Connecticut has waged a long legal battle against OxyContin maker Purdue Pharma — but its push for accountability from the pharmaceutical industry for its alleged role in the opioid crisis does not end there.
State Treasurer Shawn Wooden is also taking action, using the state’s investments in some of the country’s largest pharmaceutical firms as a tool to demand greater accountability from their top officials. Among his recent initiatives, he has garnered major shareholder support in his pushback against multimillion-dollar compensation packages for executives of distributing giants such as AmerisourceBergen.
“It’s about fundamentally preserving and enhancing value in terms of our investment,” Wooden said in an interview. “In that, we believe accountability is an important component.”
Last month, Wooden and Rhode Island General Treasurer Seth Magaziner filed a letter with the U.S. Securities and Exchange Commission, calling on AmerisourceBergen shareholders to reject, with an advisory vote, a plan that entailed payouts for certain executives that they said were “significantly above target.” The compensation included $14.3 million for AmerisourceBergen CEO Steven Collis — a year-over-year increase of 26 percent, according to Wooden and Magaziner.
Wooden and Magaziner took exception with the executives’ compensation in light of Chesterbrook, Pa.-headquartered AmerisourceBergen recording last year $6.6 billion in charges related to the settlement of lawsuits alleging that it helped fuel the opioid epidemic.
“In this case, you have behavior that not only is harmful to the company reputationally and financially, but there’s also significant pain and suffering caused by this (opioid) crisis,” Wooden said.
Through investments for its retirement plans and trust funds for public-sector employees, Connecticut holds about $2 million worth of AmerisourceBergen shares and 250,000 company-issued notes with a 2.8 percent interest rate.
“I don’t think it speaks well for the AmerisourceBergen board, charged with oversight here, not to hold the CEO accountable,” Wooden said. “With this compensation package, I think it exposes the company and shareholders to future reckless behavior by executives. At the end of the day, that harms value for us — and that’s why we have significant issues with it.”
The scrutiny of AmerisourceBergen’s conduct during the opioid crisis reflects the size of the No. 10 company on last year’s Fortune 500 list. It recorded 2020 fiscal-year revenues of about $190 billion, up about 6 percent from 2019.
Losing the vote — but encouraged by result
Despite the opposition, the executive-compensation plan was passed at AmerisourceBergen’s annual shareholders meeting on March 11.
“AmerisourceBergen welcomes and values feedback from investors. The company remains focused on strong financial stewardship to the benefit of our shareholders while delivering collaborative and innovative solutions for all stakeholders,” Amerisource said in a statement this week. “AmerisourceBergen will also continue to work to achieve resolution of opioid matters in a way that seeks to meet the needs of patients, providers, our company and investors.”
In a recent SEC filing, the company said that “the overwhelming majority of our executive pay program is performance-based or at-risk.”
Corporate-governance experts such as Laura Casares Field were not surprised by AmerisourceBergen’s position. Lowering pay could be interpreted by shareholders as an admission of guilt even though pharmaceutical companies such as AmerisourceBergen have not admitted wrongdoing in their settlements.
“It’s a balancing act,” said Field, who is the interim director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “You don’t want to look bad to your shareholders, but why would you punish the CEO if you said you didn’t do anything wrong?”
Wooden said that he was encouraged that 48 percent of AmerisourceBergen shareholders rejected the “say-on-pay” proposal, a type of vote that is advisory.
Not including Walgreens Boots Alliance’s nearly 28 ownership stake, an estimated 72 percent of shareholders voted against the executive-compensation plan, according to Wooden. WBA comprises one of the world’s largest purchasers of prescription drugs, with a portfolio that includes Walgreens, Duane Reade and Boots.
In the 10-year history of its previous 10 say-on-pay votes, AmerisourceBergen had averaged more than 95 percent stockholder support and had never had a vote with less than 90 percent approval, according to its SEC filing.
Among voting results in 2019, only 9 percent of companies’ say-on-pay proposals gained less than 70 percent of shareholders’ support, according to data from Semler Brossy Consulting Group.
“Here we got to 48 percent, which is huge for this type of proposal,” Wooden said. “When you add in the fact that close to 30 percent of the shares are held by essentially an insider, Walgreens, this certainly sends a major message to the board of AmerisourceBergen, as well as to other executives beyond AmerisourceBergen.”
Among related actions, Wooden and Magaziner filed last October a letter with the SEC, calling on shareholders of another of the country’s largest pharmaceutical-drug distributors, Cardinal Health, to reject an executive-compensation proposal that included a $2.5 million bonus for its CEO. Cardinal agreed in 2019 to pay $5.6 billion to settle opioid-related claims.
Cardinal’s pay proposal passed too, but 38 percent of shareholders rejected it.
Wooden and Magaziner are members of Investors for Opioid and Pharmaceutical Accountability, a coalition of 61 investors representing more than $4.2 trillion in combined assets under management, which engages with manufacturers and distributors of prescription opioids and other drugs.
“Mr. Wooden’s actions probably will force other pharmaceutical companies to think more about their positions on executive compensation,” Field said.
At the same time, Attorney General William Tong continues to press Connecticut’s claims against companies implicated in the opioid crisis. He is one of 24 state attorneys general who have rejected the settlement offer made by Purdue Pharma and its owners because he sees the plan as insufficient for tackling the epidemic.
Democrats Wooden and Tong were both elected to their current positions in 2018.
“I welcome Treasurer Wooden’s national leadership on this matter,” Tong said. “Those responsible for the death and devastation of the opioid epidemic should not be rewarded.”
Overdoses involving opioids killed nearly 47,000 people in the U.S., in 2018, according to the U.S. Centers for Disease Control and Prevention. Prescription opioids were involved in 32 percent of those deaths.
In 2020, 1,273 people in Connecticut died from opioid-involved overdoses, up 13 percent from 2019, according to state data.
“My perspective is different from the attorney general’s,” Wooden said. “But it has all the same underlying fact pattern in terms of the behavior that we’re seeking to change, as we require accountability for bad behavior.”
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