The Business Ethics Blog

A new study suggests that the pharmaceutical industry’s attempt to regulate its own activities with regard to advertising erectile dysfunction drugs has fallen far short of the mark. According to the study, co-authored by US professors Denis Arnold and Jim Oakley, some of the industry’s biggest companies failed repeatedly, over a period of years, to live up to the standards they set for themselves. The companies studied had all committed to the 2005 PhRMA Guiding Principles, but didn’t come close to living up to that commitment.

I suspect few will be surprised by this result, though they may be surprised by the extent of of the violations documented by Arnold and Oakley. Eli Lily’s Cialis campaign, Pfizer’s Viagra campaign, and Bayer Healthcare, GlaxoSmithKline, and Merck’s Levitra campaign violated more principles than they adhered to.

The notion of businesses regulating themselves raises plenty of eyebrows. Skepticism about business is high, and many people will find it hard to believe that profit-oriented businesses will respond to any rules that aren’t backed by the force of law. And the idea of the pharmaceutical industry — an industry not exactly famous for its ethics — self-regulating with regard to marketing a cash-cow category of drugs is sure to garner even more skepticism. Did anyone expect it to work in the first place?

But we shouldn’t let an example like this cast a pall over the notion of self-regulation more generally.

Self-regulation can mean lots of things. It can mean the tacit evolution of norms within an industry, a shared sense that “this is how things should be done.” It can mean efforts to establish industry-wide standards (such as GAAP) that end up being woven into legislated regulatory requirements, and enforced by courts. It can also refer to the simple fact that thousands of basic ethical issues are left up to individual businesses and individual employees. Some of those mechanisms can reasonably be expected to work reasonably well, for some issues. And others, unfortunately, probably cannot.

Self-regulation by means of industry-wide standard-setting is in some sense a best-case scenario for self-regulation. Companies within a single industry have a shared set of interests, including an interest in forestalling intrusive government regulation. They also in many cases form a true community, and are hence able to exert peer pressure on each other to promote compliance. Of course, as the Arnold and Oakley study demonstrates, it doesn’t always work.

And there’s a powerful argument in favour of making use of self-regulation where feasible. After all, government can’t be everywhere, and if it could be we couldn’t want it to be. Having government pass rules about every aspect of business operations and then monitor compliance with those rules would be both terribly expensive and brutally intrusive. The question isn’t whether self-regulation is a good idea. The question is for which issues will self-regulation work, and under what conditions? We need as a society to be able to rely on a good deal of self-regulation, and business needs to figure out how to do it.