Archive for the ‘conflict of interest’ Category
Buffett, Sokol, and Virtue Ethics
Filed under: character, conflict of interest, employees, ethics, finance, honesty, trust, values, virtue, white collar crime |
Comments (8) 
Warren Buffett (photo by Mark Hirschey)
The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.
For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)
Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….
Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.
For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)
Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:
[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.
Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:
“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”
Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:
“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”
All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.
Insider Trading at the FDA
Filed under: conflict of interest, employees, ethics, finance, intellectual property, investing, law, science, trust, white collar crime |
Comments (3) A scientist employed by the US Food and Drug Administration has been arrested and charged with insider trading.
Here’s the story, from Diana B. Henriques at the New York Times: U.S. Chemist Is Charged With Insider Stock Trades
A 15-year veteran of the federal Food and Drug Administration and his 25-year-old son were arrested on Tuesday and charged with systematically using confidential information about pending drug applications to reap millions in illegal trading profits since 2007.
As part of its drug-approval process, the FDA is given sensitive information by companies seeking such approval. And the status of a company’s application within the FDA’s own decision-making is itself sensitive information. Since FDA approval is essential to getting a drug to market, the announcement that a company’s drug has been granted, or denied, approval by the FDA can have a huge impact on the value of a company’s stock. And what FDA chemist Cheng Yi Liang did is to use information available only to FDA insiders to make profitable trades on the stock of companies then seeking FDA approval.
Just what was so wrong with what went on here?
In a statement announcing the case, Lanny A. Breuer, the assistant attorney general for the criminal division, said: “Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens. According to the complaint, he and his son repeatedly violated that trust to line their own pockets.”
Now Mr Breuer is clearly engaging in a bit of prosecutorial rhetoric. He’s right of course that Cheng Yi Liang was entrusted with privileged information, but there’s no obvious reason to think that his use of that information for personal gain jeopardized anyone’s health or safety. But fair enough: Mr Breuer is playing his role in an adversarial system, and that licenses a certain amount of hyperbole.
But what really is wrong with the kind of insider trading that Cheng Yi Liang engaged in? The precise worry about insider trading is the subject of some debate, and I’ve blogged about that before. (See: Ethics of Insider Trading.)
There are several ways we could get at just what was unethical about what Cheng Yi Liang did. One worry is that he profited unjustly, gaining money that he didn’t earn and had no right to. Also, in engaging in insider trading, he traded on information not accessible to others. That means that the people he traded with were at an unfair advantage, and likely lost money as a result. It also means that, subject as it was to significant information asymmetries, the market in which he traded was rendered slightly less efficient, as a whole.
There is of course another ethical worry: if chemists working for the FDA take a personal financial interest in the fate of various approvals, that could quite easily corrupt the work they do. In other words, it puts such a chemist into a conflict of interest. In a conflict of interest, what is fundamentally at stake is our trust in an individual’s judgment. If FDA scientists have a personal stake in their scientific work, then we have reason to doubt their judgment. And, worse, if the judgment of FDA scientists becomes subject to doubt, then the public ends up having a reason (though perhaps not a sufficient reason) to doubt the work of the FDA as a whole.
Ethics of Insider Trading
Filed under: conflict of interest, decision-making, ethics, finance, governance, honesty, profits, shareholders, Uncategorized |
Comments (13) “Insider trading” is one of those phrases that most adults have heard (at least on the nightly news), but that relatively few understand. (Perhaps the most famous case: Martha Stewart was originally charged with insider trading in the ImClone case.) I imagine few people even know what it really refers to. Well, it refers to situations in which corporate “insiders” (executives, directors, etc.) buy or sell their company’s stock on the basis of significant corporate information that is not available to the investing public more generally. (For more details, see the Wikipedia page on insider trading.)
But even if we don’t all know just what insider trading is, we all know insider trading is bad, and must be stopped. Right? But it’s hard to stop something that’s hard to define. In that regard, see this nice piece by Steve Maich, Editor of Canadian Business: “Chasing our tails while we chase insider trading.”
In case you hadn’t noticed, we are in the midst of a crackdown. Or rather, another crackdown. The crime du jour is an old favourite: insider trading….
There are obvious benefits to these shows of regulatory force. Seeing hedge fund managers and lawyers in handcuffs not only produces a nice dopamine rush, it’s also meant to demonstrate the integrity of the capital markets. But the costs are frequently overlooked. Like most crackdowns, this one seems likely to deepen cynicism, erode confidence and lob more grenades at shell-shocked markets….
Maich is undertandably cynical about these enforcement efforts:
Despite the periodic efforts of regulators to stamp it out, insider trading runs as rampant as ever, and that isn’t going to change. This is in part because it’s notoriously difficult to prove, but also because we have never definitely solved the fundamental puzzles at the heart of this supposed crime….
It’s worth adding that there is genuine disagreement over just why insider trading is unethical. (Some people even think it’s not unethical at all, because the executive who trades on “inside” information ends up indirectly bringing that information to the market, rendering the latter more efficient.) And if we’re not entirely sure why it’s unethical, it makes it that much harder to figure out in which cases it’s unethical.
The only scholarly article I’ve read on the ethics of insider trading is by Jennifer Moore, and is called “What Is Really Unethical About Insider Trading?”* Moore looks at a number of arguments against insider trading — arguments rooted in fairness, in property rights, and in the risk of harm to investors — and finds most of them lacking. Moore ends up arguing — plausibly, in my view — that the real reason insider trading is unethical is that it jeopardizes the fiduciary relationships that are central to business. If insider trading were permitted, that would put corporate insiders in a conflict of interest. Basically, the interests of corporate insiders would stop being well-aligned with the interests of the shareholders they are supposed to serve. And if the interests of corporate insiders aren’t aligned with the interests of shareholders, then people are much less likely to be willing to buy shares (i.e., to invest) in companies. And that wouldn’t be good for the firm, for its shareholders, or for society in general.
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*Jennifer Moore, “What Is Really Unethical About Insider Trading?” Journal of Business Ethics, Volume 9, Number 3, 171-182.
Conflict of Interest at the Business/Politics Interface
Filed under: accountability, conflict of interest, ethics, government, politics, taxpayers |
Leave a comment People tend not to trust big business. And they tend not to trust the world of politics. But when those two worlds intersect, people really get nervous.
Witness, for example, this story by Eric Lipton, for yesterday’s New York Times: A Journey From Lawmaker to Lobbyist and Back Again
The story is about Dan Coats, a former corporate lobbyist recently elected to the US Senate.
Dan Coats, then a former senator and ambassador to Germany, served as co-chairman of a team of lobbyists in 2007 who worked behind the scenes to successfully block Senate legislation that would have terminated a tax loophole worth hundreds of millions of dollars in additional cash flow to Cooper Industries.
…
As part of the Republican wave in this year’s midterm elections, Mr. Coats will join the Senate again and is seeking a coveted spot on the Finance Committee, the same panel that tried to shut the tax loophole and that the Obama administration has pushed to again consider such a move.
The worry alluded to in the NYT piece, but not explored in any depth, is that of conflict of interest. The vague worry is roughly that there is — well, some sort of conflict between Mr. Coats’ old allegiances and his new position.
Coincidentally, here’s a piece (just published today) that I wrote about conflict of interest in the Canadians Prime Minister’s Office: Conflict of Interest in the PMO: Just What is the Worry?
The main point of my article is neither to accuse nor to absolve. It’s to point out that we need to get clear on just what the worry is, in any particular situation. A vague worry that “something ain’t right, here” is fine as a starting point, but if we want to go beyond that, and if we want to prescribe smart solutions, we need to get clearer about what the problem is.
Some scholarly definitions cast the matter as a question of judgment. Under such definitions, conflict of interest is said to occur if there is good reason to think that the judgment of the individual in question will be impaired. In other words, will she be able to exercise judgment impartially, or will her judgment be clouded by other factors that ought to, for ethical reasons, be excluded?
Other definitions frame the issue as one about the interests of those being served: a conflict is said to occur if there is reason to doubt the individual’s ability to faithfully serve the interests of those they are sworn to serve.
Whatever their differences, both definitions focus on service. We worry about conflict of interest when the incentives present in a given situation give us reason to doubt the quality of an individual’s service as a trusted advisor or decision-maker. This analysis suggests that, whatever the Conflict of Interest Act may say, the real question in the case of Wright is whether the judgment that he exercises in his capacity as the chief of staff can reasonably be expected to be skewed (consciously or subconsciously) by the interests of his former, corporate, employers.
The same could, and presumably should, be asked about Mr. Coats. But, as always, I am at pains to point out that a conflict of interest is a situation, not an accusation. If there is reason to worry about Mr. Coats’ judgment, that is not a matter of impugning Mr. Coats’ integrity. Rather, it is a matter of considering what measures (if any) are sufficient to make sure that the value of his service to the public outweighs the risks.
Governance, Both Political and Corporate
Filed under: boards, conflict of interest, corporations, governance, government, politics |
Comments (4) The word “governance” (as in, “corporate governance”) is obviously quite similar to the word “government.” And just as obviously, that’s no coincidence. The two words share the same roots. In the abstract, the word “governance” just refers to the act of governing something. But it’s not just the meaning of the words that overlaps — it’s the people doing the work. At the highest levels, people often move from the world of business into the world of politics, and vice versa.
A few quick points about this.
1) The fact that there’s some flow back-and-forth between government and the corporate world is not at all surprising. After all, there’s considerable overlap in the skill-sets required in leadership positions in both domains. For example, I recently heard a top expert on corporate governance say that ex-politicians actually make very good corporate directors (and that was said based entirely on their skill-set — not, as you might guess, based on their political connections).
2) Some people do question the extent to which one world is good training for the other. See, for example, this recent story about former EBay CEO, Meg Whitman, who is currently in the running to become governor of California: Is EBay a proper primer for a governor? (by Stuart Pfeifer for the LA Times). Here’s one relevant bit:
Some former employees and Silicon Valley observers question whether a forceful corporate executive used to getting her way would be capable of the compromise needed in government.
“You certainly have many more freedoms as a CEO than you do as an elected official,” said Larry Gerston, a political science professor at San Jose State. “We don’t elect kings.”
3) It’s also noteworthy when a major politician acts in a way more common in the corporate world. In this regard, see the review (by Jordan Timm) in this week’s Canadian Business magazine (unfortunately not online yet) of Lawrence Martin’s Harperland, a book about Canadian Prime Minister, Stephen Harper. According to the review,
…this Prime Minister’s office has enjoyed privilege and authority more in the style of the corporate C-suite than the executive branch of a traditional Westminster government. That approach has been responsible for many of the Harper government’s successes, but it has also been at fault for many of its blunders and setbacks. And though the business and political worlds feature very different rules and accountabilities, executives can learn many lessons, both constructive and cautionary from Stephen Harper’s Ottawa.
4) In both kinds of governance (political and corporate) the main challenge lies in turning the will (and values) of the many (votes in one case, shareholders in the other) into decisions by a few (politicians in one case, executives and directors in the other) to be implemented by an in-between number (of civil servants in one case, and of corporate employees in the other). And in both cases, effective leadership seems to require that the leader engage in a combination of a) listening to their constituents, and b) exercising independent judgment.
I don’t have a grand point to make on this topic. But can anyone recommend essential reading on the intersection between corporate and political governance and/or leadership?
Is a Board Position a Conflict of Interest?
Filed under: accountability, boards, conflict of interest, corporations, employees, governance, professionalism |
Comments (2) Here’s an story (in which I was quoted) by Paul Turenne, in the Winnipeg Sun: Gerrard slams WRHA manager’s ‘moonlighting’.
The story is basically about a senior executive (Brock Wright) at the Winnipeg Regional Health Authority (the public body responsible for administering hospitals in and around that city) who took a position on the Board of Directors of a small American medical technology company. Critics (like Opposition leader Gerard, named in the headline) called that a Conflict of Interest.
Now, a conflict of interest is basically any situation in which a person has a private or personal interest sufficient to appear to influence the objective exercise of judgment in his or her official duties.
So, to figure out whether there’s a problem here, a few elements need to be considered.
1) Does taking a Board position constitute an “personal interest” in the relevant sense? The one that’s usually (but not always) at stake is an interest in money. Well, And corporate board membership isn’t typically volunteer work. It involves a significant stipend, along with a good deal of personal prestige.
2) What bits of judgment might Wright need to exercise on behalf of WRHA that might be jeopardized by his board membership? The most obvious one is his involvement in purchasing decisions for the WRHA. In that regard, a spokesperson for the WRHA says:
This is a company the WRHA has no business relationship with. We have not purchased anything from them. If at any time they were to try to sell us something, Dr. Wright would of course remind us of his relationship with them and recuse himself from any discussions. Having said that, he’s not in a position to make decisions like that. We have a very strict policy about the tendering process
The bigger issue (though perhaps not insurmountable) is the judgment that Wright (or any employee) needs to exercise with regard to his own time management. Being a member of a corporate board isn’t an honourary thing: it comes with real responsibilities, and can take considerable time. So the question I would want to ask, if I where the WRHA, is how Wright plans to satisfy his duties as a member of the TearLab board (including possibly several trips a year to attend meetings in California) without diminishing the quality of his work in Winnipeg. If there’s reasonable plan to make that happen,
3) Finally, it’s worth noting (again and again) that being in a Conflict of Interest isn’t automatically unethical. (So it’s not, contrary to the headline used in another newspaper’s story about this issue, an accusation.) It is possible to end up in a Conflict of Interest through no fault of your own. And, finding yourself in a COI, what matters is what you do about it. Disclosing the COI to the person or organization relying on your judgment is usually considered step 1, and removing yourself from key decisions, if possible, is another standard move. But COI is at least sometimes worth tolerating, if managed appropriately. That does mean, though, that we should all be expected to think carefully, before putting ourselves into a Conflict of Interest, whether the risks are manageable, and whether in the end those risks are sufficient to constitute a disservice to those who rely upon our judgment.
Ethics in Venture Capital
Filed under: conflict of interest, finance, management, profits, SME, technology |
Comments (3) 
This is the first of two blog entries on ethical issues in venture capital.
Venture capitalists are investment companies that specialize in careful investment in high-risk ventures that provide the possibility of exceptionally high returns, typically in specialized technology-driven industries like biotech and information technology. Venture capitalists (VCs) are a source of funding for small companies that need a serious infusion of cash (typically from a few hundred thousand dollars to a few million dollars) but that are too small (and with too little short-term promise of profit) to raise money via the stock market. In addition to providing funding, VCs typically provide startup companies with mentoring, providing advice, business connections and management expertise that might otherwise be lacking.
The relationship between VCs and the entrepreneurs they provide funding to raises some special ethical challenges. Here are just a few:
1) Bargaining power. VCs typically provide funding to companies that are fairly desperate for money. Add to that the fact that VCs are typically seasoned industry insiders, whereas the entrepreneurs seeking funding may never have been in business before at all. He or she might, for example, be a university scientist who knows a lot about cancer drugs, but nothing at all about the world of business and finance. As a result, there’s a worry that VCs will often be able to impose conditions that are highly advantageous to themselves, and much less good for the entrepreneur. Whether that imbalance ends up being unfair is a matter for debate.
2) Information. The companies VCs invest in are typically recent start-ups; often all they’ve got going for them are a few smart people and what they take to be a great idea. In order to justify investing, VCs engage in an intensive process of due diligence, essentially insisting on a level of access to information otherwise reserved for insiders. Sometimes they sign non-disclosure agreements, but sometimes they don’t. The result is that VCs end up with inside information not just about the companies they actually invest in, but also about the companies they consider investing in — and some VCs will look at proposals from several hundred companies per year. This raises obvious risks related to confidentiality, insider trading, and the protection of intellectual property.
3. Control. Because their investments are so risky, they typically insist on being given considerable control in exchange for their investment. For example, VCs may insist on being given seats on the company’s Board of Directors. This raises questions of loyalty and conflict of interest. VCs seek Board seats in order to protect their interests; but Board members have fiduciary obligations to promote the interests of the company as a whole, which may at times be different from the interests of the VCs.
4. Short Term-ism. The time-horizon for VCs is relatively short. Their investments typically take the form of cash in exchange for shares (often preferred shares) in the company. The idea is generally to nurture the company through early-stage growing pains, help it grow into a company that can either go public (via IPO) or be bought out by a bigger, wealthier company. Typically VCs cash out in 3-5 years; if things have gone well, they reap a very significant profit. The result is that VCs have a pretty short-term interest in the companies they invest in. They care about growing the company, making a profit, and getting out. They are typically seen as having very little interest in the long-term interests of employees or other stakeholders. This is the source of the common joke that “VC” actually stands for “vulture capital.”
In my next blog entry, I’ll consider what we can learn about business ethics more generally by thinking about ethical issues that arise in the world of venture capital.
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Links:
Here’s the Wikipedia page on venture capital.
One of the few scholarly works on VC ethics: Yves Fassin, “Risks in Business Ethics and Venture Capital,” in Business Ethics: A European Review, Volume 2, Issue 3, pages 124–131, July 1993
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Addendum (Aug. 12, 2010)
A friend of mine who is a venture capitalist suggested the following excellent clarifications regarding timelines. First, the 3-year time horizon mentioned above is mostly for later stage deals. VCs that invest at earlier stages usually have 5+ year time frames. VCs that invest in start-ups have 7-9 year time frames. Second, even the 3-year time horizon for later-stage deals is not all that short — not compared to the even shorter time horizons of stockholders in publicly-traded companies, which are typically under pressure from Wall Street to produce quarterly results.
Chiropractic Referral Fees & Conflict of Interest
Filed under: conflict of interest, health, honesty, professionalism, regulations |
Comments (4) Sometimes, when consumers need two different, but related, goods or services, they rely on the advice of the provider of one product to select a provider of the second. That often makes sense, because providers in related businesses often have specialized knowledge that lets them give good advice (e.g., the guy who sells you your carpet likely knows who would be good at cleaning that carpet.) In such a case, people in related businesses can be a good source of expert, independent advice.
That is, if the advice is truly independent. And the most obvious way to eliminate independence is to inject a financial interest into the scenario. If the person you’re relying on for advice is financially beholden to the person he or she is recommending, you have every reason to doubt that advice.
And if that advice you’re after isn’t about something mundane, like carpets (something about which a great many non-experts know quite a lot) but is instead about your health, you have every reason to worry — especially when one of the service providers involved is taking active steps to put the person you’re relying on for advice into a Conflict of Interest.
Here’s an article (in which I’m quoted) about just such a situation. It’s by Yoni Freedhoff, MD, writing for the Canadian Medical Association Journal, Chiropractic clinic offered referral kickbacks
A chiropractic clinic with locations in Ontario, Nova Scotia and Manitoba offered lucrative kickbacks to physicians for referring clients to its five outlets until the College of Physicians and Surgeons of Ontario (CPSO) apparently stepped in to scuttle the payments as a result of CMAJ inquiries.
The offer of kickbacks, which were in the form of financial compensation, arising out of referrals from doctors, came to light as a result of a CMAJ request for a “doctor’s information kit” in accordance with instructions from an advertisement placed in the journal by the Low Back Clinic.
The kit included a document detailing appropriate patient referral criteria, which was followed by the proclamation: “In compliance with the C.P.S.O. standards, a $300 documentations fee will be provided once the patient completes care….”
Summary of problems:
- The payments put referring physicians into a conflict of interest;
- The payments, which are based on completion of a course of care, induce physicians to encourage patients to complete a course of care independent of whether that’s in the patient’s best interests;
- The payments risk jeopardizing patients’ trust in their physicians;
- The payments risk the professional reputation of the medical profession quite generally;
- Referring to the payments as being “In compliance with the C.P.S.O. standards” falsely implies that the payments are required by the C.P.S.O.
All in all, this scheme was a pretty bad idea. Perhaps the clinic offering the fee could be excused for not knowing that doing so was contrary to regulation. But health professionals certainly ought to know enough about conflict of interest to recognize that such a scheme is seriously ethically problematic.
Should Consumers Trust Big Pharma?
Filed under: accountability, conflict of interest, consumers, honesty, pharma, product safety, profits, risk, science |
Comments (9) 
Lots of people don’t trust Big Pharma. And to a significant extent, that’s for good reasons. (I’ve blogged about some of those reasons here, here, here, here, here, here, here and here, just to cite a few examples. See also some of the entries on the other blog I co-author, the Research Ethics Blog.)
Trust in big pharma is an important issue. Pharmaceuticals are responsible for saving and improving a huge number of lives. Vaccines alone have prevented literally millions of deaths. Survival rates for many cancers are better than they used to be. And AIDS, once a death sentence, is now regarded as a chronic disease. So there’s real benefit from pharma, but also an undeniable track record of scandals and general unethical behaviour. What should we think?
The first thing worth noting is that the question in the title above is vastly oversimplified. The question isn’t “should consumers trust big pharma?”, it’s more like “To what extent, and under what circumstances, on what issues, should consumers trust big pharma?”
Setting aside the industry’s spotty track record, the main reason people tend not to think Big Pharma trustworthy is, of course, the fact that Big Pharma consists of profit-oriented organizations. And the general assumption is that money corrupts. Of course, money isn’t the only thing that corrupts judgment (so does love, reputation, ideology, etc etc), and big pharma is far from the only industry where big money is at stake. But still, there’s a real worry here (one I’ve blogged about before).
Now, what about the reasons in favour of trusting Big Pharma? What factors would tend to make Big Pharma trustworthy, to at least some extent?
Now I cannot emphasize this strongly enough: what follows is not intended to imply a general conclusion about the trustworthiness of Big Pharma. It’s just a list of important factors to keep in mind when assessing the trustworthiness of a particular claim, by a particular company, on a particular issue.
1) Ethics. Don’t just think about the organizations; think about the people who work at them. They’re mostly people like you & me. Most of them got into the business to try to help people (and, yeah, to make a living). And most of them were raised by their parents to be decent, honest folks. Most people tell the truth about most things most of the time.
2) Regulation. The pharmaceutical industry is heavily regulated, subject to lots of laws regarding the efficacy and safety of their products, as well as regarding advertising. Criminal and civil sanctions are possible when pharma companies misbehave. Now, that’s not to say that the current level of regulation is sufficient, or that enforcement is adequate. But companies (and individuals) have been subject to serious sanctions. Companies generally want to stay out of court, and so they’ve got a reason — not always a sufficient reason, but a reason — to behave in a trustworthy manner.
3) Peer Review. In few other industries is fundamental information about what makes your product work (or not work) open to public scrutiny. In order for a new drug to receive approval to be marketed, it has to show itself to be safe and effective in clinical trials, and the results and methods of those trials have to be published in peer-reviewed medical journals. Drug companies are not allowed to make claims based on secret data. “Peer reviewed” means that the articles reporting on the trials have to be vetted by a panel of qualified experts if they are ever going to see the light of day. It’s an imperfect system (all systems relying on human judgment are) but bad science tends to get weeded out pretty quickly. Then, once a study is published, it’s there for assessment, and potentially criticism and rebuttal, by hundreds or thousands of other experts.
4) Scientific Overlap. You sometimes hear it implied that physician-researchers (the ones who do most clinical research, as well as doing all that peer reviewing mentioned above) have all been corrupted by corporate money. And it’s true that there really is cause for worry here. Too many docs get too much money (and other perks) from pharma, and are insufficiently transparent about that. So: it’s good to worry…up to a point. Here’s the problem with the pharma-controls-everything theory. Physician-researchers publish in scientific journals that are read not just by other physicians (some of whom don’t have industry funding), but also by biologists, chemists, epidemiologists, statisticians, and so on, most of whom have no corporate funding whatsoever. Further, modern science more generally is an enormously complex process for finding mistakes and exaggerations in each other’s research. And it helps that there’s significant overlap between the sciences, so no one group of scientists is ever truly isolated and free from scrutiny. Oversimplifying, you could say that biologists are double-checking the work done by the physicians, chemists are checking up on the biologists, and physicists are checking up on the chemists. (That’s why any physician who tries to use “quantum theory” in writing about disease had better be careful: there are armies of physicists waiting to explain just how irrelevant quantum mechanics is to human physiology.)
5) Competition. People often talk about Big Pharma as if it’s a monolith, one big organization, rather than a bunch of companies with divergent interests competing savagely with each other. That competition gives them every reason to attack each other’s weaknesses, and to point them out to the public. Add to that the fact that there are hundreds of smaller firms nipping at the heels of the big players. It’s far from a cozy conspiracy. This vicious competition of course means that there’s sometimes an incentive to cut corners in unscrupulous ways; but it also means that when you cut a corner, there’s always someone out there ready to point it out.
Now, again, this list is not supposed to lead to any particular conclusion about just how trustworthy Big Pharma is. It’s just a list of social and institutional mechanisms we need to take into consideration, in addition to the obvious bad track record and obvious financial incentives. Each of those mechanisms will apply to a greater or lesser degree with regard to specific situations. For particular issues, we need to think carefully both about what’s at stake, and about whether the above factors are likely to be sufficient to reassure us.
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Late-breaking Note:
I’ve been getting (and rejecting) comments full of unsubstantiated, and in some cases very dangerous, claims on some topics related to the above. When it comes to matters of health, if you’re not going to cite reliable sources, I cannot take responsibility for allowing your comments on here. There’s too much at stake, in terms of public health.
Blogflict of Interest
BusinessWeek Online has an interesting story about blogger ethics this week: Polluting The Blogosphere (by Jon Fine). The sub-title says “Bloggers are getting paid to push products. Disclosure is optional.”
“You can’t believe anything you see or read,” complains Ted Murphy. “You think those judges on American Idol want to drink those giant glasses of Coke?”
It’s funny to hear him say this because Murphy, who founded a Tampa-based interactive ad agency called MindComet, also runs a side business that pays bloggers to write nice things about corporate sponsors — without unduly worrying about whether or not bloggers disclose these arrangements to readers. (A scan of relevant blog searches strongly suggests that, often, they don’t.)
I don’t have much to say about the story, other than to encourage you to read it. But this seems like a good opportunity for some disclosure from this blogger. So, what are the policies and practices of The Business Ethics Blog as far as corporate remuneration & advertising go?
- I occasionally get sent free movies to review.
- My blog entries often include links to books sold by Amazon. Because I run the not-for-profit (or just unprofitable) EthicsWeb Bookstore, I get a small commission from Amazon if someone follows one of those links through to Amazon’s website and buys someting. This helps defray the cost of running my various ethics-related websites.
- I don’t currently have any advertising on my website, other than a link to the aforementioned EthicsWeb Bookstore. Not because advertising, or money more generally, is evil (which it’s not). It’s just that this website doesn’t get enough traffic to make advertising worthwhile. Plus, I know that advertising makes some people cranky, and I just don’t need the hassle.
- I receive the occasional press release (from corporations, film distributers, and NGO’s), promoting their wares, innovations, and ideas. So far, the only such messages that have resulted in blog entries were offers of copies of relevant films.
- So far, no one has offered me any money to promote or discuss anything. Odd, huh? Anyway, if that ever did happen, I wouldn’t promote anything for money without disclosing that that’s what I was doing.
[Thanks to Wayne Norman for the heads up.]
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