Mckesson Plans to Fight Clawback Policy
July 31st, 2013 // 11:29 am @ jmpickett
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Do you think one of the biggest drug wholesalers should have a clawback rule for top executives? Two investors think the time has come for McKesson, as the wholesaler has had to pay out more than one billion dollars in recent months to deal with various legal disputes without disclosing any sort of clawback steps.
Meanwhile, the CEO of McKesson, John Hammegren, got over $100 million in pay last year.
So, the LongView Funds run by Amalgamated Bank and the UAW Retiree Medical Benefits Trust  is considering a proposal that is going to be voted on at the shareholder meeting of McKesson for 2013 today. They believe that the move will boost transparency, boost executive performance based pay and dissuade top execs from behavior that could financially hurt the company.
The investors say that current McKesson, MCK, policy is not strong enough because ‘misconduct’ is stated to be acts that are done intentionally without regard to the degree of harm. They say that the current policy has too high of a standard where clawbacks can be used. For instance, theft normally is not covered if the money amount that was nabbed by an executive does not actually hurt the wholesaler in a material way.
Amalgamated Bank stated yesterday that it wants to the board at McKesson to boost the strength of its clawback and to increase transparency. It thinks that this will give a signal to execs and shareholders that costly settlements down the road have consequences and corporate funds will be clawed back.
McKesson at this point is rejecting the notion that its policy does not work and argue that it was not right to state that a $350 million settlement for an overbilling issue was because of some sort of deliberate misconduct in reporting to the SEC.
The concept of clawback is not a new one, but it is getting more traction with big investing companies who are getting more leery of the drug industry. In the last few years, several pharma companies have had to settle criminal and civil charges for improper behavior in the US, including the defrauding of Medicaid and Medicare.
Aware of the problem, about 6 pharma companies did a deal with 12 investing companies, such as UAW Retiree Medical Benefits Trust, to change up their compensation policies to make it less difficult to clawback payouts to top execs. Some of the drug firms included Amgen, Bristol Myers Squbb, Eli Lilly, J&J, Merck and Pfizer.
For example, the revised policies will provide board compensation committees with complete discretion to see if a company policy violation that is related to the sale/manufacture/marketing of a health care service caused any sort of serious financial harm to the firm and should then trigger possible clawback of compensation.
