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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
Company’s 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 Lilly’s 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.
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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 shareholder’s
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. CalPER’s 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 company’s
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 company’s 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 board’s 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 CEO’s performance. In addition, the
presiding director:
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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 & Poor’s 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 board’s
corporate governance principles ensure effective independent oversight of the company’s 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 industry’s 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.
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