Background
The opioid epidemic is one of the most consequential corporate liability events in modern American history, linked to over half a million of overdose deaths[1] and severe litigation exposure for companies across the pharmaceutical supply chain.
The warning signs were visible early. As early as 2008, McKesson paid a $13.25 million federal penalty for failing to report suspicious orders of controlled substances, and Cardinal Health paid $34 million that year and another $44 million in 2016[2] for the same conduct. Between 2007 and 2012, drug distributors shipped more than 780 million hydrocodone and oxycodone pills into West Virginia alone, roughly 433 pills for every man, woman, and child in the state[3]. In one town of about 400 people, a single pharmacy received nearly nine million pills in two years.
For most of this period the response to litigation was company specific. Each settlement was treated as an isolated compliance lapse, absorbed and moved past, even as the same pattern repeated across the industry. As overdose deaths climbed and investigative reporting traced the pills back to the distributors, the issue drew condemnation nationally. By 2017, what had looked like the cost of doing business instead became an unmanaged, industry-wide liability, and investors were concerned about how it would impact their portfolio companies.
Shareholder Engagement
In 2017, a coalition of investors came together to form the Investors for Opioid and Pharmaceutical Accountability (IOPA)[4]. It grew to 67 members representing more than $4.2 trillion in assets, which operated until 2023, and filed more than 80 shareholder resolutions[5] across the supply chain aimed at pushing boards to manage the risks related to the opioid crisis. The resolutions targeted the specific mechanisms through which management's interests had diverged from those of shareholders: board independence, compensation design and clawbacks, and board-level oversight of opioid risk.
In 2017, McKesson shareholders asked the company to separate its chief executive and board chair roles, so that an independent chair could strengthen oversight of the kind of risk the company had just failed to manage. The proposal was prompted by McKesson’s $150 million federal settlement[6] earlier that year over its distribution of controlled substances, then the largest settlement in DEA history. It received 40.3% support[7]- a resounding signal from investors that viewed this as a material risk. Combining the chief executive and chair roles concentrates control of the board's agenda and information flow in the same executive whose performance the board is supposed to evaluate. An independent chair is a structural remedy for that agency conflict.
Board response to proposal stated:
“The Company’s strong Lead Independent Director role, combined with other governance features, already provides the management oversight and independent leadership requested by the shareholder proposal.”. also; “McKesson shares the proponent’s view that the opioid epidemic is a public health crisis and the Company is committed to engaging with other stakeholders to advance meaningful solutions.”
The same year, investors rejected the company’s say-on-pay resolution (26.4% support). In light of management’s approach to addressing the opioid crisis, investors judged that executive compensation rewarded was not aligned with company actions on its distribution practices.
Similar proposals followed at AmerisourceBergen Corporation (ABC) in 2018. Investors asked the company to separate its chair and chief executive roles (33.3% support) and to disclose its clawback policy (34.0%), reflecting the conviction that executive pay should be tied to how management handled the opioid issue. Another proposal asked the board to report on the governance measures it had adopted since 2012 to monitor and manage the financial and reputational risks of its opioid distribution, including whether oversight had been assigned to a board committee (41.2%).[8] The level of shareholder support clearly demonstrates the concern shareholders had regarding ABC’s management of the issue, especially in light of the $16 million settlement with the Attorney General of West Virginia over negligence in distribution of controlled substances. Holding management accountable for negligence or misconduct – which triggers recoupment of executive compensation directly addresses the divergence between investor and management interests.
Johnson & Johnson received its own opioid-oversight proposals, including a 2020 request that the board report on its governance of opioid-related risks, which passed with 60.9% support[9]. Management’s response here was:
“The Company has immaterial opioid business activities and already discloses the specific actions it has taken to help address the crisis.”
Despite the signals and overt concern expressed by shareholders, board opposition statements showcase that management thought their current actions were enough. Each of these proposals placed a specific request to manage opioid risks and management denied inadequacy in risk controls. What followed was a legal settlement on the same topic that had ballooned from fines in millions to billions. These responses show how agency conflict can shape a board’s position. Acknowledging that oversight was deficient would mean admitting inadequate risk controls, which runs against directors’ own interests. In each case, the board maintained that existing mechanisms were sufficient and declined to provide the additional information shareholders requested, even as votes showed that a substantial share of owners, and at J&J a majority, saw it differently.
The Outcome
In May 2018, the chief executives of McKesson, AmerisourceBergen, and Cardinal Health appeared before the House Energy and Commerce Committee[10] to testify regarding the opioid crisis, an issue that drew bi-partisan support.
In addition to the hearing, in every state, more than 3,000 local governments[11], and hundreds of Native American tribes sued the manufacturers and distributors, and in 2017 the federal cases were consolidated before a single judge in Cleveland as the National Prescription Opiate Litigation. It was finalized in 2022, when the three distributors agreed to pay up to $21 billion over 18 years,[12] and Johnson & Johnson up to $5 billion over nine years[13], one of the largest settlements of its kind.
The engagement campaign left a mark across the industry. By IOPA’s accounting, at least 12 companies agreed to conduct risk assessments of opioid related business practices and 10 adopted enhanced clawback policies to recoup executive pay[14]. The three largest distributors, McKesson, Cardinal Health, and AmerisourceBergen (now Cencora), all eventually separated their chair and chief executive roles[15]. These reforms also extended beyond the individual companies, producing governance changes across the supply chain, a market-wide benefit that the rescission of Rule 14a-8 would forgo.
In agency terms, these outcomes are significant. Independent board leadership, clawbacks of executive compensation are the structural tools that realign management's incentives with those of long-term owners. Shareholders obtained them through the proposal process, not through regulation or litigation.
[1] France 24, June 26, 2021: https://www.france24.com/en/live-news/20210626-johnson-johnson-to-stop-selling-opioids-in-us-ny-attorney-general
[2] Office of Rep. Diana DeGette, reprinting The Washington Post: https://degette.house.gov/newsroom/in-the-news/washington-post-drug-executives-express-regret-over-opioid-crisis-one-tells
[3] PBS NewsHour: https://www.pbs.org/newshour/nation/drug-distributors-missed-suspicious-opioid-sales-to-west-virginia-lawmakers-say
[4] Interfaith Center on Corporate Responsibility: https://www.iccr.org/the-opioid-crisis/
[5] United Church Funds: https://ucfunds.org/iopa-notches-notable-wins/
[6] The Washington Post, June 11, 2021: https://www.washingtonpost.com/business/2021/06/11/mckesson-opioid-ceo-pay/
[7] McKesson Corporation, Form 8-K (2017 annual meeting results), SEC EDGAR: https://www.sec.gov/Archives/edgar/data/0000927653/000119312517240424/d430944d8k.htm
[8] https://www.sec.gov/Archives/edgar/data/0001140859/000114085918000010/a2018annualmeetingresults8.htm
[9] https://www.sec.gov/Archives/edgar/data/0000200406/000020040620000034/a20200423voteandcoi.htm
[10] https://www.congress.gov/115/meeting/house/108260/documents/HHRG-115-IF02-Transcript-20180508.pdf
[11] National Association of Counties: https://www.naco.org/resource/osc-nlc-settlement-dollars
[12] : $21 billion breakdown: Cardinal ($6.4 billion), AmerisourceBergen ($6.4 billion) and McKesson ($7.9 billion)
[13] National Opioid Settlement, Executive Summary: https://nationalopioidsettlement.com/executive-summary/
[14] United Church Funds: https://ucfunds.org/iopa-notches-notable-wins/
[15] : https://www.iccr.org/shareholders-told-opioid-companies-they-had-oversight-problem-theyre-starting-listen/