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Corporate governance structures are established to make sure corporations are accountable to their owners—the shareholders.

In exercising our fiduciary duty to our shareholders, the company takes a long-term perspective on shareholder value that takes into account both the company’s relationship with society as a whole and the interests of our many diverse stakeholders.

The Board

Our Board represents and protects the long-term interests of the company’s shareholders. The Board meets a minimum of six times per year and as otherwise needed to provide strategic direction and review our progress on a wide variety of measures. In overseeing the affairs of the company, including our governance, the Board has four committees to help fulfill our obligations to Merck shareholders.

Kenneth C. Frazier, Merck’s Chairman and Chief Executive Officer, is the only Merck executive serving on the Board. William B. Harrison, Jr., serves as the Board’s lead director. As lead director, Mr. Harrison confers with management on matters involving the Board and serves as a liaison to shareholders on investor matters. Mr. Frazier is not a member of any of the Board’s committees; only independent directors serve on these committees.

The Board has a balanced membership, representing relevant areas of experience, types of expertise and backgrounds. While it is Merck’s philosophy that the full Board should consider and act on matters of significance, the committees assist it in carrying out its responsibilities and provide greater focus in key areas.

Board Independence & Performance

Some shareholders believe that the Board should be completely independent. Our policy is that the Merck Board should consist of a substantial majority of independent directors, in accordance with the standard for independence established in our Policies of the Board. As noted above, Mr. Frazier is the only member of the Board who is not independent.

For additional details on our Board’s leadership structure, please see page 15 of Merck’s 2013 Proxy Statement.

Corporate Management

Merck’s chairman, president and chief executive officer Kenneth C. Frazier is accountable to the Merck Board. Merck’s Executive Committee, an internal management committee of Merck executives who report directly to Mr. Frazier, meets monthly and as needed to review the company’s progress and to attend to other matters affecting the company.

Compliance

Merck’s Board of Directors and senior management, including the company’s chief ethics and compliance officer and Corporate Compliance Committee, oversee the company’s global compliance program. Merck’s compliance program is designed to maintain a culture that promotes the prevention, detection and resolution of potential violations of law or company policies. The program is dynamic, involving regular assessments to ensure the program is responsive to the company’s evolving business and associated compliance risks. The Global Compliance Organization (GCO) is led by the executive vice president and chief ethics and compliance officer, who reports directly to the CEO. The chief ethics and compliance officer presents a quarterly report on the state of ethics and compliance at Merck to the Audit Committee of the Board.

Environment, Health and Safety Governance

We are committed to full compliance with all environmental and employee health and safety laws and regulations, to engaging with our stakeholders concerning these issues, and to actively identifying, understanding and addressing potential environmental, health and safety (EHS) risks.

Merck’s Executive Committee has established an EHS Council to provide enterprise-wide leadership and governance of our EHS compliance and performance. In addition to a corporate EHS policy, we are continuing to implement and sustain a robust compliance management program that effectively oversees and manages EHS issues affecting the company, in order to meet our responsibilities and commitments and to improve our performance.

Risk Management

Merck’s Corporate Audit and Assurance Services group is accountable to the Audit Committee of the Board for assessing the adequacy and effectiveness of the company’s control environment related to financial reporting and operating processes. This includes the appropriate management and oversight of key company risks, in accordance with our corporate policy on audit, control and risk management.

Disclosure

We are committed to a policy of full, accurate and timely disclosure of all material information in order to keep shareholders and the investing public informed about the corporation’s business and operations. Accordingly, we have established a corporate disclosure policy that articulates the standards, processes and governance for the company’s disclosure practices. Pursuant to the policy, Merck’s Disclosure Committee oversees the company’s disclosure practices and disclosure obligations.

Executive Compensation

Each year, the Compensation and Benefits Committee of the Board of Directors considers the outcome of shareholder advisory votes on executive compensation when making future decisions relating to the compensation of the Named Executive Officers; which includes the Chief Executive Officer, the Chief Financial Officer and the three other most highly paid executive officers; and our executive compensation program and policies.

In 2013, shareholders continued their strong support of our executive compensation programs, with over 88 percent of the votes cast for approval of the “say on pay” proposal at the 2013 Annual Meeting of Shareholders. The Compensation and Benefits Committee believes that the voting results conveyed our shareholders’ strong support of the philosophy, strategy and objectives of our executive compensation programs. Furthermore, we continue to engage in constructive dialogue with our shareholders regarding our executive compensation programs and policies to ensure that investors understand the manner in which our policies support our long-term strategic objectives.

During 2012, Merck, along with several of our pharmaceutical peers, engaged in thoughtful discussions with a group of shareholders that led to the Compensation and Benefits Committee’s adoption of a set of principles for a new incentive compensation recoupment policy. This new policy will provide the Compensation and Benefits Committee with full discretion to recoup certain incentive awards in instances of material violations of company policy that cause significant harm to Merck. This policy will apply to senior executives who engaged in the misconduct that led to the material violation or who failed in their supervisory responsibility to manage or monitor conduct or risks appropriately. The formal policy will be finalized later in 2013 and will become effective January 1, 2014. It will supplement our existing recoupment policy which is triggered by a significant financial restatement caused by executive fraud or willful misconduct.

Additional information on executive compensation can be found in the company’s 2013 Proxy Statement.

Governance of Our Research Agenda

The Research Leadership Team, headed by the president of Merck Research Laboratories (MRL), develops the divisional strategy, allocates resources and manages the research and development portfolio. The Research Leadership Team is made up of the heads of functional areas within MRL. Each area provides expert, efficient support of our drug candidates—ushering them from drug discovery through product-life-cycle management.

Safety Monitoring

Merck has an efficient global pharmacovigilance organization that collects, medically reviews and evaluates and reports adverse experiences to global health authorities in compliance with global regulatory reporting requirements. Our global product safety teams within MRL are responsible for monitoring the evolving safety profile of our medicines and vaccines. In parallel, at the country level, local pharmacovigilance teams at our subsidiaries worldwide are responsible for ensuring that adverse experience information is collected and reported to our global product safety staff at headquarters and to local regulatory authorities.

Corporate Responsibility Governance

Merck’s Office of Corporate Responsibility identifies corporate responsibility issues that are important to our business success and our stakeholders, and formally manages targets and performance for those issues. To learn more, click here.

Last Updated November 25, 2013