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What is Gilead Trying to Hide?

The passage of the Tax Cuts and Jobs Act (TCJA) permanently reduced the corporate tax rate from 35 percent to 21 percent and eliminated provisions requiring companies pay taxes on money earned abroad. With these changes it is estimated that America’s largest corporations by market capitalization will receive a windfall of $150 billion.[1] Among these companies is Gilead which is estimated to have saved millions. However, we, as citizens and investors, have very little insight into how the Gilead or many other companies are spending this windfall.

The tax cuts present Gilead with an opportunity to strengthen the bottom line, invest in workers, benefits, jobs, communities, capital investments, R&D, and make acquisitions. Unfortunately Gilead has failed to provide any specificity or discussion of these investments leaving investors, elected representatives, and citizens in the dark. Without more information investors and policy cannot understand how the tax law will impact a company’s long-term strategy or our economy.

Last year Illinois Treasurer Frerichs, JUST Capital, and a number of investors including Trillium Asset Management, issued a survey to S&P 100 companies with a series of questions regarding planned allocation of corporate tax savings. Gilead declined to complete the survey. And to date, Gilead has not provided adequate information indicating how the company plans to use tax savings gained as a result of the TCJA.

So in order to address these concerns and lack of transparency we have filed a shareholder proposal asking the Gilead Board of Directors to issue a report describing how the company plans to allocate tax savings as a result of the TCJA.

The focus on what companies do with tax benefits is growing during a time when wage growth remains stagnant and income inequality has widened. In 2018 Gilead’s paid it’s now former CEO, John Milligan, $18.5 million – 94 times more than its median worker.

In a poll, when Americans were asked what percentage of corporate tax savings should be allocated to seven categories, responses indicated that fifty-two percent thought tax savings should go towards worker pay and/or benefits, creating new jobs, and giving back to communities. Passing savings onto shareholders was the lowest priority at just 10 percent

Transparency on the use of corporate tax savings is not limited to a niche group of investors. Larry Fink, CEO of BlackRock recently stated:

“Companies have not been explicit enough about their long-term strategies. In the United States, for example, companies should explain to investors how the significant changes to tax law fit into their long-term strategy. What will you do with increased after-tax cash flow, and how will you use it to create long-term value? This is a particularly critical moment for companies to explain their long-term plans to investors.”

Happily, dozens of companies have also shared how they will spend the tax savings. Boeing will use the funds on workforce development, infrastructure enhancement, and corporate giving.[2] Target plans to use 100 percent of its tax savings on workers.

On May 8th these questions will come to a vote at Gilead’s annual meeting in Millbrae, California. Investors will gather and we will present our proposal. We hope, as both citizens and investors, that the board of directors heeds this call for transparency and joins its corporate peers and becomes forthcoming about how its spending its tax savings. How that money is spent will impact the health of the company and our economy. Providing this information is the least Gilead can do.

 

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This is not a recommendation to buy or sell any of the securities mentioned.  It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients.


[1] https://illinoistreasurer.gov/TWOCMS/media/doc/Report%20–%20Tax%20Savings%20Plans%20Among%20U.S.%20Companies%20(October%202018).pdf

[2] https://boeing.mediaroom.com/2017-12-20-Boeing-CEO-Muilenburg-Applauds-Tax-Law-Announces-300-Million-in-Employee-Related-and-Charitable-Investments-to-Spur-Innovation-and-Growth

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