Boardroom Conflicts of Interest Raise Health Care Costs

Patrick O’Meara, corporate finance specialist in the AFL-CIO Office of Investment, describes how conflicts of interest in the boardroom affect our pocketbooks when it comes to health care.

With health care costs soaring, we would expect that a company would do everything it can to find less-expensive ways to provide good health care benefits to its workers and their families. If there is a generic drug that is essentially the same as an expensive brand drug, it makes financial sense for the company to include the generic drug in its coverage. If insurance costs include a hidden cost because a sensible universal health insurance plan has not been established, it seems only logical that the company would be an advocate of universal health insurance.

But it is hard for such common sense to prevail at many public corporations because their boardrooms are filled with directors who have very clear conflicts of interest. Many directors at the nation’s largest non-health care companies also are directors and senior executives at the large pharmaceutical and health insurance companies. What’s more, the value of their holdings in the health care companies often makes the value of their other holdings look like pocket change.

The AFL-CIO Office of Investment recently released a report that lists these significant board conflicts of interest involving the health care industry and many of the largest non-health care corporations. The report clearly shows the health care industry is well placed to influence the health care policies and practices of these companies.

We sent this report to Securities and Exchange Commission (SEC) Chairman Christopher Cox, along with a letter that describes the AFL-CIO’s concern that companies are often not pursuing the long-term interests of their shareholders because of these widespread conflicts of interest.

The letter cites an example that shows the potential consequences of these conflicts in GM’s decision to protect the drug Nexium within its formulary at the same time Percey Barnevik, retired CEO of AstraZeneca PLC, was a GM director and chairman of its board policy committee.

If you know of other instances when a company has exhibited this kind of strange behavior that makes you wonder if the health care industry is actually somehow calling the shots, please let the Office of Investment know. Drop us an e-mail at blognews@aflcio.org

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