AstraZeneca’s New Path: AstraZeneca’s New Path: Linking Business Performance Linking Business Performance to to Social Performance Social Performance Cristin Gendron & Gabrielle Scheer Cristin Gendron & Gabrielle Scheer Haas School of Business, UC Berkeley Haas School of Business, UC Berkeley April 25, 2007 April 25, 2007 AZ Liaison: Paul Nichol AZ Liaison: Paul Nichol
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AstraZeneca’s New Path: Linking Business Performance to Social Performance Cristin Gendron & Gabrielle Scheer Haas School of Business, UC Berkeley April.
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AstraZeneca’s New Path:AstraZeneca’s New Path:
Linking Business Performance Linking Business Performance to to
Social PerformanceSocial Performance
Cristin Gendron & Gabrielle ScheerCristin Gendron & Gabrielle ScheerHaas School of Business, UC BerkeleyHaas School of Business, UC Berkeley
April 25, 2007April 25, 2007
AZ Liaison: Paul NicholAZ Liaison: Paul Nichol
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Pharma Industry Suffers In ReputationPharma Industry Suffers In Reputation
Issue
Goal
THE GREAT DISCONNECT
The mission of the pharmaceutical industry revolves around patients. The goal is to create medicines that treat and prevent their diseases, ease their
suffering and improve their quality of life.
America’s pharmaceutical companies are not trusted by stakeholders or the general public.
AstraZenecaUS
PharmaceuticalIndustry
ProjectApproach
Recommendations
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Corporate Reputation DOES MatterCorporate Reputation DOES Matter
- Stakeholders inaccurately believe drugs make up a large % of total healthcare costs
- Pharma execs and stakeholders showed a gap in perceptions on issues affecting corporate reputation
- Need for more transparency in industry
Key Findings
- Low awareness of AZ and generally low favorability score
- Most important thing to stakeholders industry acts responsibly & ethically
- Favorability drivers – safety, pricing and honesty/transparency
Key Findings
PricewaterhouseCoopers Study:‘Recapturing the Vision’
StrategicRecommendations Measurement Communication
Phase I: PRIORITIZEPRIORITIZE
– Reassess priorities to maximize value creation– Revise CSR strategy to ensure it is appropriate, action oriented and consistent with
objectives– Benchmark and leverage existing CSR leadership
Phase II: EXECUTEEXECUTE
– Begin integrating key focus areas within business units, core operations, communications– Bolster top-down buy-in via consistent and timely communication with executives
Phase III: MEASUREMEASURE
– Validate appropriate indicators for CSR index– Establish baselines and set clear goals
Phase IV: MONITORMONITOR
– Adhere to plan of reevaluating strategy and metrics on a regular basis given changing industry and business operations/needs
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Project BenefitProject Benefit
This project proved beneficial in both an academic and business environment.
• Internal Value (to class/team: Cristin Gendron & Gabrielle Scheer)– Access to Paul Nichol, a leader in AstraZeneca’s CSR efforts– Informative and friendly interactions with all contacts (AZ and BSR)– Participation in CSR Council Meetings– Educational and professional development experience
• Gained understanding of the critical elements of successful CSR program• Learned about the importance of a robust compliance and ethics program• Developed benchmarking methodology
• External Value (to AstraZeneca)– Provided an independent, outside assessment of AstraZeneca and competitive
landscape within Pharma CSR– Provided some benchmarking metrics as an opportunity for AstraZeneca to learn
from peers– Provided strategic recommendations in addition to measurement suggestions
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AcknowledgementsAcknowledgements
Lastly, we would like to acknowledge the entire CSR Council for taking the time listen to our recommendations.
Many thanks to Paul Nichol for being our primary resource at AstraZeneca and the CSR company advocate.
Additional thanks to our interviewees for providing insight into AstraZeneca operations and providing additional research/literature:
Sandra Cumpston Marie Martino
Laura Commike Kellie McElhaney
Emily Denney Michael Seiders
Karissa Laur Heidi Thear
&
AppendixAppendix
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CSR Is So Much MoreCSR Is So Much More
Source: Quantifying the Business Case, Chris Tuppen
Reputation
Retention &
Recruitment
OperationalEfficiency
Increased Sales
building trust in a company is a long uphill climb, but losing it can have dramatic effects on share price and customer loyalty;
employees want to work for responsible companies who care for their workforce and contribute to society;
CSR can improve the bottom line through material efficiency, and energy and waste minimization;
cause-related marketing, eco- and ethical labels and new product innovation can influence the top line.
AstraZenecaUS
PharmaceuticalIndustry
ProjectApproach
Recommendations
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Reputation is Key to Business OutcomesReputation is Key to Business Outcomes
• Metrics combined w/ Annual Report• Responsibility for implementation lies w/ Exec. Committee– have a Corporate Citizenship Steering Committee (senior execs. from HR, HSE & C&E)• In Board of Directors there is an Audit & Compliance Committee
• Address major industry-specific issues including patient safety/transparency and pricing/access• Believe in link between CSR and business performance
• 2% (% net sales) spent on Access Programs• 19% (% net sales) spent on R&D
• 4 primary focus areas: patients, ethical business conduct, employees & the environment
• Signed UN Global Compact (first pharma company to sign in 2000)•Provide drugs to developing countries, NGOs, the WHO, US patients without insurance• Tries to organize and engage with stakeholders (especially patients)– e.g. diabetes patient groups and access to quality healthcare advocates in Europe• Set up Novartis Foundation for Sustainable Development & Institute for Tropical Diseases
• KPIs clearly monitored and tracked; no baselines or goals
StrategicRecommendations Measurement Communication
*Source: Kellie McElhaney, 2007
• Align investment with value
• Inform management decisions
• Help you maintain the integrity of your work Let the numbers do the talking
• Contribute to reporting, communication, and branding
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StrategicRecommendations Measurement – C&E Communication
Defining Compliance in Pharma IndustryDefining Compliance in Pharma Industry
‘Compliance’ in the pharma industry:
Government price reporting
FDA promotional and reporting regulations
Fraud & Abuse regulations
Good Manufacturing
Laboratory or clinical practices
Clinical trial requirements
Employment antitrust and trade laws
Safety, Health & Environment (SH&E) regulations
And the list goes on…
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StrategicRecommendations Measurement – C&E Communication
Creating a Compliant & Ethical CultureCreating a Compliant & Ethical Culture
Adherence to external laws and regulations
External Laws and Regulations
Compliance&
Ethics Program
Internal Policies and Procedures
Compliant with external regulations & promotes
ethical culture
Communication
Communicate about two sets of rules, why they’re important & consequences for violations
Compliance Vision
To be recognized and respected as a premier
compliance & ethics function that enables AZ to “win the right way” by delivering
innovative & proactive solutions that put patient health first
Compliance Mission
To implement a best-in-class compliance
program that addresses the key
compliance risks facing the business and establishes and
embeds an ethical corporate culture
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StrategicRecommendations Measurement – C&E Communication
Rationale for Weight AdjustmentsRationale for Weight Adjustments
• High Weighting:– ERC Ethics Survey and Compliance linked to Performance sections
are critical because they directly support the views/beliefs of employees– Scorecard and Audit Reports provide critical objective assessments of
Compliance and Ethics Program performance and outcomes
• Medium Weighting:– Corporate Board Oversight is relatively important as it shows that the
company is serious about having the C&E programs integrated into the company fabric and that there is top leadership buy in
– Helpline Data is important because it comes directly from employees (similar to ethics survey) but has been weighted for mix of negative and positive favorability
• Low Weighting:– Training Metrics are important, however, they should not be given too
much priority because these are presumed a baseline exercise
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Building the C&E Index: ExampleBuilding the C&E Index: ExampleStrategicRecommendations Measurement – C&E Communication
DimensionKey Indicators
(Measure)Weighting Favorability Weighted Score
Ethics Survey Survey ‘Score’ x 10 Positive (add) 700
Helpline Data # incidents reported x 5 Negative (subtract) ---
Audits Reports % ‘green’ audits x 10 Positive (add) ---
Training Metrics
% employees trained
x 1 Positive (add) ---
• Assume ERC Ethics Survey score ranges from 0 to 250• Set Max Value = 100, therefore set 250 = 100• Assume AZ US value came back at 175• Set up a proportion, where 175/250 = x/100• Therefore, x = 70• Set weightings = 10 for ‘high’, 5 for ‘medium’ and 1 for ‘low’• Sum Weighted Scores
C&E Index = Weighted Sum
Building C&E Index: ExampleBuilding C&E Index: Example
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StrategicRecommendations Measurement – C&E Communication
Benchmark: Johnson & JohnsonBenchmark: Johnson & Johnson
• The core value in building out a comprehensive C&E program is integration.
• is a company that has made their internal message simple: follow The Credo
Integrity &
Credo-based Actions
Leaders at J&J live Credo values; build trust; tell the truth;
initiate transparency into problems and demonstrate genuine caring for people
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EconomicEconomic
StrategicRecommendations Measurement - CSR Communication
Dimension CSR Indicators Business
IndicatorsProduct Pipeline, R&D Types of Products, global health
implications
% of net sales invested in R&D
Sales, Margin, Investing, Mkt Share
Clinical Trial Data Information transparency of outcomes (e.g., Novartis communication ALL prelim trials)
Sales, Mkt Share
Code of Conduct / Compliance
Adherence – (% of green audits, ethics survey results, helpline data)
Retention, Investing, Recruitment, Sales
Corporate Governance Active oversight by BIAT Sales, Investing
Risk Management Defensive v. offensive issues and opportunities