MONEY & POWER
Guiding the flocks in the boardrooms

Faith-Based Investors Demand Policy Shifts in Major Pharmas; Reforms Aim to Save Lives and the Drug Industry’s Future

NEW YORK, NY///May 16, 2005/// By Richard Galant/// Sister Patricia Wolf speaks with the quiet assurance and encouraging smile of a teacher who's mastered her subject over many years and is trying to get her students to do better on the next test.

The 60-year-old nun, who once was a teacher in East Harlem, presides over a staff of 12 in a suite of small offices overlooking the Hudson River in Morningside Heights.

Sister Pat - that's what her coworkers call her - is paid $89,000 a year and, at just under 5-foot-2, doesn't fit the stereotype of a commanding figure in corporate America.

And yet, the organization headed by this member of the Sisters of Mercy is causing shock waves in the boardrooms of multibillion-dollar corporations.

The Interfaith Center on Corporate Responsibility is putting a wide variety of issues on the corporate agenda, pushing for policy changes and gaining unprecedented levels of support for its shareholder resolutions.

The annual-meeting season isn't over yet and the votes aren't binding, but already a majority of votes cast by shareholders at Textron, the conglomerate that makes Bell helicopters and Cessna planes, has supported a policy to separate the jobs of chief executive and chairman.

At Merck, the maker of the controversial painkiller Vioxx, the board changed the company's leadership only days after nearly half of voting shareholders supported a similar Interfaith Center resolution.

"It's amazing to see how it has grown," Wolf says. "In the '70s, we would have fainted if we got more than 3 percent" in favor of a shareholder resolution. So far this year, the Interfaith Center has reported getting more than 3 percent on 36 resolutions - and considerably more in many cases.

At Textron, the Interfaith Center's resolution got 50.4 percent of the votes. "A vote of that size requires that the corporation pay very close attention," Wolf says. Indeed, Textron spokeswoman Karen Gordon says the $10-billion company will take the resolution into consideration, although she adds that the board routinely examines the issue.

Wolf grew up in the Bronx and was teaching when her religious community asked her to get involved in shareholder activism in the 1970s. She said that move came in the wake of the Second Vatican Council and an emphasis in the church on bettering the lives of the poor and oppressed. In the Interfaith Center's early years, shareholder activism revolved around issues such as fighting apartheid in South Africa.

Now the agenda is broader. The Interfaith Center is pushing initiatives, among other things, to combat global warming, violent video games, lavish executive compensation, exploitation of workers, and the HIV/AIDS crisis.

Virtually every icon of the American economy, from Altria to Boeing to Citigroup to Disney and through the alphabet, has been targeted for a shareholder resolution or a conversation with executives and directors.

It behooves them to pay attention when the Interfaith Center calls. The organization, which is nearly 35 years old, is a coalition of 275 "faith-based institutional investors," including religious denominations, pension funds and health care groups, with investments of about $110 billion.

Daniel Rosan, program director for public health, likens the Interfaith Center's approach to the effect of water on stone. Initially, the dripping water just moistens the stone, but over time it can reshape it. "The changes that we seek don't happen quickly," says Rosan, who has been with the center for two years.

Speaking about Sister Pat's influence, he says, "one of the things that has amazed me is the way that faith gives people a quiet strength you don't see from other sectors of society."

Companies often oppose the views she advocates, but at least one has come away with respect for Wolf. "She's tough, she's informed and she seeks to understand the business she's working with," says Mark Preisinger, director of shareowner affairs for Coca-Cola. "We don't always agree, but when we sit down with them, we always get up having learned something."

The Interfaith Center helped Coke draft a statement of "guiding principles" the company's worldwide suppliers must follow, including standards covering labor, working conditions, health and environmental policies. It also put forth a shareholder resolution, which was ultimately endorsed by the company's board and approved by more than 98 percent of the votes, to produce a report on Coca-Cola's program dealing with HIV and AIDS among the company's workers in Africa.

What makes the Interfaith Center on Corporate Responsibility effective is that it operates on two levels. It can make a powerful moral appeal on issues such as AIDS. It also argues that companies have a long-term financial stake in making the world a better place.

In other words, doing good can translate to doing well. Of course, people can differ on what it means to do good.

Wolf, whose title is executive director, says her members want their pension funds to fund their own retirements, so they need the companies they invest in to do well long-term, not just for the next quarter.

Some companies get hit with shareholder resolutions while others are spared. Among the drug companies that didn't face a resolution calling for separating the two top jobs of chairman and chief executive was Schering-Plough, where Rosan says new chief executive Fred Hassan "has put in place a number of pretty interesting management changes, bulking up their ethics.... We thought he should have a chance to see where that goes."

At Merck, chairman and chief executive Raymond Gilmartin's retirement was accelerated earlier this month, but the company chose not to name the new CEO as chairman and instead have three members of its board serve as an executive committee working with the new CEO. Wolf noted "widespread dissatisfaction" at the company and said, "Certainly, we did not get Mr. Gilmartin fired."

Is splitting the CEO and chairman jobs guaranteed to produce better results? In theory, it's a good idea, says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. But having the right person as chairman is crucial. If not, he says, "you create a potential of a dual source of authority in the organization, which makes it harder for the CEO to run the company."

Early next month, the organization will meet in Philadelphia to shape its agenda for the next year. Wolf says that's the time she and her staff find out if their priorities match those of their members.

Four years ago, members began pushing HIV/AIDS as a key cause. "It rose to the top over everything else," including the issue of discouraging tobacco use, Wolf recalls.

It won't be too long before those sitting in America's executive suites find out what causes are now rising to the top of the agenda.

E-mail Richard Galant at rgalant@newsday.com

Copyright 2005 Newsday Inc.

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