Signs of trouble were already brewing in late January when Glass Lewis issued its Proxy Paper for the February 22 annual meeting of Novartis. In our report, we criticized Novartis’ exceptionally poor disclosure of a multi-year non-compete and advisory services agreement with outgoing chairman of the board Daniel Vasella. Although Novartis’ disclosure met Swiss legal requirements, the absence of any information about the amounts to be paid, the length of the agreement, or the services to be provided led us to question whether Novartis was essentially providing a severance payment under a different guise.

This past Friday, it appears that Novartis attempted to save face with the last-minute disclosure that Mr. Vasella would receive CHF 12 million (US$13 million) annually for six years, for a total of up to CHF 72 million (US$78 million), under the non-compete portion of the agreement. Understandably, shareholders and other stakeholders were shocked to learn that the former CEO and non-executive chairman’s secrecy was valued so highly. Following this revelation, shareholders who had been waiting to cast their votes until Novartis provided better disclosure were quite decided. With vote cutoffs fast approaching or already past, shareholders had to react quickly to submit (or change) last-minute votes against the ratification of board acts and/or the advisory say on pay vote. Recognizing the rising tally of unfavorable votes, Novartis quickly reversed course, announcing just this morning that the non-compete agreement would be rescinded.

At this point, it is too late for many shareholders to change their votes in response to Novartis’ change of heart. Frankly, some shareholders may not wish to change their votes anyway, finding a loss of good faith in Novartis’ untimely disclosure and poor justification for its use of shareholder money. The question remains, what could have been done differently here? Rather than resorting to the bare legal minimum disclosure standards required by law, Novartis could and should have recognized that shareholders would be interested in the details of the agreement with Mr. Vasella. Had Novartis provided this information earlier, productive dialogue with shareholders could have taken place much sooner, allowing the company to account for concerns long before vote cutoffs created a point of no return and last-minute disclosure engendered an atmosphere of ill will.

Lesson learned? As the 2013 proxy season has just begun, it remains to be seen whether other Swiss companies will appropriately anticipate shareholder concerns with robust disclosure. In a market where the topic of pay has long been discussed only behind closed boardroom doors, issuers are quickly learning that shareholders expect to be invited in to review decisions made about the use of their money. The need for such review only becomes more apparent as agreements like the one between Mr. Vasella and Novartis come to light.