Until the end of the year, Pfizer will differ from its industry peers in one unique way: It will be the only U.S.-based traditional big pharmaceutical company in which the CEO doesn't also serve as the chair of the company's board.
Pfizer's recent announcement that Albert Bourla will succeed Ian Read as chair on Jan. 1., just as Bourla did as CEO a year earlier, makes it a very temporary contrast. Of the U.S.-based biopharma companies with a market capitalization of more than $20 billion, just three others, all comparatively smaller biotechs, have divided the roles.
Big biopharma companies with unified CEO and board leadership
|Bristol-Myers Squibb||Giovanni Caforio|
|Eli Lilly||David Ricks|
|Johnson & Johnson||Alex Gorsky|
|Merck & Co.||Kenneth Frazier|
|Vertex Pharmaceuticals||Jeffrey Leiden|
Their European and Asian counterparts, on the other hand, are all helmed by chief executives who answer to an independent board chair. This is driven by law in some countries like Germany and by changes in general corporate practices in others.
For example, in the U.K. the trend toward independent chairs began nearly two decades ago following Maxwell Communications' collapse, after which the so-called Cadbury report recommended board chairs "in principle be separate from that of the chief executive."
U.S. pharma, by contrast, is fiercely resistant to pressure from activist investors, who often seek to divide the roles. And the federal government has at minimum asked those companies that unify the CEO and chairperson positions to justify their choice.
"You don't get to be a CEO by wanting to report to anybody, which is why it's important to have somebody overseeing [the CEO]," said Nell Minow, a corporate governance expert who serves as vice chair of the institutional investment consulting group ValueEdge Advisors.
The tendency to unify the two roles is so strong in biopharma that Gilead Sciences gave Daniel O'Day both titles when it lured him away from Roche earlier this year, having been preceded by John Martin as chairman and John Milligan as CEO.
Big biopharma companies that have divided CEO, board chairperson roles
|Alexion||Ludwig Hantson||David Brennan|
|AstraZeneca||Pascal Soriot||Leif Johansson|
|Bayer||Werner Baumann||Werner Wenning|
|Biogen||Michel Vounatsos||Stelios Papadopoulos|
|GlaxoSmithKline||Emma Walmsley||Jonathan Symonds|
|Novartis||Vasant Narasimhan||Joerg Reinhardt|
|Novo Nordisk||Lars Fruergaard Jørgensen||Helge Lund|
|Pfizer||Albert Bourla||Ian Read*|
|Regeneron||Leonard Schleifer||P. Roy Vagelos|
|Roche||Severin Schwan||Christoph Franz|
|Sanofi||Paul Hudson||Serge Weinberg|
|Takeda||Christophe Weber||Masahiro Sakane|
*Until December 31
Today, 53% of the companies in the S&P 500, which includes every U.S.-based company in this analysis, split the chairperson and CEO roles. That's up from 37% a decade ago, said Julie Daum, who leads the North American Board Practice of the consultancy Spencer Stuart.
The upward trend coincides with the 2010 passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required companies disclose the reasons why they chose to unify or separate the roles in their annual proxy statements to shareholders.
For example, earlier this year Allergan management fought off a shareholder proposal to split the CEO and chairperson positions — both held by Brent Saunders — following a number of strategic stumbles.
In response, the board pitched a "refreshment" of its membership, bringing on former Celgene CEO and chair Bob Hugin and appointing a lead independent director. The roles of chairperson and CEO will be divided when Saunders leaves as CEO.
Improved oversight is the main argument in favor of dividing the roles. An independent chair can serve as a "natural leader" when the interests of shareholders and company management diverge.
In extreme cases where a board decides to fire a CEO, the independent chair can step in to head the company and help plan succession, notes Eric Orts, a professor of business ethics at the University of Pennsylvania's Wharton school.
Yet the board's independence is contingent on the ability of the CEO to dictate the agenda of board meetings and flow of information to directors, ValueEdge's Minow said. "One indicator of a bad board is that they get the material less than a week before the meeting and the CEO decides what they get."
And an independent chair is no guarantee oversight will be comprehensive throughout the company if there is no structure that allows employees to serve as checks on management, said Orts.
"Just having a separate chair for when an emergency comes up doesn't really do much to keep the next crisis from coming up."
There is a case to be made to give the CEO the chairperson's job in biopharma, though. The volume of information necessary to manage innovative companies that rely heavily on intellectual property may be too much for an independent board chair to digest, which may be why pharma companies favor the unified position, says Michelle Lowry, a Drexel University professor and academic head of the business school's governance institute.
"If we have a firm with a lot of very firm-specific information that's at the heart of firm value then it might be harder for the independent chair to make those calls," she said. "Firms that are characterized by high information asymmetry … then arguably there's some economic-based reasons to have the chair and CEO combined."
That, for now, seems to be the position that big pharma and biotechs from Vertex on up have taken. Any transition toward dividing the roles looks to be gradual at best, as in the case of Allergan, as turnover at the top takes place.
Shareholder dissent could be a game-changer, however. Scandals and lawsuits are frequently the trigger for a CEO firing, but also can provide the impetus for a company to make governance changes including dividing the roles.
In particular, "derivative" lawsuits — those filed by a shareholder on behalf of the corporation against company management or the board for mismanagement — can be effective at prodding change, Lowry said.
Without such events, it can take several years of activists putting the breakup to a vote at annual meetings before gaining the support of a majority of shareholders, or the acquiescence of management and directors.
"This stuff is slow moving," Lowry said. "It doesn't mean it shouldn't change. But the reality is it takes a lot of effort and money to get there."