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From Securities Regulation Daily, January 17, 2018

Drug distributor may not omit shareholder proposal relating to opioid crisis

By Jacquelyn Lumb

AmerisourceBergen Corporation may not omit a shareholder proposal that seeks a report on the governance measures the company has instituted since 2012 to more effectively monitor and manage the financial and reputational risks related to the opioid crisis in the U.S. The proposal was submitted by a group headed by the Sisters of St. Francis of Philadelphia, which noted that the company is one of the largest prescription drug wholesalers in the nation. The company is subject to multiple government investigations and has settled one claim that it acted negligently in its distribution of controlled substances to pharmacies in West Virginia. If the proposal is approved by shareholders, AmerisourceBergen would be required to report to whom it has assigned the responsibility for monitoring the financial and reputational risks; whether it has revised any executive compensation provisions; whether it has adopted or changed any mechanisms for receiving input from shareholders; and whether it has altered any policies regarding its political activities.

Argument for omission. AmerisourceBergen asked the Division of Corporation Finance to concur with its view that it could omit the proposal in reliance on Rules 14a-8(i)(7) as relating to ordinary business and Rule 14a-8(i)(10) because it had already substantially implemented the proposal. The company also asserted that the proposal seeks to micromanage the company, which is grounds for omission under Rule 14a-8(i)(7).

AmerisourceBergen advised that it has taken many steps to monitor and manage risks, including those related to opioids. The board exercises its oversight authority both directly and through its committees. With respect to compensation, AmerisourceBergen said the compensation committee’s charter is reviewed regularly and has been amended five times since 2012. The board also regularly reviews the mechanisms for receiving shareholder input. On the issue of political engagement, the company said it has posted a policy statement on its website and discloses annually its expenditures on political contributions and lobbying activities.

Proponent’s response. The Sisters of St. Francis, in response to AmerisourceBergen’s no-action request, noted that its proposal addresses the significant policy issue of the opioid abuse epidemic and seeks only high-level disclosure about governance changes rather than technical and detailed disclosure. The opioid abuse crisis is one of the most urgent social problems facing the U.S., according to the Sisters of St. Francis, and wholesale drug distributors like the company have received a lot of attention and criticism for ignoring red flags and allowing enormous amounts of prescription opioids to be shipped to, and potentially diverted to illegal use, in areas affected by the epidemic.

In a supplemental response, AmerisourceBergen advised that the members of its governance committee discussed the proposal and the significance of the policy issue it raised, and concluded that there was not a sufficient nexus between the proposal’s focus on the abuse of opioid medications and the company’s core operations as a distributor of pharmaceutical products. The company disagreed with the proponents’ interpretation of the staff responses in a number of other no-action letters and said the responses actually supported its views. The proponent assumes that all distributors are the same and should be treated the same way, in AmerisourceBergen’s view.

Staff position. The staff advised that it was unable to concur with AmerisourceBergen’s position based on the correspondence that was submitted, including the board’s analysis of the matter, that the proposal was not sufficiently significant to the company’s business operations to the extent that the proposal’s omission would be appropriate. The staff pointed to the company’s role in the distribution of pharmaceutical products, including opioids, and said the information that was submitted did not include any quantitative or other analysis that might be helpful in determining whether the proposal was significant to its business operations.

The staff also disagreed with the company’s view that the proposal sought to micromanage its operations to the extent that its omission would be appropriate. In addition, the staff did not find that the company’s public disclosures compared favorably with the guidelines in the proposal, so it was unable to concur that it could be omitted in reliance on Rule 14a-8(i)(10).

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