You can file this under, “What opioid crisis?”
In one of the more startling examples of tin-ear syndrome, AmerisourceBergen wants its shareholders to bless a $14.3 million pay package for chief executive officer Steven Collis. Not only is this a hefty amount of money, but it represents a 26% boost over the previous year.
The pharmaceutical wholesaler can act so generously thanks to a tricky maneuver: excluding the cost of legal settlements for evaluating executives. For those not tracking the sprawling opioid litigation around the U.S., the company is expected to pay $6.6 billion to compensate communities for the cost of grappling with substance use disorder, prescription drug overdoses, and deaths.
By manipulating numbers this way, AmerisourceBergen turned a $3.4 billion loss last year — its biggest ever — into an adjusted profit of $1.6 billion. And Collis qualified for nearly $10.3 million in cash and stock he would not have received otherwise, according to Michael Pryce-Jones, corporate governance analyst at the International Brotherhood of Teamsters, which holds stock in the wholesaler.
At the company’s annual meeting Thursday, the AmerisourceBergen board wants shareholders to rubber-stamp the huge payout and its overall approach to compensation.
That would be a terrible move. The payout is not only undeserved, but wrongheaded.
Why do I say that?
During his decade as chief executive, Collis presided over a company that allegedly failed to monitor opioid shipments, according to court documents filed as part of more than 2,000 lawsuits brought by state, county, tribal, and city governments.
More than once, in fact, authorities tagged AmerisourceBergen for exhibiting a disregard for the fate of opioids that left its warehouses.
Notably, in 2017, the wholesaler reached a $16 million settlement with West Virginia for failing to report suspicious orders of controlled substances. And last year, the California Board of Pharmacy fined the company for shipping “excessive” amounts of opioids and other controlled substances to pharmacies, and was also cited for failing to report suspicious orders to authorities.
Meanwhile, drug overdose deaths involving prescription opioids rose from more than 3,400 in 1999 to roughly 17,000 in 2017, according to data from the Centers for Disease Control and Prevention. Overall, prescription opioids accounted for 9.2% of all overdose drug deaths.
Granted, AmerisourceBergen was just one of three large pharmaceutical wholesalers that have been accused of fomenting the opioid crisis. And there is a long list of assorted drug makers, retail pharmacies, and physicians that have similarly been fingered for contributing to this sad national saga.
But rewarding Collis sends the wrong message.
“Some things are legal, but still not right. And I think this might fall into that category,” Rosanna Landis Weaver, program manager for executive compensation at As You Sow, a nonprofit foundation that tries to promote corporate social responsibility through shareholder advocacy, told me.
“That the CEO compensation is insulated from the financial troubles and societal troubles is deeply problematic. It’s the sort of thing that undermines confidence in our system — and corporations and boards — and creates a sense that some people matter and will never have anything affect them.”
Activist investors, however, are not the only ones who feel this way.
Last month, the state treasurers of Rhode Island and Connecticut, who belong to Investors for Opioid and Pharmaceutical Accountability, urged AmerisourceBergen shareholders to reject the compensation. “Incentive awards are not entitlements, and their payout in the face of such huge charges [for litigation settlements] reflects poorly on AmerisourceBergen’s broader culture and accountability,” they wrote.
And two influential shareholder advisory firms — Glass Lewis and Institutional Shareholder Services — also raised objections. Both firms noted that key metrics used to reward Collis — the growth in earnings per share and return on invested capital — would not have looked so good if the opioid settlement had been used in the calculations.
“We question whether the incentive outcomes reflect a fair assessment of performance resulting from actions of its executives,” Glass Lewis wrote its clients. Both firms complained about a lack of additional information about the litigation settlement.
An AmerisourceBergen spokeswoman wrote me that “the purpose of our executive compensation program is to attract, motivate and reward executives who lead AmerisourceBergen and make decisions that benefit our shareholders, stakeholders and patients. Pharmaceutical distributors like AmerisourceBergen walk a legal and ethical tightrope that requires both providing all necessary access to medications and preventing diversion of controlled substances.”
Nonetheless, AmerisourceBergen has been on the defensive. Last week, the wholesaler filed an additional explanation for its compensation and argued that considering the effects of the opioid litigation would have not been the right approach for shareholders.
I get it. We live in a capitalist society.
But there is such a thing as taking responsibility for the role one plays in that society.
By reaching for its calculator and overlooking the blight caused by an unchecked availability of opioids, the AmerisourceBergen board is actually doing a disservice to shareholders. After all, they live here, too.
This approach to compensation, in short, is a prescription for reputational disaster.