This year, People for the Ethical Treatment of Animals (PETA) filed shareholders' resolutions with Merck, Eli Lilly, Johnson & Johnson, Amgen, Schering-Plough, Bristol-Myers Squibb, and Abbott in an attempt to get the firms to stop using five common animal tests. The group also has a resolution pending with Wyeth regarding its treatment of the pregnant mares that produce urine used in making the estrogen-replacement drug, Premarin.
Such resolutions don't stand much chance of passing. At press time, the shareholders at Abbott, Merck, Lilly, and Wyeth had voted against the resolutions, with the Bristol-Myers and Amgen votes still pending. The resolutions, like most others filed by advocacy groups, also failed to win the 3% of the vote that would have been needed to bring the issue back at next year's annual meetings. Last year, PETA filed an animal-testing resolution with Wyeth and secured just 2.3% of the shareholders' votes.
A GROWING TACTIC
The use of shareholder resolutions by advocacy groups isn't new. PETA employed the tactic in the 1980s to draw attention to the animal testing that household-product and cosmetics manufacturers were conducting. However, the idea that advocacy groups can change corporate America by controlling shares is gaining popularity.
Any stockholder or group of stockholders owning at least $2,000 worth of shares for a year or longer can file a shareholders' resolution. When PETA started its campaign last year, it already owned stock in several of the companies it wanted to target. Benefactors often donate stock to the group in lieu of cash, Sandler explains. Generally, the stock is sold, but occasionally it is retained for the purpose of bringing a resolution. To get the resolutions considered at firms in which it did not own stock, PETA approached its top donors, asking them if they owned stock in any of the targeted companies, and if they would be willing to put their names on a proposal. "We got a great response," Sandler says.
Pharmaceutical and biotechnology companies might find themselves facing an increasing number of resolutions aimed at getting them to change their policies on everything from animal testing to the pricing of AIDS drugs. For example, the New York City-based Interfaith Center on Corporate Responsibility, a coalition of 275 faith-based investors that uses its financial holdings to try to force corporate change, reports filing hundreds of shareholder resolutions for 2005. It has targeted a variety of companies from soft-drink manufacturers to toy stores, but pharma and biotech firms figure prominently on the list. The group says it has various resolutions pending at Abbott, Allergan, Amgen, Bristol-Myers Squibb, Gilead Sciences, Johnson & Johnson, Eli Lilly, Merck, Pfizer, Schering-Plough and Wyeth.
The Social Investment Forum (SIF), the national trade association for the social investment industry, reports that 2004 was a record year for shareholder resolutions addressing social and environmental issues, and that 2005 has shaped up to match it. According to the SIF, the top categories of concern addressed by the resolutions include the environment, disclosure of political contributions and lobbying ties, fair employment, and animal welfare.
Even if a shareholder resolution won the majority vote it needed to pass, a board would be within its rights to refuse to enact it. Still, advocacy groups often see a campaign as a success if it opens up a dialogue with a company's board of directors, according to Con Hitchcock, a Washington, DC-based lawyer who specializes in shareholder issues.
"It's more difficult for a company to blow you off if you file a resolution than if you're simply writing letters. It's against the law to exclude a resolution [from the annual meeting proceedings]. That's why a lot of times, companies are willing to pick up the phone and say, 'Can we talk about this?"' says Hitchcock.
OPENING UP DISCUSSIONS
A number of the targeted companies did attempt to keep their shareholders from seeing the resolutions by saying that the resolutions violated the rules of the SEC, and so should not be included in the proxy statements.
Johnson & Johnson, Schering-Plough, General Electric, Dow Chemical and 3 M tried and failed to get the SEC to declare the resolutions ineligible, often on minor technicalities. According to PETA, Schering-Plough's case was based on the number of words in the resolution, a problem that was solved in large part by taking out the middle initials of the names it contained.
However, PETA withdrew its resolutions at Johnson & Johnson and Schering-Plough before their annual meetings, because both companies agreed to enter into talks with the organization about the tests. Schering-Plough is now engaged in an ongoing dialogue with the group about nonanimal alternatives to the five tests. "The people who called us up to negotiate I think were a little abashed by what had taken place [at the SEC], and we actually did have a very pleasant discussion with them," Sandler says. "They seemed to be genuinely interested in these issues."
Schering-Plough spokesperson Rosemarie Yancosek declined to comment on the content of the talks or on the company's position regarding animal testing in general, but she says that the firm is "pleased to be able to maintain a dialogue" with the group.
ANOTHER TARGET: REGULATORS
PETA's shareholder-resolution campaign is somewhat unusual in that it is designed partly as a way to put pressure on the Food and Drug Administration, and on the Environmental Proection Agency through resolutions field with chemical companies such as Dupont and Dow.
In general, PETA's positions are not about half-measures: The group believes that animals should not be eaten, have their skins worn as clothing, or be used for any laboratory or medical testing. But, in formulating the shareholder resolutions, the group is focusing on only five tests: the skin-corrosion, skin-irritation, phototoxicity, pyrogenicity, and skin-absorption tests.
Currently, nonanimal alternatives are accepted for some of the tests by some agencies but not others, and often only for certain types of formulations. Along with asking the targeted firms to give up the five tests, the resolutions urge the companies to petition the relevant regulatory agencies to accept in vitro methods as total replacements for the animal tests.
Johnson & Johnson spokesperson Mark Monsoe notes that the FDA requires the tests. "We are not aware of any company submitting a product for approval where the application has relied only on the nonanimal versions of the tests," he says. Similarly, Amgen's board of directors noted in its response to the resolution that the company already makes use of the in vitro versions of the tests. Nevertheless, Amgen says it urged shareholders to vote against the resolution, because regulatory agencies sometimes require animal tests.
The FDA did not respond to requests seeking comment. Anti-vivisectionists point out that in Europe, an effort is underway to switch over to validated nonanimal tests whenever possible, largely due to pressure from animal-rights groups. However, Lynette Hart, director of the University of California Center for Animal Alternatives at UC-Davis, notes: "If you're a country that has essentially no pharmaceutical development, it's easy for you to agree to accept a substitute test, but if you're out there exploring completely new dimensions of products, the risk is many times greater."
"The thing to remember about Europe is that it's basically tiny potatoes, because there's so little pharmaceutical, cosmetic, or household-product industry in any of those countries," says Hart. In the United States, she points out, the complexity of the regulatory system and the enormous burden of proving the safety of entirely new products means that things may have to move slowly.