We believe it is our responsibility to work with policy makers and other stakeholders to explain our views ethically and transparently.

We are committed to participating constructively and responsibly in the political process, and to providing clarifying analysis and information on the issues that affect our business and patient care.

A major element of our corporate responsibility approach is our public policy advocacy work and our outreach to stakeholders. In this section, we describe how we inform and advocate for public policies that foster research into innovative medicines and that improve access to medicines, vaccines and healthcare.

In this section, we also describe our approach to engaging with stakeholders. We believe this engagement is fundamental to our understanding of—and response to—society's expectations of our company. From drug discovery and development to distribution, our engagement with stakeholders guides our business strategy and decisions, and strengthens stakeholders’ understanding of—and trust in—our business.

We recognize that our outreach activities can help highlight and address important issues, leveraging the expertise of all our stakeholders to develop sustainable solutions to such challenges as disease, lack of education, environmental challenges and corruption. Merck has pioneered far-reaching programs and partnerships, the results of which demonstrate that more can be achieved by working together than by individual stakeholders working alone—and can make a sustainable difference.

Engaging Responsibly

Government proposals to regulate the healthcare system may directly affect the company's business and incentives for pharmaceutical innovation. Important policy initiatives can also increase patient access to medicines and vaccines and healthcare insurance coverage—particularly for patients in disadvantaged communities and regions.

That is why it is appropriate for the company to help inform the debate on these issues in the United States and in other countries. Our participation in the political process is guided by the following principles:

• Improving patient access to healthcare, including to medicines and vaccines
• Encouraging innovation by protecting intellectual property rights, advocating for government support of basic research, and supporting efficient and effective regulatory systems, among other issues

Merck's Executive Committee has overall governing responsibility for the company's public policy strategy, as guided by the Governance, Public Policy and Corporate Responsibility Committee of the Board of Directors. Merck's Global Public Policy Leadership Team, headed by the senior vice president of Global Public Policy and Corporate Responsibility, leads the development and communication of policy positions on major issues. Statements summarizing our position on key public policy issues are posted on the Public Policy page of our corporate site.

How Merck Engages

Merck engages in public policy debates primarily by communicating information to government officials and policy makers.

Our Federal Policy and Government Relations office in Washington, D.C., is responsible for advocacy activities with the U.S. Congress and other bodies of the federal government. Advocacy at the state level is managed by our State Government Affairs & Policy organization. Outside the U.S., advocacy activities are managed at the regional, country or local level, with support from regional and corporate policy staff.

To assist with our advocacy and policy analysis work, Merck and its affiliates contract with a range of private firms specializing in government affairs advocacy. These firms employ government affairs consultants with particular expertise on issues important to the company. The Merck Action Network also informs our U.S.-based employees and retirees about important legislative issues, and serves as a vehicle for them to communicate with their members of Congress. In 2012, the Merck Action Network engaged Merck employees on three federal legislative issues:

• Urging Congress to protect the Medicare Part D program from the imposition of Medicaid-style rebates that would have had a stifling effect on pharmaceutical innovation.
• Supporting swift passage of the Food and Drug Administration Safety and Innovation Act of 2012 (FDASIA).
• Calling on Congress to repeal the Independent Payment Advisory Board (IPAB).

All Merck employees and external business partners must abide by our global corporate Code of Conduct, Our Values and Standards, which applies to our interactions with government officials and to advocacy activities on public policy issues. This code is intended to ensure that all information provided to governmental entities is complete and accurate to the best of an employee's knowledge and belief. In the United States, there are also important federal and state lobbying registration and disclosure laws with which Merck complies.

Our corporate policy on ethical business practices includes guidelines on the U.S. anti-kickback laws and Foreign Corrupt Practices Act, making clear that no illegal payments of any kind (monetary or otherwise) are to be offered or made to an individual or entity—including a local, state or federal government or political party official or candidate in the United States; a government or political party official or candidate of any other nation; or officials of public international organizations; at any time or under any circumstances.

To improve access to information about Merck's advocacy activities, we disclose costs associated with lobbying in the European Union and the United States. Click here for Merck's 2012 EU lobbying report. Costs are based on the pro rata salary costs of MSD staff and on the proportion of employee time and outsourcing spent on initiatives involved in interest representation to European institutions.

In the United States, in compliance with the Lobbying Disclosure Act, Merck files quarterly reports with the U.S. Congress describing the issues we are lobbying about and the amount of money we spend each quarter. These reports incorporate the expenses associated with lobbying the federal government, including those incurred by our Office of U.S. Policy and Government Relations, and the portion of our trade association dues associated with federal lobbying.

Our Top Lobbying Issues

In the United States in 2012, the top five issues at the federal level for which Merck lobbied were federal deficit reduction; the reauthorization of the Prescription Drug User Fee Act; defense of Medicare Part D; implementation of the Affordable Care Act; and corporate tax reform.

In the United States in 2012, the top five issues at the state level for which Merck lobbied were state implementation of the health benefit exchange component of the federal Affordable Care Act; budget support to help ensure patient access to medicines in state Medicaid and AIDS Drug Assistance Programs; continued funding for programs providing coverage for and access to immunizations; initiatives to address pharmaceuticals in the environment; and proposals affecting patient access to specific over-the-counter medicines.

On a European level in 2012, our advocacy focused on fostering a framework for a sound pricing regime in a Europe of diverse economies; support for government vaccination and hepatitis C programs; standards for health technology assessment and health literacy; progressing of the Clinical Trial Directive, Transparency Directive, Water Framework Directive; and implementation of the Cross-Border Healthcare Directive and the Pharmacovigilance Directive.

Merck's senior vice president of Global Public Policy and Corporate Responsibility presents the company's advocacy priorities to members of Merck's Executive Committee and the Governance, Public Policy and Corporate Responsibility Committee of the Board of Directors annually, and provides periodic updates throughout the year.

Political Contributions

Where permitted by law in the United States, Canada and Australia, the company provides corporate political contributions, primarily to the electoral campaigns of individual candidates.

Merck employees can also participate in the political process by joining a nonpartisan political action committee (PAC), through which they can pool their financial resources to support federal and state candidates. Except for administrative expenses, the Merck Employees Political Action Committee (Merck PAC) is completely funded with voluntarily contributions from eligible Merck employees. The PAC supports legislators from both major parties who understand and appreciate the work Merck does to discover and develop medicines and to make them available to the patients who need them.

Merck's corporate policy governing its corporate and PAC contributions can be found here. In addition, we have developed the Merck Principles Governing Corporate and Political Action Committee Spending. These principles are modeled on provisions in the Model Code for Political Spending, established by the Center for Political Accountability, and are intended to promote corporate accountability.

Merck has been ranked No. 1 for two consecutive years (2011 and 2012) on the Center for Political Accountability (CPA)-Zicklin Index of Corporate Political Accountability and Disclosure released by the CPA in conjunction with the Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania.

Merck has a formal PAC Contributions Committee that makes decisions on spending for the Merck PAC. This committee also makes decisions on the company’s corporate political contributions. The committee is chaired by our executive vice president and general counsel and includes senior managers representing different divisions and corporate functions. The general counsel approves contribution recommendations, following review and approval by the committee.

To ensure compliance with Merck policy and federal and state law, outside legal experts provide periodic guidance to the company on required disclosure of its political activities. We also perform periodic audits to assess and enforce compliance with Merck's policy governing its corporate and PAC contributions, and we require those individuals who recommend corporate political contributions in the United States to certify their knowledge of and adherence to our corporate Policy and Principles Governing Corporate Political and Political Action Committee Contributions.

As required by Merck policy and procedures, Merck's executive vice president and general counsel sends an annual report on the company's corporate political contributions for the previous year to the Merck Board of Directors. The report discloses contributions in the United States, Australia and Canada, including the name of each candidate, committee or event and the amount disbursed. It also reports on trade association dues spent on lobbying and political activity in the United States for dues greater than $25,000. Merck's senior vice president of Public Policy and Corporate Responsibility submits a midyear report on corporate political contributions to the Governance, Public Policy and Corporate Responsibility Committee of the Board of Directors. For both reports, which also describe any changes in our policies, we invite comments and questions.

To improve access to information about Merck's corporate political and PAC contributions in the United States, the company semiannually posts its contributions, categorized by state, candidate and amount. We also disclose any contributions to committees known as 527 organizations.

Our Corporate Political Contributions

In 2012, Merck spent a total of $728,450 in U.S. corporate political contributions. These contributions supported the campaigns of candidates for state-level offices in 29 states plus the District of Columbia. They also were used to support state legislative leadership committees of both parties, industry-affiliated PACs, and a number of national organizations representing elected state officials. The latter groups meet periodically to discuss policy issues. Examples are the Republican Governors Association and the Democratic Governors Association. Information on all contributions can be assessed through the above link. Merck representatives involved in state government affairs activities made the recommendations for specific contributions. These recommendations were reviewed and approved by the Corporate Political Contributions Committee, which mirrors the Merck PAC Contributions Committee in membership and oversight procedures. Outside legal counsel conducted a thorough review of all proposed contributions to ensure that they were permitted under state law. Final approval was provided by the general counsel of Merck.

To view a full listing of Merck's corporate and PAC contributions made within the United States in 2012, please click here.

Merck also provides grants to organizations that represent elected officials to support public policy advocacy. Merck State Government Affairs reviews its grants and corporate memberships on an annual basis to decide which will be retained for the upcoming calendar year based on budget constraints and policy priorities. Groups that received Merck support in 2012 included, but are not limited to, the National Governors Association, the Council of State Governments, the National Association of Latino Elected/Appointed Officials, the National Black Caucus of State Legislators, the National Conference of State Legislatures, and the National Hispanic Caucus of State Legislators. We disclose all public policy grants as part of our general grants disclosure.

The only other countries in which we provide corporate contributions to candidates or political parties are Canada and Australia. These contributions are subject to the same policies and governance procedures discussed above. To view Merck's contributions made in Canada and Australia for 2012, please click here.

Archived corporate political contribution reports are available here.

Merck's vice president of State Government Affairs is cochair of the Conference Board Committee on Corporate Political Spending, which is dedicated to accountability, disclosure, education and engagement on issues of corporate political activity. In 2012, the committee released a new report, "Corporate Political Spending: Policies and Practices, Accountability and Disclosure." Merck has also previously supported the development of the Handbook on Corporate Political Activity: Emerging Corporate Governance Issues, which grew out of discussions held at two roundtables organized by The Conference Board Governance Center in 2010.

Industry Groups and Trade Associations

Merck is a member of numerous industry and trade groups. We work with these groups because they represent the pharmaceutical industry and business community in debates led by governments and other stakeholders, and because they help the industry reach consensus on policy issues.

When our trade associations actively lobby on our core business issues, outlined above, we seek to align their positions with our own. There are times, however, when we may not share the views of our peers or associations—on both issues that are central to our business and those that, while important, are not directly material to our mission. With Merck representatives on the boards and committees of industry groups and trade associations, we can voice questions or concerns we may have about policy or related activities. We may even recuse ourselves from related trade association or industry group activities when appropriate.

Merck's executive vice president and general counsel sends an annual report to the Merck Board of Directors on trade association dues spent the previous year on lobbying and political activity in the United States for dues greater than $25,000. The Governance, Public Policy and Corporate Responsibility Committee of the Board of Directors has ongoing oversight of the company's membership in trade associations and grassroots lobbying activities.

For a list of industry and trade groups of which we are members and our dues (dues that are greater than $25,000) to trade associations that are used for political purposes, please click here.

Through our top-three trade associations (listed below), we engaged on the following policy issues in 2012:

• Pharmaceutical Research and Manufacturers of America (PhRMA): Federal deficit reduction; the re-authorization of the Prescription Drug User Fee Act; defense of Medicare Part D; and implementation of the Affordable Care Act.
• U.S. Chamber of Commerce: Federal deficit reduction; the reauthorization of the Prescription Drug User Fee Act; defense of Medicare Part D; corporate tax reform; and the Korea-U.S. Free Trade Agreement.
• Biotechnology Industry Organization (BIO): Federal deficit reduction; the reauthorization of the Prescription Drug User Fee Act; and defense of Medicare Part D.