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Review of Novo Nordisk Annual Report 2009 from Novo Nordisk A/S.
Time for a NEW Report
By Elaine Cohen (Beyond Business) on March 05, 2010 at 4:27pm.
Novo Nordisk, the impressive Danish pharma Company, turns over around $9 billion, employs 29,000 people and operates in 179 countries. 2009 was a good year for Novo Nordisk, with 11% sales and 21% profit increase. Novo Nordisk has made its name in "deterring the growth of the diabetes pandemic" and remains world leader with over 50% of volume in its sector, investing significantly to maintain innovation in this area of leading expertise. The 5 year $25 million commitment to treat children with Type 1 diabetes in developing countries is impressive.
Novo Nordisk is renowned as the master of the art of "integrated" reporting, though I have reservations about the effectiveness of this approach. In my review of their last report, I maintained that non-financials deserve greater impact and I continue to believe that this is the case. The 2009 Annual Report is a 114 page PDF download and a mini-site. As has been Novo Nordisk's custom since 2004, the report covers financial, social and environmental performance. In practice, this means a first half (51 pages of narrative) which covers financial and non-financial headings, and 53 pages of Consolidated Accounts of which non-financials take up their own separate space over 7 pages. Aside from the CEO-Chairman joint statement which presents an overview of Novo Nordisk ‘Triple Bottom Line’ performance in 2009, the remainder of the first half is product portfolio and pipeline status, with 8 pages of "how we work" and 4 pages on governance and, for what it's worth, 4 pages of detailed Director and Executive bios including everything except what size shoes they wear. All in all, this report contains about 20 pages of dedicated "sustainability" content, though to be fair, some of the narrative in other areas does touch on sustainability issues. If you are interested specifically in sustainability, this report does not make it easy to get to the action.
The CEO's statement is interesting and includes, amongst other things, an apology (sort of) from the CEO, because of the Company's activities around the Oil-For-Food Program in 2005, and the $1.5 million in "after sales service fees" aka bribes that Novo Nordisk was accused of paying. This incident was finally put to bed in 2009 with a settlement with the US Securities Commission, and the CEO admits that the "mistakes the Company made are regrettable". The fact that this appears in the CEO's opening remarks may say something about how badly Novo Nordisk leadership feels about this incident, or about how the Company has learned that reputation takes years to build but not so long to destroy. The opening statement covers a balance of updates, explanation of new initiatives, values and responsibility, future outlook and thanks to stakeholders.
As this is an integrated report, I looked for an overview of the material sustainability issues for Novo Nordisk especially as auditors PwC advise that "Novo Nordisk A/S’ Management systematically takes the principle of materiality into consideration when making decisions regarding sustainability at management level." It would be nice to see some evidence to support this assertion, such as a description of the process of assessment and prioritization of material issues. Stakeholder engagement content is not detailed and feedback from stakeholders is not transparent. One of the key material aspects of big pharma is affordable access. "Giving products away is not sustainable" says Novo's CEO (though one might suggest that this is a question of degree), and Novo's differential pricing policy for least developed countries (LDC's) sounds positive. However, Novo does not help us to understand if this differential pricing is actually making drugs affordable and reasonably accessible. Around 90% of Novo's business remains in the US, Europe and Japan. The fact that 36 out of 49 possible LDC's bought differentially priced insulin in 2009 is rather irrelevant. What percentage of the need in these countries was met by these sales? The real question is how much insulin did these 36 countries NOT buy. That is what Novo ought to be thinking about and reporting on.
Novo's environmental reporting is rather minimal, though performance evidences significant achievements in reduction of absolute environmental impacts in water and energy consumption, and although waste levels increased by 3%. I wonder about Novo's approach to packaging of drugs and addressing the issue packaging waste. This report is conspicuously devoid of any reference to Novo's strategy relating to environmental direct impacts of packaging materials reductions, and indirect impacts of post-use disposal of drug containers and wrappers.
Communication is clear and easy to read, though the number of repetitive, declarative generic statements is disproportionate to the evidence that these drive performance. There is much repeated content from last year's report and no disclosure of what has been copied word for word. It is hard to see what's new in this report from previous reports. For a sustainability-minded stakeholder, most of this report is irrelevant. For a financially-minded investor who understands pharma pipelines, patents and industry trends, I suspect it makes quite interesting reading. Despite the fact that Novo "values stakeholder reviews of their reporting", I was not able to find a name other than "webmaster" who might be interested to receive such feedback. Perhaps, like differentially priced insulin, Novo should be more proactive in seeking out those who are silent in order to get a realistic view of their reporting impact.
Novo Nordisk appears to be a credible sustainability protagonist and talks the talk of integration of non-financials into business processes, with great marketing prowess. Whilst the financials are supported by numbers and benchmarks, the non-financials are characterized by lofty declarations, not all of which are given substance in the report. I find myself wondering what is hidden between the lines that I cannot read. For example, Novo's diversity target is: ".. by 2014 all senior management teams will include employees of both genders and different nationalities." This is understandable as Novo assesses that within 10 years, 75% of Novo's people will be outside Denmark. A quick review of Board and Executive names is evidence of male Danish dominance, and women are underrepresented on the Board (1 out of 11) and on the Global Exec Team (2 or 3 out of 30). Novo says "At the end of 2009, diversity was reflected in 50% of senior management teams, compared to 43% at the end of 2000 " and "Training in diversity and cultural inclusion is offered to all employees", a copy-paste declaration from 2008. Whilst I don't doubt that Novo has recognized diversity as critical to support business growth, the broad-brush target and the weak reporting begs questions and does not inspire confidence that beyond one token woman on non-local management teams, Novo's Danish-dominated culture is open to change. Mentorship, buddy programs and a women's network were all cited in 2008 as new initiatives as part of a diversity strategy but are not referred to in this 2009 report. Whilst Novo talks the sustainability talk, and uses integrated reporting to present a consolidated picture, it also affords Novo the opportunity to avoid depth in key aspects of non-financial reporting. The Assurance Statement adds little to the credibility of the report, and there are many parts which are direct copy-pastes (the entire section on risks, for example) which makes me wonder to what extent Novo reporting is routine and repetitive, and not as innovative as the diabetes drug pipeline.
I adopt a Novo practice and copy paste my three recommendations from last year, and add a fourth:
Elaine Cohen is the Joint CEO of BeyondBusiness Ltd, www.b-yond.biz/en , a leading CSR reporting and consulting firm, specializing in a wide range of consulting services for the development of social and environmental responsibility of businesses.