Here’s a note from Rhonda Brauer:
In the pre-COVID-19 world, I was monitoring independent chair proposals for the 2020 proxy season. I was particularly interested in those submitted by members of the Investors for Opioid & Pharmaceutical Accountability (IOPA), which was established in July 2017 to focus on opioid-related risks and which has since expanded to include drug-pricing risks. While I still believe in the momentum for these proposals, the pandemic appears to have temporarily changed things.
As these proposals became public and IOPA members filed exempt solicitations in support (see, e.g., Johnson & Johnson, Eli Lilly and Gilead Sciences), it seemed possible that the time had finally come for independent chairs in the pharmaceutical industry. Not only had opioid abuses and anti-competitive drug pricing become “kitchen table” topics, but more conventional corporate voices had also added support. According to the 2019 U.S. Spencer Stuart Board Index, the number of S&P 500 companies with independent board chairs more than doubled over the past decade, to now include one-third of the companies; and among the 18 Biotechnology/Pharmaceutical companies, seven have independent chairs, including Biogen Idec, Regeneron Pharmaceuticals, Perrigo Company and Nektar Therapeutics. PwC and the Harvard Business Review also weighed in to support independent chairs.
For a time, independent chair proposals seemed as if they could achieve majority votes, and CEO/chair separations could take place, in this industry, as they had for financial companies that shared responsibility for significant national crises, such as Bank of America and Wells Fargo. Then the pandemic hit, and priorities changed for companies, investors and regulators. Independent chair votes at pharmaceutical companies have received significant support (based on For/For + Against), including:
- 42% at J&J, where the vote had been increasing in recent years and where there was majority support for another IOPA proposal requesting a board report on governance of opioid-related risks;
- 34% at Eli Lilly, where it was a first-time proposal and where the vote would be 40% if the Lilly Endowment shares were backed out;
- 44.5% at Bristol-Myers Squibb, another first-time proposal; and
- 43.5% at Gilead Sciences, significantly higher than 29% in 2019 and the only over-40% vote that didn’t receive a FOR recommendation from ISS
Two non-IOPA independent chair proposals have passed this season: at Boeing (53%), where there have been significant legal, cultural and regulatory concerns; and medical products company Baxter International (55%), where a March 2020 restatement apparently raised sufficient investor concern. Some thoughts on what may be going on:
- As I blogged earlier, the pandemic has sharpened investor focus on COVID-19-related issues. While investors are still raising non-COVID ESG issues, there is some sensitivity about piling on too much in their engagements with – and votes at – companies;
- Pharmaceutical companies may be getting a slight pass, as the nation is looking to them to find COVID-19 cures, vaccines and tests;
- Unlike Glass Lewis that supports most independent chair proposals, ISS appeared unconvinced of the need for structural leadership change at some of the IOPA-targeted companies, although their AGAINST recommendations left some room for evaluating what happens over the next year; and
- Boeing hit a tipping point with investors, even with a currently independent chair.
Stay tuned for a few more 2020 voting results, as well as for how the off-season engagements and 2021 proposals evolve around this proposal. The time for independent chairs may yet arrive more broadly in the United States.
-Lynn Jokela, TheCorporateCounsel.net May 27, 2020
