CVS Board Attacked Again

Still, shares are at an all-time high.
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Caremark

(CVS) - Get Report

continues to suffer some unpleasant side effects from its controversial merger with CVS.

Now Institutional Shareholder Services has urged investors to withhold their votes for two Caremark directors at the first annual meeting of the combined CVS-Caremark next month. The influential proxy advisory firm hopes to see both Caremark's lead director and a former company CEO ousted from the board.

As lead director, ISS insists, Roger Headrick "should have played a more active role in ensuring independent oversight in the merger negotiations regarding the CVS deal." Similarly, ISS claims, Lance Piccolo -- a former CEO who performed lucrative consulting work for Caremark -- should be stripped of his boardroom seat to ensure more independence on the new company's board going forward.

The CtW Investment Group, an organization that advises union-affiliated pension funds, has already taken a similar stand.

"ISS's recommendation reinforces our conviction that the egregious board failures at Caremark must not be allowed to infect CVS-Caremark as well," stated CtW Executive Director Bill Patterson. "Now shareholders, including the large mutual funds that collectively exercise voting control, face a critical test of their commitment to genuine independence and accountability."

CtW claims that a number of institutional shareholders have already vowed to withhold their votes for Headrick and Piccolo because of their role in "apparent stock option backdating and conflicted merger negotiations."

For its part, CVS-Caremark has defended both directors and thrown its own support behind them. CVS-Caremark insists that the two men possess vast industry experience -- spanning major acquisitions -- that should prove invaluable to the company going forward. CVS-Caremark also notes that the men served on Caremark's board "during a period of outstanding performance" for the company's stock.

Moreover, CVS-Caremark claims that Caremark's past stock option grants were "entirely appropriate", and it "strenuously disagrees" with critics who claim otherwise.

But CtW would like some more proof. The group keeps calling for Caremark to release a detailed review that explains -- and justifies -- the company's past stock option grants. It wants to hear some testimony from Caremark's embattled directors in the meantime.

"We regret that Roger Headrick and Lance Piccolo have once again refused to step forward and explain how they individually worked to protect the interests of Caremark shareholders during that company's conflicted takeover negotiations and apparent backdating of stock options," CtW stated on Tuesday. Meanwhile, "it is a peculiar and disappointing spectacle to watch CVS-Caremark management leap to the defense of directors whose fitness and independence has been questioned."

Despite all of the shouting, CVS-Caremark's stock has been performing quite well. The shares climbed 34 cents to set a new record high of $37.02 on Thursday.