By Sister Patricia Wolf
In the just-finished 2005 proxy season, shareholders saw something new in proxy proposals: an attempt to reform an entire industry by separating the chair and chief executive officer positions.
The Interfaith Center on Corporate Responsibility led an effort in sponsoring shareholder resolutions calling for revitalized leadership in the pharmaceutical industry through separating the roles of the chair and CEO at America's largest drug companies.
Proponents — religious institutional funds and other institutional investors allied with them — argued that a CEO serving as chair has the potential to curb the board of directors' ability to evaluate CEO performance, set compensation and hire and fire.
The initiatives were conducted with the poor, as well as shareholder value, in mind. Unsustainable drug pricing and the resulting lack of access to medicines is evidence that visionary leadership is wanting in the pharmaceutical industry. It is my hope that an independent chair and vigorous board will bring greater focus to this ethical imperative and be better able to forge solutions for shareholders and patients to address this crisis.
Shareholders responded positively to the call of religious investors this proxy season. At Eli Lilly & Co., Indianapolis, 24.5% of shares supported the resolution to separate the positions of chair and CEO. At Merck & Co. Inc., Whitehouse Station, N.J., 46% did so. At Pfizer Inc., New York, the proposal got 41%. At Wyeth, Madison, N.J., it received 39%. Even at Abbott Laboratories, Abbott Park, Ill., where shareholder proposals usually receive few votes, the resolution received 17% support.
(At Bristol-Myers Squibb Co., New York, a similar resolution — which was sponsored by another investor but supported by many ICCR members and allies — received 40% support.)
Even excluding the Bristol-Myers Squibb vote, these results — because they overwhelmingly passed the 3% threshold of shareholder support for first-time proposals mandated by the Securities and Exchange Commission — give ICCR members the opportunity to refile the resolutions at these companies in 2006. Proponents, however, would prefer constructive, high-level dialogue with the companies involved.
The response from corporate management to these proposals varied widely. Some companies displayed a willingness to engage in high-level discussions. Reactions at other companies, which I prefer not to name, ran from shock and indignation to outright anger. Many drug companies rightly pride themselves on their corporate governance achievements. Simply put, executives could not see the opportunity for progressive reform that ICCR members were presenting. In the end, only two of seven companies offered meaningful dialogue. Those two are Johnson & Johnson, New Brunswick, N.J., and Schering-Plough Corp., Kenilworth, N.J. ICCR withdrew its resolution at J&J; at Schering-Plough, ICCR didn't file one because the dialogue was initiated.
With the votes tallied, we must ask what shareholders supported. The proponents approached the issue with an eye toward, as the resolution says, "sound corporate governance practice." Not one of the five ICCR resolutions mentioned an executive by name or criticized his leadership. Instead, they focused on the role of the chair, addressing long-term risks and opportunities.
ICCR's members are pension funds, religious communities and foundations. They are invested not for the next quarter, but for the next generation. Without an independent chair, they have no assurance that someone is looking out for their interests, on their time horizon.
Clearly, pharmaceutical companies cannot single-handedly solve the problems of access to medicines. But drug companies must be constructively searching for solutions. Doing so would protect long-term shareholder value and improve all our livelihoods through a healthy, more productive society.
Forty-four million Americans, and more than 1 billion global citizens, lack access to health care. As faith-based organizations, members of the ICCR are in daily contact with the poor and sick through their clinics, parishes and international relief agencies.
Having so many members of our national and global societies without access to care serves no one's interests. It puts pressure on public health systems, slows economic growth, reduces productivity and tarnishes the image of the companies that discover and distribute life-saving medicines. The best-intentioned doctor can do no good if patients cannot afford a prescription.
These are not academic arguments or only social appeals: the economic and security threat of the global AIDS crisis has been acknowledged, finally, at the highest levels of government. Public and private payers alike notice budget-busting drug prices. All of this builds immense public pressure on the industry.
I do not think there will be any easy answers. But after more than a decade of working with the pharmaceutical sector, ICCR members are convinced that independent judgment is a prerequisite to seeing the opportunities present in these challenges. And done correctly, such reforms could create a win-win-win situation for shareholders, patients and the companies.
Sister Patricia Wolf is the executive director of the Interfaith Center on Corporate Responsibility, New York. More information about ICCR is available at iccr.org.