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January 23, 2018 12:00 AM

Express Scripts clashes with DiNapoli over cyberrisk disclosure

Bloomberg
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    The U.S. Securities and Exchange Commission will review a dispute between Express Scripts Holding Co. and New York state Comptroller Thomas DiNapoli over his effort to force the prescription benefits manager to increase cyberrisk disclosures.

    Express Scripts told the SEC last month it would exclude the proposal from its annual proxy statement. Mr. DiNapoli, who's pushing for the company's board to report its efforts to prevent and mitigate cyberthreats, objected last week in a letter to the regulator.

    "We're at the point where everyone — investors, directors, regulators — is recognizing that this is a critical issue," said Gianna McCarthy, director of corporate governance at the comptroller's office, which oversees about $164 million of Express Scripts stock for the $200 billion New York State Common Retirement Fund, Albany. "Investors need more disclosure."

    Mr. DiNapoli filed the proposal in November, two months after credit-reporting company Equifax Inc. revealed a breach that compromised personal information of about half the U.S. population. He assailed Express Scripts' scant disclosure of how cyberrisks are managed and cited a government-commissioned report showing the health-care industry incurs a disproportionate share of hacking attacks.

    Express Scripts said it devotes significant resources to safeguard confidential patient and client data and to keep up with changes in technology and regulatory standards.

    "Such a complex and critical element of our business is properly a matter for our management and board of directors to oversee, as this is who shareholders have entrusted to run the day-to-day operations of the business," St. Louis-based Express Scripts said in an emailed statement. "Moreover, the effectiveness of our cyberrisk management strategy depends upon a measure of confidentiality that could be undermined by the New York state comptroller's proposed disclosures."

    Judy Burns, an SEC spokeswoman, declined to comment.

    Express Scripts is one of the largest managers of drug benefits for employers, unions, and state and local governments, using its size to negotiate discounts with drugmakers. In December, the company told the SEC it wouldn't put the proposal up for a vote at its annual meeting because it didn't raise "significant policy" issues that went beyond its ordinary business practices.

    Last week, Mr. DiNapoli's office rejected those arguments, saying "risks for inadequate cybersecurity measures" can transcend a company's ordinary business.

    "If we are successful with the SEC, you should expect to see more proposals of this kind," Ms. McCarthy said.

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