This excerpt taken from the LLY DEF 14A filed Mar 5, 2007.
Item 6. Shareholder Proposal Regarding International Outsourcing of Animal Research
Gloria J. Eddie, 1060 Cambridge Avenue, Menlo Park, California 94025, on behalf of People for the Ethical Treatment of Animals (PETA), beneficial owner of approximately 281 shares, has submitted the following proposal.
Resolved, that the Board report to shareholders on the rationale for increasingly exporting the Companys animal experimentation to countries which have either non-existent or substandard animal welfare regulations and little or no enforcement. Further, the shareholders request that the report include information on the extent to which Lilly requires at a minimum adherence to U.S. animal welfare standards at its facilities in foreign countries.
Supporting Statement: Eli Lilly has publicly committed to an ethical and scientific obligation to ensure the appropriate treatment of animals used in research, to minimize the number of animals involved, and to pursue the development of alternative test systems.5 However, many of the countries to which the Company is re-locating its animal research and testing are known for having no or poor animal welfare standards and negligible oversight.
In January 2006, Business Week reported that Increasingly, Lilly is moving its research and development...to China, India, and the former Soviet bloc.6 The November 13, 2006, issue of Forbes magazine also reported that Eli Lilly had announced plans recently to set up research units in China. The Forbes article noted that the rationale for shifting animal testing to China is that scientists are cheap, lab animals plentiful and pesky protesters held at bay and quoted a pharmaceutical industry executive who admits that Chinese testing companies lack quality control and high standards on treatment.7
Our Company now conducts a significant portion of its research in foreign laboratories, with 20% of its scientists based in China (its largest non-U.S.-based Research & Development team)8. Purposely re-locating research to regions with lower animal costs, easy animal availability, and lower welfare standards is in direct conflict with Lillys stated commitment to reducing, refining, and replacing animal use.
Shareholders deserve to know whether animal testing is being moved to foreign countries in order to circumvent American animal welfare laws and reduce oversight and other protections for animals, and whether research conducted at Lilly facilities in other countries is held to at least the same standards as animal testing conducted at its U.S. facilities.
Statement in Opposition to Animal Care and Use Proposal and International Outsourcing of Animal Research Proposal
Please see the Statement in Opposition following Item 5 above.
The board recommends that you vote AGAINST this proposal.
The Adrian Dominican Sisters, 1257 East Siena Heights Drive, Adrian, Michigan, 49221-1793, beneficial owner of approximately 50 shares, has submitted the following proposal.
Resolved, The shareholders of Eli Lilly & Company request the Board of Directors establish a policy of whenever possible, separating the roles of Chairman and Chief Executive Officer, so that an independent director who has not served as an executive officer of the Company serves as Chair of the Board of Directors.
This proposal shall not apply to the extent that complying would necessarily breach any contractual obligations in effect at the time of the 2007 shareholder meeting.
Supporting Statement: We believe in the principle of the separation of the roles of Chairman and Chief Executive Officer. This is a basic element of sound corporate governance practice.
We believe an Independent Board Chair separated from the CEO is the preferable form of corporate governance. This primary purpose of the Board of Directors is to protect shareholders interests by providing independent oversight of management and the CEO. The Board gives strategic direction and guidance to our Company.
The Board will likely accomplish both roles more effectively by separating the roles of Chair and CEO. An Independent Chair will enhance Investor confidence in our Company and strengthen the Integrity of the Board of Directors.
A Number of respected Institutions recommend such separation. CalPERs Corporate Core Principles and Guidelines state: the Independence of a majority of the Board is not enough and that the leadership of the board must embrace independence, and it must ultimately change the way in which directors interact with management.
An independent board structure will also help the board address complex policy issues facing our company, foremost among them the crisis in access to pharmaceutical products.
Millions of Americans and others around the world have limited or no access to our companys life-saving medicines. We believe an independent Chair and vigorous Board will bring greater focus to this ethical imperative, and be better able to forge solutions to address the crisis.
The current business model of the pharmaceutical sector is undergoing significant challenges. The industry has generated substantial revenue from American purchasers, who pay higher prices for medicines than those in other developed countries. Pressure on drug pricing and dependence on this business model may impact our companys long-term value. We believe Independent Board leadership will better position our company to respond to these enduring challenges.
A similar resolution voted on in 2006 was supported by 27.15 percent of shareholders.
In order to ensure that our Board can provide the proper strategic direction for our Company with Independence and accountability, we urge a vote FOR this resolution.
Statement in Opposition to the Proposal Regarding Separating the Roles of Chairman and Chief Executive Officer
The board of directors, the directors and corporate governance committee, and the public policy and compliance committee of the board have reviewed this proposal and recommend a vote against it. We believe that Lilly already has a strong, independent board operating under sound principles of corporate governance. (See pages 11-15 for a description of the boards governance principles.) These principles are designed to ensure board independence, whether or not the chairman and chief executive officer (CEO) roles are separated, through a counterbalancing governance structure.
The board is composed of a majority of independent board members, currently 10 out of 12 directors; under our governance principles, 75 percent of the board must be independent, non-employee members. Additionally, the presiding director, an independent director who is appointed by the board, presides at all meetings of the board at which the chairman is not present (unless another independent director is chosen based on the subject matter), including an executive session after each regular board meeting and an annual review of the CEOs performance. In addition, the presiding director:
A recent Wharton School of Business article entitled Splitting Up the Roles of CEO and Chairman: Reform or Red Herring?,9 points out that there is a lack of hard evidence to show that separating the roles boosts returns for shareholders. A majority (315) of the top 500 Standard & Poors 500 index maintain a CEO/Chairman role. As the article points out, most companies that separate these roles do so because they are troubled or facing a major executive succession challenge. Lilly neither expects, nor is facing, either of these problems. Additionally, the article points out that by dividing roles a company may weaken its ability to develop and implement strategy. We agree, and believe that combining the roles of board chair and CEO generally provides the most efficient and effective leadership model for the company.
We agree that the current business model of the pharmaceutical sector is undergoing significant challenges. The company has adopted a strategy, approved by the board, to transform the cost structure through a variety of productivity initiatives and to provide customers with a significantly enhanced value proposition that improves patient outcomes through tailoring drug, dose, timing of treatment, and relevant information.
We also agree that access to medicine continues to be a serious concern; however, the boards corporate governance principles ensure effective independent oversight of the companys responses to this problem. The public policy and compliance committee of the board, composed solely of independent directors, provides independent oversight of public policy issues for the board, including access to medicines.
Guided by the active oversight of our independent directors, our company will continue to be a strong advocate for reforms that improve access to needed medicines and reduce the cost structure for health care while protecting the industrys ability to invest in innovation for the next generation of breakthrough medicines. At the same time, we will help to address the immediate needs of those without access to health care through patient assistance programs. In 2006 alone, we distributed products with a retail value of more than $300 million free of charge through these programs.
The board recommends that you vote AGAINST this proposal.