We believe good governance is integral to achieving long-term shareholder value. We are committed to governance policies and practices that serve the interests of our company and its many shareholders.
In exercising our fiduciary duty to our shareholders, we take a long-term perspective on shareholder value that takes into account both our company’s relationship with society as a whole and the interests of our many diverse stakeholders.
The primary mission of our Board is to represent and protect the long-term interests of our company’s shareholders. The Board meets, at minimum, six times per year to provide strategic direction and to review our progress on a wide variety of measures.
In overseeing the affairs of the company, including our governance, the Board has established four committees, each of which is comprised solely of independent directors, to help fulfill our obligations to our shareholders. The four committees are: Audit, Compensation and Benefits, Governance and Research. All of our standing committees are governed by Board-approved charters, which are available on our website.
While it is our company’s philosophy that the full Board should consider and act on matters of significance, the committees assist it in carrying out its responsibilities and provide greater focus in key areas:
- The Audit Committee charter provides that its primary functions are to, among other things, oversee the company’s accounting, financial reports, internal controls and audits, and consult with management, the internal auditors and the independent registered public accounting firm (the independent auditors) on, among other items, matters related to the annual audit, the published financial statements and the accounting principles applied
- The Compensation and Benefits Committee charter provides that its primary functions are to, among other things, establish and maintain a competitive, fair and equitable compensation and benefits policy designed to retain and motivate executives on behalf of the Company and to attract the talent necessary to successfully execute the Company’s long-term strategic plan
- The Governance Committee charter provides that its primary functions are to, among other things, review social, political and economic trends that affect our business, our Good Manufacturing Practice compliance, including internal and external audits, our environmental, health and safety practices, our supply chain manufacturing strategy and governance, as well as our third party sourcing program, our business continuity plans and our privacy policies and practices
- The Research Committee charter provides that its primary functions are to, among other things, assist the Board in its oversight of matters pertaining to our strategies and operations for the research and development of pharmaceutical products and vaccines
Additional information on our company’s standing committees can be found in our company’s 2018 Proxy Statement (pages 21–24).
Our Board possesses broad expertise, skills, experiences, and perspectives that facilitate the strong oversight and strategic direction required to govern the company’s business and strengthen and support senior management.
In its regular discussions regarding Board composition and especially in conjunction with the annual Board and committee evaluations, the Governance Committee works with the Board to determine the appropriate mix of professional experience, areas of expertise, educational background and other qualifications that are particularly desirable for our directors to possess in light of our current and future business strategies. The input gathered is then used by the Governance Committee in its planning and director search process.
The Governance Committee considers diversity as a factor when identifying prospective nominees for our Board, although it does not have a formal diversity policy. Nominees are selected so that the Board of Directors represents a diversity of expertise in areas needed to foster the company’s business success as well as a diversity of personal characteristics, including gender, race, ethnic origin and national background. From time to time and including in 2017, the Governance Committee has retained independent search firms to assist in identifying candidates that reflect its director succession priorities, including these diversity objectives. At present, we have two members on our Board who represent members of the under-represented ethnic groups.
The Governance Committee also considers recommendations for director candidates made by shareholders and evaluate them using the same criteria as for other candidates. The Board along with the Governance Committee takes into account, among other things, the needs of the Board and the company in light of the overall composition of the Board with a view towards achieving a balance of the skills, experience and attributes that would be essential to the Board’s oversight role.
BOARD INDEPENDENCE & LEADERSHIP
Kenneth C. Frazier, our company’s chairman of the Board, president and chief executive officer, is the only company executive serving on the Board. Leslie A. Brun serves as the Board’s independent lead director. As lead director, Mr. Brun confers with management on matters involving the Board and serves as a liaison to shareholders on investor matters. Mr. Frazier is not a member of any of the Board’s committees; only independent directors serve on those committees.
The Board believes that the company and its shareholders are well-served by the Board’s current leadership structure. The independent lead director is appointed by the Board of Directors to a three-year term. Having an independent lead director vested with key duties and responsibilities and four independent Board committees chaired by independent Directors provides a formal structure for strong independent oversight of the chairman and chief executive officer and the rest of our management team.
Our policy is that the Board should consist of a substantial majority of independent directors, in accordance with the standard for independence established in our Policies of the Board. Furthermore, we believe that the members of the Board should have the flexibility to choose their chairman in light of the company situation and circumstances prevailing at the time. At this time, the Board continues to believe that shareholders are best served by having Mr. Frazier serve as chairman and chief executive officer adds substantial strategic and operational perspective to the chairman role. His years of senior management and executive leadership experience at the company provide valuable business and cultural insight into the company to the benefit of the Board and put him in the best position to provide effective leadership.
For additional details on our Board’s leadership structure, please see our company’s 2018 Proxy Statement (page 18).
Our company’s chairman, president and chief executive officer, Kenneth C. Frazier, is accountable to the Board. Our company’s Executive Committee, an internal management committee of senior company executives chaired by Mr. Frazier, meets regularly to review our progress and to attend to other matters affecting our company.
We regularly communicate with our shareholders to better understand their perspectives, and have established a shareholder engagement program that is proactive and cross-functional. Throughout the year, members of Investor Relations, the Office of the Secretary, Human Resources, and the Office of Corporate Responsibility along with other subject-matter experts within the company, engage with our shareholders to remain well-informed regarding their perspective on current issues, as well as to address any questions or concerns. These teams serve as liaisons between shareholders, members of senior management and the Board. This open and constructive dialogue with our shareholders has led us to make certain governance- and compensation-related changes over the past few years, including the adoption of proxy access, lowering of the threshold required for shareholders to call special meetings and various changes in the design of our long-term incentive plan. For additional details on shareholder engagement, please see our company’s 2018 Proxy Statement (page 25).
Our company’s Board of Directors and senior management, including the company’s chief ethics and compliance officer and the Corporate Compliance Committee, oversee our company’s Global Compliance Program. Our compliance program is designed to maintain a culture that promotes the prevention, detection and resolution of potential violations of law or company policies. The program is dynamic, involving regular assessments to ensure that it is responsive to the company’s evolving business and associated compliance risks. The Global Compliance Organization is led by the senior vice president and chief ethics and compliance officer, who reports directly to the chief executive officer and provides regular quarterly updates to the Audit Committee of the Board of Directors on the state of ethics and compliance at our company. This reporting structure supports open communications with senior leadership and the Board regarding important developments that relate to ethics and compliance.
ENVIRONMENT, HEALTH & SAFETY GOVERNANCE
We are committed to full compliance with all environmental and employee health and safety laws and regulations, to engaging with our stakeholders concerning these issues, and to actively identifying, understanding and addressing potential environmental, health and safety (EHS) risks.
Our Executive Committee has established the EHS Council to provide enterprise-wide leadership and governance of our EHS compliance and performance. In addition to a corporate EHS policy, we are continuing to implement and sustain a robust compliance management program that effectively oversees and manages EHS issues affecting the company, in order to meet our responsibilities and commitments and to improve our performance. Furthermore, the Governance Committee also has oversight over the company’s EHS practices as set forth in its charter.
The Board has two primary methods of overseeing risk. The first method is through its Enterprise Risk Management (ERM) process which allows for full Board oversight of the most significant risks facing the company. The second is through the functioning of the Board committees. Management has established an ERM process to ensure a complete company-wide approach to evaluating risk over five distinct but overlapping core areas: (i) Responsibility and Reputation—risks that may impact the well-being of the Company, its employees, customers, patients, communities or reputation; (ii) Strategy—macro risks that may impact our ability to achieve long-term business objectives; (iii) Operations—risks in operations and cybersecurity that may impact our ability to achieve business objectives; (iv) Compliance—risks related to compliance with laws, regulations and company policies; and (v) Reporting—risks to maintaining accurate financial statements and timely, complete financial disclosures.
Our company’s Corporate Audit and Assurance Services group is accountable to the Audit Committee of the Board of Directors for assessing the adequacy and effectiveness of the company’s control environment in relation to the aforementioned core areas. This responsibility includes the appropriate management and oversight of key company risks, in accordance with our corporate policy on audit, control and risk management.
The goal of the ERM process is to provide an ongoing process, implemented across each business unit and corporate function, to identify and assess risk, and to monitor risk and agreed-upon mitigating action. Furthermore, in the event of a risk materializing into an incident, the ERM process ensures that effective response and business continuity plans are in place. Where the ERM process identifies a material risk, it will be elevated through our CEO and our company’s Executive Committee to the full Board of Directors for its consideration.
The Audit Committee periodically reviews the ERM process to ensure that it is robust and functioning effectively. The Audit Committee has responsibility for overseeing our company’s risk management program relating to cybersecurity; however, the full Board participates in periodic reviews and discussion dedicated to our company’s cyber risks, threats and protections.
For additional details on risk management, please see our company’s 2018 Proxy Statement (pages 19–20).
We are committed to a policy of full, accurate and timely disclosure of all material information in order to keep shareholders and the investing public informed about the company’s business and operations. Accordingly, we have established a corporate disclosure policy that articulates the standards, processes and governance for the company’s disclosure practices. Pursuant to the policy, our Disclosure Committee oversees the company’s disclosure practices and disclosure obligations.
Our company’s compensation programs are designed to align the interests of our executives with the interests of our shareholders. Each year, the Board of Directors considers the outcome of shareholder advisory votes on executive compensation when making decisions relating to the compensation of the company’s executive officers, including the chief executive officer, and to our executive compensation program and policies.
In 2018, shareholders continued their strong support of our executive compensation programs, with almost 95 percent of the votes cast for approval of the “say on pay” proposal at the 2018 Annual Meeting of Shareholders. The Board believes that the voting results demonstrate our shareholders’ support of the philosophy, strategy and objectives of our executive compensation programs. Furthermore, we continue to engage in direct constructive dialogue with our shareholders regarding our executive compensation programs and policies to ensure that investors understand the manner in which these programs and policies support our long-term strategic objectives.
Additional information on our company’s executive compensation programs, policies and practices can be found in our company’s 2018 Proxy Statement (pages 43–56).
GOVERNANCE OF OUR RESEARCH AGENDA
The Research Leadership Team, headed by the president of our company’s research laboratories, develops the divisional strategy, allocates resources, and manages the research and development portfolio. The Research Leadership Team is made up of the heads of functional areas within our research laboratories. Each area provides expert support of our medicine and vaccine candidates during the discovery and development process. Furthermore, the Research Committee assists the Board in its oversight responsibilities to ensure compliance with the highest standards of scientific integrity in the conduct of our company’s research and development as set forth in its charter.
Our Global Clinical Safety and Pharmacovigilance organization collects, medically reviews, and evaluates and reports adverse experiences to global health authorities in compliance with global regulatory reporting requirements. The global product safety teams within our research laboratories are responsible for monitoring the evolving safety profile of our medicines and vaccines. In parallel, at the country level, local pharmacovigilance teams at our subsidiaries worldwide are responsible for ensuring that adverse experience information is collected and reported to our global product safety staff at headquarters and to local regulatory authorities.
CORPORATE RESPONSIBILITY GOVERNANCE
Our Office of Corporate Responsibility identifies corporate responsibility issues that are important to our business success and to our stakeholders, and formally manages targets and performance for those issues. In addition, the Public Policy Responsibility Council, comprising senior representatives of each major division and function of the company, provides executive-level oversight and guidance on corporate responsibility matters. To learn more, click here.
Furthermore, the Governance Committee has responsibility for overseeing the company’s corporate responsibility and public policy issues. Additional information on the Governance Committee’s responsibilities can be found in our company’s 2018 Proxy Statement (page 24) or in its committee charter available on our corporate website.
|Independent directors on the Board||11||11||13||12||12|
|Percentage of Board members who are independent||92%||92%||93%||92%||92%|
|Separate chairman of the Board and CEO1||No||No||No||No||No|
|Lead independent director||Yes||Yes||Yes||Yes||Yes|
|Independent audit committee||Yes||Yes||Yes||Yes||Yes|
|Independent compensation and benefits committee||Yes||Yes||Yes||Yes||Yes|
|Independent governance committee||Yes||Yes||Yes||Yes||Yes|
|Number of Board meetings scheduled or held1||7||8||8||8||8|
|Shareholder support of the advisory vote on executive compensation||89%||96%||95%||94%||95%|
|1. Meetings held in person or via telephone.|