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AstraZeneca

Encouraging turnaround

Home / Hermes EOS Case Studies / AstraZeneca

Bruce Duguid,
22 May 2015
Governance

Background
Noting the company’s underperforming productivity in research and development and subsequently poor market rating at the time, our engagement with AstraZeneca was triggered by a share incentive scheme introduced in 2010. We voted against the scheme as its performance hurdles in dividend payments and dividend cover painted a bleak picture for the future of the business. Following this we met the company’s chair in 2011, which heightened our concerns on the company’s strategic direction and performance and left us questioning the quality of the board and the company’s leadership. AstraZeneca made headlines in 2014 for a takeover approach by Pfizer, which it rejected despite a substantial premium to the pre-bid price.

What we did
Shortly after the meeting with the chair, we raised our concerns with another board member and welcomed the news that the refreshment of the chair’s role would be brought forward. This was at the same time as the CEO announced his retirement from the AstraZeneca board, signalling the gravity of concerns about the company’s performance. We requested a meeting with the chair designate before he officially took up the role to put across our thoughts on the company and get a sense of his initial views on how to rebuild market confidence in AstraZeneca. We also continued our discussions with the remuneration committee chair on how to incentivise the new management to revive the business.

Results
We have since met the chair and other board members on a regular basis and have been impressed by the new leadership and the turnaround AstraZeneca is undergoing. The company’s reinvigorated performance ultimately resulted in the board feeling confident enough to reject the takeover bid from Pfizer in 2014. We have gained helpful insights into the board’s considerations in this regard as well as its vision for the future of AstraZeneca. However it is crucial that its board and management are held accountable for the performance targets implicit in the company’s rejection of the bid. In addition, given the importance of intellectual property protection for AstraZeneca, we have discussed the issue of cyber security with the chair, who is also the chair of communications and technology services company Ericsson. Although this is a topic we will continue to pursue, we have been encouraged by more recent developments at the company in this area.

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Bruce Duguid Bruce Duguid is a director at Hermes EOS and leads engagements with environmentally-exposed companies across the mining, oil and gas and utilities sectors, as well as corporate governance engagements in the UK. He is the lead author of the Institutional Investors Group on Climate Change’s 'Investor Expectations of Mining Companies – Drilling Deeper into Carbon Asset Risk’. Prior to joining Hermes EOS, he was head of sustainability at the UK Green Investment Bank, where he spent four years working on the project to establish the bank and then building its sustainability function. Before working in sustainability, Bruce worked in corporate strategy as a management consultant at the Boston Consulting Group and as head of strategy at Visa Europe. He is also a qualified lawyer in England and Wales and holds a degree in Natural Sciences from Cambridge University.
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Remuneration targets reflect management’s projections for the performance and value of the company

Management held to account for strategic delivery against targets implicit in rejection of Pfizer bid

Implications of cyber risk for AstraZeneca’s business are fully understood and discussed at board level.