Financial & Reputational Risks Related to the Opioid Crisis

A 2018 Rite Aid Shareholder Resolution

RESOLVED, that shareholders of Rite Aid Corporation ("Rite Aid") urge the Board of Directors (the "Board") to report to shareholders by October 1, 2019, describing the corporate governance changes Rite Aid has implemented since 2012 to more effectively monitor and manage financial and reputational risks related to the opioid crisis, including whether Rite Aid has assigned responsibility for such monitoring to the Board or Board committee(s), revised senior executive compensation metrics or policies, adopted or changed mechanisms for obtaining input from stakeholders, or altered policies or processes regarding company political activities.

The report should be prepared at reasonable cost and should omit confidential and proprietary information.

Supporting Statement: Opioid abuse is a public health crisis: The Centers for Disease Control and Prevention reported that opioid abuse caused more than 42,000 U.S. deaths in 2016. The economic and social effects of the crisis are profound. A recent report pegged the cumulative economic toll of the opioid epidemic at over $1 trillion. Opioid use and dependency is a key factor in the decline in prime-age male labor force participation. 

Rite Aid is a defendant in the Ohio multidistrict opioid litigation. A lawsuit by several municipalities in West Virginia alleging that Rite Aid's inadequate oversight of its distribution of opioids contributed to the epidemic in that state was also moved to federal court in April 2018. The company faces similar lawsuits in Tennessee and South Carolina, according to its most recent annual report.

Rite Aid has also come under fire recently from the Drug Enforcement Administration ("DEA") for irresponsible dispensing and distribution of controlled substances. In 2017, Rite Aid settled claims, according to an announcement by the DEA, "to resolve allegations that certain Rite Aid pharmacies in Los Angeles dispensed and/or recorded controlled substances using a medical practitioner's incorrect or invalid DEA registration number." Rite Aid paid an $834,200 civil penalty. 

In our view, Board-level oversight and other governance reforms can play an important role in effectively addressing opioid-related risks, and shareholders would benefit from a fuller understanding of governance mechanisms serving that function.

For example, it is not clear from Rite Aid's Board committee charters or proxy statement whether a specific Board committee monitors opioid-related financial and reputational risks; none of the Board committees has been assigned specific responsibility for overseeing compliance matters such as reporting to the DEA. As well, Rite Aid's last proxy statement asserts that individual performance is among the factors considered in granting long term equity incentive awards to named executive officers, but does not indicate whether any opioid-related objectives, such as promoting ethical conduct, were part of that performance assessment.

We urge shareholders to vote for this proposal.

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