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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.

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 "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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