Shareholders for McKesson, one of the largest pharmaceutical wholesalers in the US, voted in favor of instituting a clawback policy that was proposed by two institutional shareholders. Although clawbacks are hardly new, the vote underscores growing concern about allegations of health care fraud and outsized executive compensation in the pharmaceutical industry.
In their campaign to institute the policy, the Amalgamated Bank and the UAW Retiree Medical Benefits Trust argued that McKesson has paid more than $1 billion in recent years to resolve regulatory and other legal disputes without publicly disclosing any clawback steps. Meanwhile, McKesson ceo John Hammergren received $131 million in compensation last year.
“We’re pleased that investors agreed that McKesson should strengthen and disclose the use of its clawback policy. Robust and rigorous clawbacks promote pay-for-performance and help set clear incentives for ethical conduct and accurate financial reporting,” Scott Zdrazil, who heads corporate governance at Amalgamated Bank, says in a statement. The investors hold 150,000 McKesson shares.
As we noted previously, clawback policies have gained traction among large investors who are growing increasingly leery of the pharmaceutical industry. Over the past several years, numerous drugmakers have settled civil and criminal charges with US authorities for such infractions as marketing drugs for unapproved uses and defrauding federal health care programs, including Medicare and Medicaid.
And this paragraph is from an earlier story, too: A half dozen drugmakers recently struck a deal with 13 institutional investors, including the UAW Retiree Medical Benefits Trust, to revise their compensation policies in order to make it easier to recover payouts to executives. The drugmakers include Amgen (AMGN), Bristol-Myers Squibb (BMY), Eli Lilly (LLY), Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) (back story).
As for McKesson (MCK), the two investors argued that the wholesaler's current policy is too weak because misconduct is defined as acts that are intentional, regardless of the degree of harm, and they maintain the existing policy sets too high a standard under which clawbacks may be applied. For instance, theft is not covered if the amount of money stolen by an exec does not materially harm the wholesaler.
The McKesson board rejected the notion that its policy is ineffective or weak and argued it was incorrect to characterize a $350 million settlement for alleged overbilling was due to “some sort of intentional misconduct or inaccurate” reporting to the US Securities and Exchange Commission. The wholesaler maintains drug prices were not manipulated and laws were not broken (see page 80 here).
So what does McKesson say now? A spokeswoman sends us this: "We will carefully consider what we have heard from shareholders to ensure we take the appropriate steps to address the matters that were voted on today. We take what our investors say very seriously and will continue to listen and respond to their concerns while maintaining our focus on delivering significant long-term value for them.” The details of the vote were not disclosed by the wholesaler, by the way.
One observer, however, was somewhat skeptical the vote will amount to much. "Until it starts costing them money, shareholders care as much about governance as major league baseball managers care about their sluggers using steroids," says Erik Gordon, a professor at the Ross School of Business at the University of Michigan and a professor at the University of Michigan Law School.
STORY ENDS HERE
claw pic thx to johnfreeland on flickr