Corporate Governance in the Biopharmaceutical Industry: Elements that make up a good system of corporate governance of biopharmaceutical firms

Morten Blegvad

Student thesis: Master thesis

Abstract

The little existing research on the biopharmaceutical industry indicates that it as a whole is highly unprofitable, which is worrisome given the amounts of capital invested the industry. From the investors’ point of view it is imperative to ensure that invested capital is put to the best possible use, and a good system of corporate governance is part of the solution. This paper, therefore, attempts to identify the elements that make up good corporate governance of biopharmaceutical firms through a series of case studies on a selection of Danish public companies (GEN, TOPO, ZEAL, BAVA, NEUR). Mechanisms from classic theory on corporate governance (executive compensation, the board of directors, and monitoring) and theory on governance of innovation are used as a vantage point for the analysis of the empirical findings from the sampled firms. This faciliates the mapping of each firm’s system of corporate governance and a subsequent cross-case comparison and analysis. Through this, patterns in the findings from the individual case studies are identified. Based on this, it is suggested that more successful biopharmaceutical firms’ systems of corporate governance are a mixture of mechanisms from both classic theory and theory on governance of innovation. In line with theory on governance of innovation, the findings imply that more successful firms employ governance mechanisms that empower the cumulative collective learning process that is innovation. Specific elements that are central to achieving this are alliances, the delegation of control to individuals that are insiders to the process that generates innovation, and long-term commitment of resources (financial, human, and physical). The findings also imply that elements to a good system of corporate governance include traditional mechanisms such as incentive alignment and monitoring of the executive board. That is, the mechanisms from theory on governance of innovation and traditional mechanisms of corporate governance are argued to complement each other in a way that enhances the investors’ chances of receiving a return on investment. Consequently, it is inferred that a good system of corporate governance of biopharmaceutical firms includes elements from both schools of theory. Ultimately, the findings lead to four preliminary recommendations of mechanisms that, together and separately, supplement the traditional mechanisms in forming a good system of corporate governance. A potential path going forward for these recommendations to become actionable mechanisms is suggested through the formulation of topics of further research that serve to verify and elaborate on the preliminary recommendations.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2013
Number of pages94