Monday, March 05, 2007

A Medical School Joins the Pepsi Generation

We just discussed a story from late 2006 about the Dean of the University of Minnesota Medical School joining the board of directors of PepsiAmerica.

It turns out that this has been generating continuing controversy at the institution. This controversy has shed light on some serious misconceptions among medical school leaders about what service on the board of directors of a publi, for-profit corporation entails. According to the Pioneer Press,

University of Minnesota Medical School Dean Dr. Deborah Powell expected questions after joining the board of PepsiAmericas, one of the world's largest sellers of Pepsi and Mountain Dew.

Three months after Powell signed on with PepsiAmericas, though, the questions haven't ebbed. Outside critics continue to ask why a high-profile state health official would join with a firm whose main products are linked to childhood obesity and diabetes. One U researcher wants a 'serious conversation' about the ethics of corporate consulting.

Powell said she wanted to be a voice for nutrition in the boardroom. She and her boss — who backs her decision — say the PepsiAmericas position is proper and valuable to the university.

A recently completed internal review, standard for any U employee involved in outside work, found no conflict of interest in her service to PepsiAmericas, a publicly traded company that is the world's second-largest bottler of PepsiCo. brands.

'If I didn't think I could make a difference on this board, I wouldn't stay on it, and I wouldn't go on it in the first place,' Powell said Friday. 'I'm trying the best I can to do something that I think will be valuable for the school and valuable for this company.'

'What better way to get knowledge about obesity into the company than by bringing it into the boardroom?' said Dr. Frank Cerra, senior vice president for health sciences at the U. He oversees all aspects of medicine and health research at the U, including the medical school and the school of public health.

'It seems to me like a very appropriate role for the university, providing there are no conflicts of interest that haven't been disclosed.'

Each director of a public, for-profit corporation has fiduciary responsibility to the stock-holders of the company for the company's financial performance and general management.

From Monks RAG, Minow N. Corporate Governance, Third Edition. Malden MA: Blackwell Publishing, 2004. P. 195.

In theory, at least, the law imposes on the board a strict and absolute fiduciary duty to ensure that the company is run in the long-term interests of the owners, the shareholders.

Members of the board are not simply advisors. The notion that Powell's main role on the board is to provide "knowledge about obesity," or to be "a voice for nutrition" is naive at best. Powell is supposed to protect the stock-holders financial interests. If PepsiAmerica wanted Powell to provide advice about obesity or nutrition, it could have hired her as a consultant or put her on a scientific advisory board.

It's noteworthy that even some of Powell's critics seemed to misunderstand her responsibilities as a board member.

But Robert Jeffery, a nationally known researcher and a director of the Obesity Prevention Center in the U's school of public health, worries Powell's PepsiAmericas duty ultimately may hurt the university.

The U, he said, needs to have a 'more serious conversation about where the ethical lines lie in corporate consulting. Whenever you get into a paid relationship with a commercial enterprise, there is an implied or maybe even explicit agreement that you're doing things for their benefit.'

With public concern rising about marketing and overconsumption of soft drinks and the health problems that can result, 'I think the university does run the risk of being seen in a less favorable light by having a high-profile person taking a high-profile consulting job … in an industry that people are trying hard to regulate,' Jeffery said.

Were Powell hired as a consultant, these objections would make sense. But Powell's relationship with the company is supposed to be much stronger than that of a consultant. And as a board member she certainly has an obligation to be "doing things for their benefit."

Powell also seemed to have an odd misconception about the remuneration of board members.

Like other outside directors, Powell will be paid in cash and PepsiAmericas stock for her service on the beverage company's board, including a $30,000 annual retainer, $2,000 for each board meeting attended and $60,000 in stock.

Powell said the money didn't factor into her decision. 'I didn't know before I went on the board that I would be paid,' she said.

One critic has suggested Powell donate her PepsiAmericas board money to obesity and health research. Powell said she makes charitable contributions but that her philanthropy was her own business.

Of course, board members of large US for-profit corporations tend to be paid handsomely, sometimes well into six figures a year. It is amazing that Powell did not seem to know that. Maybe it is not so amazing that having found out her good fortune, she seemed reluctant to part with it.

Again, it is striking to me that there is this much naivete, or denial about what being on the board of directors of a for-profit corporation entails among the top leaders of academic medicine.

Once they understand what obligations they have as for-profit corporate board members, they need to re-think whether these obligations pose severe and unmanageable conflicts of interest with respect to their responsibilities as academic health leaders.

As long as academic health leaders remain on the board of corporations, which are, unlike PepsiAmerica, directly involved in health care, (e.g., pharmaceutical, biotechnology, medical device, managed care, and contract research corporations), questions will be raised about conflicts between the obligations of their day jobs and the fiduciary responsibilities entailed by their board memberships.

1 comment:

Steve & Barb said...

Good points, for sure, but the argument could be made that bringing an enlightened view of the company's role in obesity and diabetes into the boardroom is consistent with the fiduciary responsibility to look out for Pepsi's long-term interests.