Corporate Governance

We believe good corporate governance is essential to achieving long-term shareholder value.

Highlights
  • Added a formal diversity policy to the Policies of the Board
  • In 2019, our Board included four women members and two members representing underrepresented ethnic groups

 

Our company focuses on breakthrough, innovative science to create long-term value for patients and shareholders. We are committed to governance policies and practices that serve the interests of our company and its many stakeholders. In exercising our fiduciary duties to our shareholders, we take a long-term perspective on shareholder value that considers both our company’s relationship with society as a whole and the interests of our many diverse stakeholders.

Our approach

The Board

The Board has the legal responsibility for overseeing the affairs of the company and the overall performance of the company. The Board’s primary mission is to represent and protect the long-term interests of our shareholders. The Board selects and oversees the senior management team, which is charged with conducting the company’s daily business. The Board meets at least six times per year to provide strategic direction to the company and to review our progress on essential strategic priorities of each business area.

The Board has established four standing committees comprised solely of independent directors:

  • Audit Committee
  • Compensation and Benefits Committee
  • Governance Committee
  • Research Committee

These four standing committees facilitate the Board’s independent oversight over the affairs of the company. All of our standing committees are governed by Board-approved charters, which are available on our corporate website.

While it is our company’s philosophy that the full Board should consider and act on matters of significance, these committees assist the Board in carrying out its responsibilities and provide greater focus in key areas:

  1. The Audit Committee oversees the company’s accounting and financial reporting processes, internal controls and audits and consults with management, the internal auditors and the independent auditors on, among other items, matters related to the annual audit, the published financial statements and the accounting principles applied.
  2. The Compensation and Benefits Committee annually reviews and approves the corporate goals and objectives relevant to the total direct compensation opportunity for the Chairman and Chief Executive Officer (CEO) and certain other officers; evaluates their performance against these goals and objectives; and, based on this evaluation, sets their total target direct compensation and determines payouts under the company’s variable compensation plans.
  3. The Governance Committee oversees the company’s corporate governance, including the practices, policies and procedures of the Board and its committees. Further, the Governance Committee annually reviews the size, structure and needs of the Board and Board committees, reviews possible candidates for the Board and recommends director nominees to the Board for approval.
  4. The Research Committee oversees the overall strategy, direction and effectiveness of the company’s operations for the research and development of pharmaceutical products and vaccines. As part of this oversight, the Research Committee focuses on a variety of areas, including drug and vaccine discovery, licensing and development strategies, decision-making procedures and outcomes, as well as processes and procedures for identifying, evaluating and capitalizing on cutting edge scientific developments and advancements and enabling technologies.

Additional information on our company’s standing committees can be found in our company’s 2020 Proxy Statement (pages 19–21).

Policies of the Board

The Board has adopted corporate governance principles (the “Policies of the Board”) that, together with our Restated Certificate of Incorporation, By-Laws and Board committee charters, form the governance framework for the Board and its committees.

The Policies of the Board cover a wide range of subjects, including the philosophy and functions of the Board, the composition of the Board, the independent Lead Director’s responsibilities, categorical independence standards, director qualifications, assessment of the Board, committee responsibilities, director transition and retirement, service on other boards, director compensation, stock ownership guidelines, chairmanship of meetings, director orientation and continuing education, incumbent director resignation and related persons transactions. A copy of the Policies of the Board is available on our corporate website.

Board composition

Our Board possesses broad expertise, skills, experience 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, expertise, educational background and other qualifications that are particularly desirable in light of our current and future global business strategies. The Governance Committee uses this input in its planning and director search process.

The Governance Committee considers diversity as an important factor when identifying prospective nominees for our Board. In 2019, the Board added a formal diversity policy to the Policies of the Board. The policy reflects the Board’s longstanding commitment to ensure that directors represent diverse perspectives and areas of expertise important to fostering the company’s business success. In addition, the policy provides that the Board does not discriminate against potential directors on the basis of gender, race, age, sexual orientation or ethnic and national background and that having a board composed of diverse individuals is an important contributor to the Board’s overall effectiveness.

From time to time and including in 2019, the Governance Committee has retained independent search firms to assist in identifying candidates that reflect its director succession priorities, including these diversity objectives. In 2019, our Board included four women members and two members representing underrepresented ethnic groups.

The Governance Committee also considers recommendations for director candidates made by shareholders and evaluates them using the same criteria as for other candidates. In director succession planning, the Board and the Governance Committee consider, among other things, the needs of the Board and the company in light of the overall composition of the Board, with a view toward achieving a balance of the skills, experience and attributes that are essential to the Board’s oversight role.

For additional information about the Board’s succession planning process, please see our company’s 2020 Proxy Statement (page 17).

Board independence and 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. As a non-independent director, Mr. Frazier is not a member of any Board committee. 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. The position of Lead Director has a clear mandate and significant authority and responsibilities—all set out in the Policies of the Board.

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 promotes strong independent oversight of the chairman and chief executive officer and the rest of our management team.

For additional details on our Board’s leadership structure, please see our company’s 2020 Proxy Statement (page 15).

Corporate management

Our company’s Chairman and Chief Executive Officer, Ken 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 against the company’s strategic goals and to attend to other business matters affecting our company.

Shareholder engagement

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 our Investor Relations department, the Office of the Secretary, the Human Resources department and the Office of Corporate Responsibility, as well as other subject-matter experts within the company, engage with our shareholders to remain well-informed regarding their perspective on current issues and to address any questions or concerns. These teams serve as liaisons between shareholders, members of senior management and the Board. From time to time, our directors also participate directly in these engagements.

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.

During 2019, we held discussions with a number of our shareholders in the spring before the Annual Meeting and once again in late fall. We discussed a number of topics with shareholders in 2019, including environmental, social & governance (ESG) reporting, company culture, company strategy, human capital management, board leadership, composition and refreshment and other pertinent topics. For additional details on shareholder engagement as well as shareholder communications with the Board, please see our company’s 2020 Proxy Statement (pages 23-24).

Compliance

Our company’s Board of Directors and senior management, including the chief ethics and compliance officer and members of the Corporate Compliance Committee, provide the foundational elements of leadership, accountability and structure to oversee the company’s global ethics and compliance program.

The chief ethics and compliance officer reports directly to our company’s CEO and provides regular updates to the Audit Committee of the Board of Directors on key indicators of ethical culture. This reporting structure supports open communications with senior leadership regarding important developments that relate to ethics and compliance.

Environment, health and 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 established the Environmental Health and Safety (EHS) Council to provide enterprise-wide leadership and governance of the company’s EHS compliance and performance. In addition to the establishment of the EHS Council and 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.

Risk management

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 six distinct but overlapping risk areas:

  1. Responsibility and Reputation: Risks that may impact the well-being of the company, its employees, customers, patients, communities or reputation
  2. Strategy: Macro risks that may impact our ability to achieve long-term business objectives
  3. Operations: Risks in operations and cybersecurity that may impact our ability to achieve business objectives
  4. Compliance: Risks related to compliance with laws, regulations and company values, ethics and policies
  5. Reporting: Risks to maintaining accurate financial statements and timely, complete financial disclosures
  6. Safety: Risks to employee, patient or community health and safety

 

Our company’s Corporate Audit and Assurance Services group is accountable to the Audit Committee 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 review, implemented across the company and aligned to company values and ethics, to identify and assess risk, and to monitor risk and agreed-upon mitigating action. Furthermore, if a risk transforms into an incident, the ERM process ensures that effective response and business continuity plans are in place. If 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 consideration.

The Audit Committee periodically reviews the ERM process to ensure it is robust and functioning effectively. Through the ERM process, each Board committee oversees specific areas of risk relevant to the committee through direct interactions with the CEO, members of the company’s Executive Committee and the heads of business divisions and corporate functions. A committee may address risks directly with management or, where appropriate, may elevate a risk for consideration by the full Board or another Board committee.

For additional details on risk management and examples of the Board committees’ responsibilities in risk oversight, please see our company’s 2020 Proxy Statement (page 18).

Disclosure

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.

Executive compensation

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 and the Compensation and Benefits Committee 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 CEO, and to our executive compensation program and policies.

In 2019, shareholders continued their strong support of our executive compensation programs, with 93 percent of the votes cast for approval of the “say on pay” proposal at the 2019 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 how 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 2020 Proxy Statement (pages 42–56).

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.

Safety monitoring

Our Global Clinical 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

We are committed to governance policies and practices that serve the interests of the company and its shareholders. Our reporting and governance structure is an integral part of this commitment.

Board Governance Committee
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 2020 Proxy Statement (page 21) or in its committee charter available on our corporate website.

The Public Policy and Responsibility Council (PPRC)
The PPRC is a high-level forum for strategic input and guidance on our social business investments, corporate responsibility approach and public policy issues and positions. The diverse, cross-functional membership of the PPRC provides vision, leadership and cross-divisional input and alignment on policy and responsibility strategy, issues and initiatives. Specifically, the company’s PPRC enables policy and corporate responsibility issue identification and debate; makes decisions on policy and corporate responsibility issues or makes recommendations to the Executive Committee, as necessary; informs policy and corporate responsibility strategy; and reviews performance and reporting against defined objectives. Overall, the PPRC promotes further integration of corporate responsibility and policy considerations into our business activities.

The Office of Corporate Responsibility
The Office of Corporate Responsibility is responsible for raising the visibility of corporate responsibility issues and activities across the company and fosters connections across business units and functional areas to integrate our corporate responsibility principles into business policies, strategies and practices, including the ERM process, and brings the voice of external stakeholders into decision-making processes.

The Office of Corporate Responsibility also coordinates the development, implementation and communication of our global approach and, with strategic guidance from the Public Policy and Responsibility Council, Executive Committee and the Board Governance Committee, is responsible for publishing the annual corporate responsibility report. If you have further questions, you may contact the Office of Corporate Responsibility.

The Corporate Responsibility Report Working Group
The members of the Corporate Responsibility Report Working Group, a diverse selection of employees from all divisions of the company, serve as subject matter experts in their respective areas and work closely with the Office of Corporate Responsibility to help set goals and develop metrics that support and measure our overall corporate responsibility strategy and objectives. Individual members have been chosen to be active advocates for corporate responsibility within their respective areas.

Performance data

Corporate governance20152016201720182019
Independent directors on the Board1312121211
Percentage of Board members who are independent93%92%92%92%92%
Separate chairman of the Board and CEONoNoNoNoNo
Lead independent directorYesYesYesYesYes
Independent audit committeeYesYesYesYesYes
Independent compensation and benefits committeeYesYesYesYesYes
Independent governance committeeYesYesYesYesYes
Women on the Board21%23%23%23%25%
Members of underrepresented ethnic groups on the Board21%23%23%23%25%
Number of Board meetings scheduled or held188866
Shareholder support of the advisory vote on executive compensation95%94%95%95%93%
1Meetings held in person or via telephone.