In the past few years, AGMs have been increasingly used to hold companies accountable for their involvement in public health scandals, with some notable results. The current proxy season will revisit some of the engagement themes from previous years, in addition to exploring new areas of risk – such as the pricing of Covid-19 drugs and junk food.
Drug pricing and access strategies
Pharmaceutical companies are continuing to fall short of some shareholder expectations around drug pricing strategies and disclosure, despite years of engagement on the subject.
In 2017, a Credit Suisse report sparked widespread concern after it revealed that US pharmaceutical companies were reliant on price hikes for existing drugs to drive profit growth. According to Meg Jones-Monteiro, the health sector coordinator for shareholder body the Interfaith Center on Corporate Responsibility (ICCR), investors worried that profits would become dependent on routine price increases on existing drug patents, rather than long-term value creation through the development of new medicines or improving the health outcomes of existing ones.
ICCR members have since filed numerous shareholder resolutions asking drugmakers for pricing transparency – particularly in relation to how pricing influences executive pay. The response to the campaign has been encouraging, says Jones-Monteiro, with many resolutions receiving support from proxy advisor ISS, and landing between 20-30% shareholder support. Merck and Johnson & Johnson (J&J), two of the world’s biggest drugmakers, avoided the ballot after committing to publish annual pricing ‘transparency reports’.
This year, investors are pressing drugmakers to disclose the extent to which taxpayer-funded support for the development of Covid19 medicine will be considered when setting prices and market access strategies. Five resolutions requesting disclosures on the topic have been filed at Eli Lilly, J&J, Merck, Pfizer and Regeneron. A sixth, filed at Gilead, has been withdrawn after the company agreed to make some pricing information available despite conceding it had not accounted for public funding.
“Taxpayers and governments have de-risked a substantial portion of Covid-19 drug development through financial support for R&D, advanced purchase agreements and accelerated regulatory approval,” says Lauren Compere, Director of Shareholder Engagement at Boston Common, which filed at Merck. “We believe that companies should be taking this into account when setting prices or access strategies, otherwise we will end up paying twice.”
“When we say ‘access’, often people think about prices, but it's not just that,” she continues. “It's availability, affordability, supply – particularly in the global south, where it is expected that communities won’t be vaccinated until 2023. The proposal really is about mitigating potential long-term reputational risk. We already know that the pharmaceutical industry has trust issues with stakeholders, and there will likely be increasing pressure around future pandemics as well.”
The US opioid crisis has emerged as a key engagement success story for investors. According to government statistics, opioid overdoses caused 130 deaths per day in the US and 4,000 deaths annually in Canada in 2017 alone.
Since the launch of an investor campaign spearheaded by the Investors for Opioid and Pharmaceutical Accountability (IOPA) in 2017, seven out of 22 resolutions on the subject gained majority shareholder support. Companies have since agreed to comply with investor demands for board committees on opioid risks, misconduct clawback policies, separate Chair and CEO positions, new compensation structures that consider costs arising from lawsuits and publishing board-level risk reports.
Donna Meyer, Director of Shareholder Advocacy at Mercy Investments Services and co-Chair of IOPA, says: “In my 20 years of experience, this may be the most successful initiative I have been a part of. Unfortunately, this had very little to do with self awareness from the companies we targeted, but was instead driven by public outrage over the opioid crisis. I don’t think any of the big asset managers wanted to be seen voting against our resolutions.”
The only resolution in 2021 addressing the role of companies in the US opioid epidemic has been withdrawn from J&J’s AGM by the Illinois State Treasurer (although corporate conduct on opioids has been cited in a separate shareholder request for an independent board chair). In early March, a Say on Pay proposal at pharma distributor AmerisourceBergen was opposed by 48% of shareholders after the company failed to factor in costs arising from a pending $6.6bn opioid settlement into CEO compensation plans. At the November AGM of Cardinal Health, another opioid distributor, Say on Pay was opposed by 38% on the same grounds.
The public health costs of food is an emerging area for investor activism, with five resolutions on the topic up for a vote in 2021. Boston-based SRI firm Harrington Investments filed at Pepsi, Coca Cola and McDonalds, requesting a report on the risks of marketing sugary drinks to young consumers, while activist investor Myra K Young has asked Pepsi and retailer CVS to report on the “external public health costs” of their food products.
In the UK, campaign group ShareAction has filed a resolution at Tesco asking the supermarket chain to set a target on the proportion of healthy food it sells. The company has since announced a 65% sales target by 2025, but the resolution remains on the ballot.
Ashka Naik, Research Director at stewardship non-profit Corporate Accountability, which supported Harrington with its three resolutions, says: “Corporations have been at the forefront of a global health epidemic through their unhealthy products, irresponsible marketing – particularly to young consumers and Black and minority communities – and by funding junk science which seeks to discredit the links between sugar and obesity.”
Naik says that while the resolutions are unlikely to be voted through, they aim to “highlight the substantial brand liability and reputational risk affiliated with predatory business practices that have fueled the spread of serious health risks among consumers”.
“We hope to generate enough support to be able to continue raising this issue in the hope for a wider recognition of these risks. ”
A Corporate Accountability campaign recently prompted Coke to sever ties with the International Life Sciences Institute, an industry-funded group which has come under fire for its role in encouraging pro-sugar government health and nutrition policy around the world.
Finally, three proposals have been submitted in 2021 on tobacco by lead filer the Sisters of St Francis of Philadelphia. The Sisters asked retailers Rite Aid and Walgreens to report on the risks associated with selling tobacco products which have been linked to serious Covid-19 infections, and manufacturer Altria to report on the effectiveness of in-house policies aimed at discouraging nicotine use among young people, and corporate marketing practices aimed at communities of colour and low-income populations.
The latter is a resubmission, after it earned 37% support at Altria’s AGM last year – described by ShareAction as “an unusually high vote for a tobacco proposal”. The 2021 resolution at Walgreens was put to shareholders in January and received 12% of votes.
Lydia Kykendal, Director of Shareholder Advocacy at Mercy Investment Services, which co-filed at Altria, says: “Altria has made some progress on disclosing their youth marketing practices but hasn’t addressed the impact of newer products, such as vaping, or specific marketing practices aimed at communities of colour.
“There is a significant body of research, produced by the US Centers for Disease Control and Prevention and non-profits, which suggest that tobacco companies concentrate their marketing in communities of colour and on youth-friendly products such as menthol cigarettes. With the murder of George Floyd and the onset of Covid, which disproportionately impacts communities of colour, the targeting of these communities by tobacco companies creates a perfect storm which is why we are taking this up again with Altria.”