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March 04, 2005
Campaign to Enhance Pharma Industry Accountability Broadens Shareowner Action
by William Baue
The Interfaith Center on Corporate Responsibility sent letters to over 2,750 institutional
investors seeking support for three resolutions filed at nine pharmaceutical companies.
SocialFunds.com --
On March 1, 2005, the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors with
approximately $110 billion in assets, sent a letter to more than 2,750
institutional investors urging pharmaceutical industry reform. The letter highlights three
shareowner resolutions filed by ICCR members this proxy season at nine major pharma companies,
including Abbott Laboratories (ticker: ABT), Bristol-Myers Squibb (BMY), Eli Lilly (LLY), Merck (MRK), and Wyeth (WYE). One
resolution seeks to split CEO and board chair roles, one asks for a report on the impact of the
HIV/AIDS pandemic on the company and its response, and the third requests disclosure of corporate
political contributions.
 "This is a huge push to inform the investment
community of our efforts and demonstrates the connections between the resolutions," said Dan Rosan,
director of public health and access to capital programs at ICCR. "I think this kind of
industry-wide push is a real innovation in the corporate responsibility movement."
The
letter illustrates two nascent trends in shareowner action: an industry-wide focus on inter-related
issues, instead of a company-by-company approach on isolated issues, and an effort to broaden
support for resolutions to a wide cross-section of investors.
The pharma industry is a
logical sector to initiate these strategies, as the "industry's long-term business model is under
considerable stress," as the letter states. Problems contributing to this stress include the
following:
--Following in the footsteps of the tobacco industry, pharma companies may have
had knowledge of hazards of their products that they did not disclose to consumers or investors.
--Public perception of industry indifference to HIV patients in developing nations was
bolstered when 39 pharma companies tried to sue the South African government, pitting corporate
intellectual property rights against rights of access to cheaper generic drugs.
--And in
the absence of comprehensive disclosure on corporate political contributions, the industry is
widely perceived as lobbying its way out of trouble.
The resolutions do not provide
solutions to the specific problems they address, which intertwine along lines of accountability and
transparency. Instead, they address how corporate governance structures, such as joint CEO/chairs,
may contribute to the problems. The resolutions also ask for information allowing investors to
assess corporate strategies on HIV/AIDS and political giving. In other words, they do not seek to
micromanage, but rather to fulfill the fiduciary duty of due diligence on the soundness of
corporate management procedures that affect long-term shareowner value.
ICCR sent the
letter not only to socially responsible investment (SRI) practitioners, but also to the 2,000
largest public pension funds, about 400 faith-based investors (including many non-ICCR members),
the 30 largest mutual fund families in the nation, and proxy voting services.
"The
cross-section of investors receiving the solicitation is very broad, but there is a common theme:
we are sending the letter to investors whose constituencies would benefit from the reforms we
seek," Mr. Rosan told SocialFunds.com. "For example, public pension funds are accountable to
taxpayers and retirees, who suffer from lack of access to affordable medicines."
This line
of reasoning suggests that the issues addressed in the resolutions are signposts pointing to bigger
issues of how the industry's business model as currently constructed may not align with the
long-term interests of those invested in the companies. Similarly, the resolutions' requests for
disclosure synchronizes with the new Securities and Exchange Commission (SEC) rule requiring mutual
funds to disclose their proxy votes, allowing fund investors to better assess if votes align with
their interests.
"Mutual funds have never been democratically accountable to their own
stockholders because their proxy votes have been undisclosed," said Mr. Rosan. "The new SEC rules
change that, and already mutual fund constituents (perhaps primed by the scandals within the
industry itself of recent years) are now paying very close attention to proxy votes."
The
invigorated attentiveness of mainstream mutual fund firms to their shareowners helps ICCR expand
its potential base of support for resolutions. While the pharma campaign and letter represent a
broadening of ICCR's reach in terms of the number of companies approached, issues addressed, and
potential allies contacted, the strategy is consistent with the approach ICCR has employed since
its 1971 founding.
"This letter represents ICCR at its best because we are using our
strength as a diverse coalition of institutions," said Mr. Rosan. "No one institution could
possibly file resolutions on three different topics across an entire industry, but ICCR has that
capacity, and there are immense potential benefits to all shareholders and patients if our approach
is successful over time."
"So in that sense, what we are doing is new, but it draws on the
strengths of a thirty-year history as a movement and the hard work done on other social issues,
such as global warming, to broaden the corporate accountability movement to include an ever-wider
variety of constituencies."
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SRI World Group, Inc. All Rights Reserved.
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