From advancing cancer treatments to discovering new vaccines to making breakthroughs in stem cell research, the Life Sciences industry plays a crucial role in protecting public health. This alone creates tremendous societal value for Life Sciences companies, as their products and purpose contribute towards both medical and practical progress.
However, being a good corporate citizen is about more than just product and purpose. It’s also about impact the company’s operations have as a whole on the:
Importance of ESG Amongst Investors, Employees and Consumers
More and more investors are paying attention to a company’s Environmental, Social and Governance (ESG) issues before making investment decisions. This is of particular interest for Life Science companies who often get funding through venture capitalists and private equity firms. In a recent Harvard Business Review article, Robert G. Eccles and Svetlana Klimenko, highlighted how many investment firms are weaving in sustainability into their criteria for investing. They conducted a study showing how ESG was top of mind among senior executives at global investment firms and giant asset owners. The study included 70 interviews with executives from 43 firms such as Blackrock, Vanguard and State Street as well as giant asset owners.1
ESG is also key to recruiting top talent and keeping them engaged. Employees want to work for a company that is aligned with their values and has a purpose they believe in, and they’re proud of. Social impact is an integral part of purpose.2
There’s also research that demonstrates consumers prefer purchasing products from companies that are socially responsible. According to a study done by NYU’s Stern Center for Sustainable Business, products that were marketed as sustainable grew 5.6 times faster than those not marketed as sustainable from 2013 – 2018.3
Engaging With Stakeholders and Investors
To help public, private and nonprofit organizations navigate the advances in sustainability and governance practices, the Nasdaq launched the Center for Corporate Governance in June 2019. The new center provides corporate governance and sustainability practice insights and research. According to Nelson Griggs, President of Nasdaq Stock Exchange, ESG is an important part of engagement with investors and stakeholders.4 The Center’s first annual report, Where Board & Investor Priorities Intersect: 2019 Review of S&P 100 Governance Disclosures, looks at the priorities of boards and institutional investors. The report analyzed the proxy statements as well as the sustainability websites of S&P 100 companies and showed that:
This demonstrates the importance the S&P 100 places on ESG issues as well as the need to publically report about the issues.
The Role Governance Plays in Keeping Employees and Customers Safe
A strong governance program helps keep companies compliant with the U.S. Food and Drug Administration (FDA), ensures the safety of their products and operations, and reduces exposure to a wide-range of risks.
Complying With FDA Regulations
The regulatory environment is rapidly changing, making it critical for Life Science companies to stay up to date on requirements and be nimble in their response and in updating their processes.
For example, in response to the COVID-19 pandemic, the Department of Health and Human Services issued a declaration in March that authorized the Public Readiness and Emergency Preparedness (PREP Act). Under the act, certain businesses have immunity to provide medical materials meant to combat COVID-19 and give the FDA authority to issue Emergency Use Authorizations, which allows:
- A shorter approval process for medical products
- The use of unapproved medical products
- Unapproved uses of approved medical products in an emergency
There are a number of steps companies can take to reduce product liability risks in response to the PREP Act:
- Establish a COVID-19 Task Force
- Always consult with legal counsel
- Seek advice from their insurance agent or broker
- Clearly document countermeasures
Despite the changing regulatory environment, there are certain quality assurance procedures that should remain constant and be engrained in a company’s culture.
Quality Assurance Protocols and Internal Procedures
- Regular quality assurance meetings to ensure corrective and preventative actions are taken. Evaluate proper design and material controls with appropriate documentation
- Assessment and documentation of quality management systems for each supplier the company works with
- Analysis of how internal protocols may be viewed by external parties through a lens of safety and efficacy
- Written internal escalation procedures to make sure senior leadership is aware of how the company’s actions are being viewed
Post-Market Controls and Product Recall
- Fulfillment of all post-market surveillance in an expeditious manner to ensure safety, efficacy of the product released to market
- Prompt action to initiate a product recall to reduce the risk to health posed by the product with clear documentation
External Marketing and Communications
- Being proactive in monitoring feedback including social media. Crafting company messaging in acknowledging and responding to what they find
- Making compliance a key focus of marketing and sales strategies
A Culture of Safety
Post-market surveillance systems play a critical role in monitoring the safety of a product once it’s available to the broader public. Companies also need to have a response plan where they voluntarily decide and have the ability to quickly recall a product in favor of safety. A company’s recall history is publically available and can reveal a lot about their culture. Proactive recalls demonstrate a safety first culture.
A culture of safety first means that safety is engrained in everything a company does including marketing and sales. In marketing and sales, words matter and they need to be substantiated by facts. False or misleading claims are a direct violation of federal laws. Recently, the FDA and Federal Trade Commission (FTC) issued warning letter to seven companies for using false or misleading claims to promote their products as a treatment or prevention against COVID-19.6
As a highly regulated industry, information about Life Science companies is publically available. From an insurance standpoint, this means agents and carriers can easily assess the risk level of a company by just doing a little research. Insurance companies evaluate a company’s reputation as part of the underwriting process. From a litigation standpoint, this means people can troll the internet and regulatory sites to obtain information to potentially use against a company in a lawsuit. A company’s reputation is their first line of defense in litigation. If a company goes in front of a jury, how will they be viewed? Will the jury see them as a good corporate citizen or a company only focused on their bottom-line? Reputation has a significant impact on outcomes when it comes to litigation.
While environment and social issues contribute to a company’s reputation, a robust governance program that documents their track record of safety and compliance is an imperative. It protects the company, their employees and customers.
At The Hartford, we understand that reputation is one of a company’s most valuable assets. That’s why defending our insureds is one of our fundamental responsibilities. Our Life Sciences team includes:
- More than 30 specialists in underwriting, operations, risk engineering and claims.
- Leadership with an average of 20+ years of experience
- Highly specialized panel counsel across many jurisdictions have expertise in defending life sciences matters
- Claims handling is collaborative with our insureds – making certain the right attorney is assigned to the right case to get the most cost-effective results
Contact your local Hartford representative or learn more at https://www.thehartford.com/commercial-insurance-agents/industries-life-science.
1 The Investor Revolution https://store.hbr.org/product/the-investor-revolution/R1903G
2 Workplace Culture Trends: The Key to Hiring (and Keeping) Top Talent in 2018 https://blog.linkedin.com/2018/june/26/workplace-culture-trends-the-key-to-hiring-and-keeping-top-talent
3 Research: Actually, Consumers Do Buy Sustainable Products https://store.hbr.org/product/research-actually-consumers-do-buy-sustainable-products/H050LW
4 Nasdaq Launches Center For Corporate Governance https://www.nasdaq.com/about/press-center/nasdaq-launches-center-for-corporate-governance
5 Where Board & Investor Priorities Intersect: 2019 Review of S&P 100 Governance Disclosures https://www.nasdaq.com/governance-center/board-and-investor-priorities-report
6 FTC, FDA Send Warning Letters to Seven Companies about Unsupported Claims that Products Can Treat or Prevent Coronavirus https://www.ftc.gov/news-events/press-releases/2020/03/ftc-fda-send-warning-letters-seven-companies-about-unsupported