee, will give ILJIN control of the board. Aurinia
conveniently neglects to acknowledge that ILJIN has expressly
recommended that shareholders WITHHOLD their votes for Dr. Lee and that
one of our three nominees is intended as a replacement. As such, ILJIN
does not want to, nor can it with a three (3) director minority slate,
take control. Rather, ILJIN wants to give all shareholders
more control. ILJIN’s nominees have no prior relationships with each
other of any nature and have been selected because they have the
requisite expertise and can be expected to act independently of each
other and of ILJIN.
Aurinia has also made much noise of a contrived concern about ILJIN’s
nominees not having the expertise or qualifications that it needs at
this critical time and as it proceeds to commercialization. As evident
from the foregoing brief summary of our nominees’ qualifications in
relation to the discovery, development and commercialization of
pharmaceuticals, however, there can be no doubt as to our nominees being
very qualified for the role. What should not be ignored is that 2 of
the 3 incumbent directors that ILJIN has targeted for replacement (Dr.
Lee and Mr. MacKay-Dunn) have no commercialization expertise at all and
their replacement with our nominees would be an enhancement of the
board’s capabilities in that regard.
Don’t be fooled by Aurinia’s self-serving mischaracterizations of our
intentions, our nominees or their own abilities to progress voclosporin
through to commercialization.
Manufacturing a Crisis: Aurinia’s Unwillingness to Spare you
this Proxy Battle
As shareholders should now appreciate, notwithstanding our efforts to
encourage Aurinia to improve its corporate governance and compensation
practices and reduce its expenses for the benefit of all shareholders,
ILJIN has been met by the Aurinia board with deflection and denial at
every turn. In fact, throughout our entire period of dialogue on these
issues at no time has Aurinia or any member of its board of directors
ever even acknowledged formally or informally the validity of any of
ILJIN’s concerns. Nonetheless, Aurinia has clutched at the lowest of the
low-hanging fruit of corporate governance improvements in its management
information circular as it looks to appease the growing dissatisfaction
of shareholders at the upcoming Meeting. All of these steps toward
improvement were previously suggested by ILJIN and ignored.
Aurinia could have avoided this entire painful and costly process if
it had treated its shareholders with respect, acknowledged its
governance shortcomings and worked collaboratively to resolve them, all
entirely outside of public purview. That outcome, of course, was
never possible with the current incumbent board, who default to equal
measures of arrogance and cronyism when called upon to lead.
The same is true as it relates to our proposed nominees and our attempt
to refresh and revitalize the board of directors and dispatch the
groupthink and conflicted allegiances that have served only to impede
the improvements that are so needed. Think about who is being
unreasonable:
First, ILJIN proposed simply to
substitute its existing nominee in the months prior to the annual
general meeting.
Aurinia said NO.
Second, ILJIN proposed three (3)
independent nominees to be mutually agreed upon
for election at the annual general meeting and an additional one (1)
which would ostensibly be ILJIN’s nominee, but in the context of a
proposal to search for an additional director or director(s) for an
expanded board of directors, ensuring that ILJIN would never have real
or apparent control of the board of directors.
Aurinia said NO.
Aurinia instead proposed one (1) nominee for ILJIN, one (1) nominee as
Aurinia’s corporate legal counsel (as a stand-in for a Canadian director
to be chosen later and following the meeting) and one (1) independent
nominee to be mutually agreed upon,
again in the context of an expanded board of directors with one (1)
additional director yet to be determined.
Consider that. This proxy contest has in essence resulted from the
failure of Aurinia to:
-
accept Dr. Foster, the person largely responsible for the
discovery of voclosporin and with a greater understanding of the drug
and its potential than virtually anyone, as a mutually agreeable
candidate in lieu of Aurinia’s own corporate counsel (as a stand in
for a Canadian “player to be named later”…a dubious governance
practice in its own right that kicks sand in the face of shareholder
rights); and -
negotiate on two (2) additional independent nominees on
a mutually agreed basis rather than simply providing ILJIN
a right to provide input on the director selection process. While
ILJIN has now proposed Dr. Yu and Mr. Kwon as highly qualified and
independent directors to fill those roles, had Aurinia been at all
willing to discuss other candidates it is certain that mutually
agreeable candidates could have been found.
Far from an effort by ILJIN to take real or
Contacts
Investors:
Gryphon Advisors Inc.
North American Toll-Free
Number: 1-833-261-9730
Outside North America, Banks, Brokers and
Collect Calls: 1-416-661-6592
Email: [email protected]
Media:
Gagnier Communications
Dan Gagnier / Jeffrey Mathews
1-646-569-5897