For more than a decade, Biovail ( BVF) CEO Eugene Melnyk has partnered with an independent member of the Canadian drug company's board of directors in various horseracing business ventures. The personal business relationship between the two men -- not a secret, but never specifically disclosed by Biovail to shareholders -- raises concerns over potential conflicts of interest and possibly violates New York Stock Exchange listing requirements for independent directors, according to legal and corporate governance experts. A closer look at its other board members also raises the issue of whether the Biovail board is as independent as it might seem.

Biovail, Canada's largest publicly traded drugmaker, acknowledges that its CEO Melnyk and the outside board member in question, Wilfred Bristow, do co-own racehorses, including one champion thoroughbred, Archers Bay, that in 1998 won the ultra-prestigious Queen's Plate, Canada's version of the Kentucky Derby.

But despite this connection, "Biovail considers all five of our outside directors to be independent under guidelines spelled out by NYSE listing requirements," says Ken Howling, Biovail's vice president of finance. That includes Bristow, a semi-retired stockbroker and director of the company since 1993. Bristow is also one of three Biovail directors on the board's executive compensation committee, which means he helps set the annual salary and bonuses of his business partner, CEO Melnyk.

Defining Independence

Under NYSE listing requirements, bolstered last year after a string of corporate scandals, independent directors must constitute a majority on a company's board. And to be deemed independent, directors are not allowed to have any business connections with the companies they serve. But whether the Big Board's corporate governance rules address personal business relationships between management and directors is not entirely clear, corporate governance experts say.

Still, these experts say that when a chief executive and a member of his board of directors jointly own an asset as potentially lucrative as a champion thoroughbred racehorse, it's hard to envision how the director can remain impartial in his role as a shareholder watchdog.

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