The Business Ethics Blog

From today’s New York Times: Narcotic Maker Guilty of Deceit Over Marketing

The company that makes the painkiller OxyContin and three of its current and former executives pleaded guilty Thursday in federal court here to criminal charges that it had misled doctors and patients when it claimed the drug was less likely to be abused than traditional narcotics.
The company, Purdue Pharma, agreed to pay $600 million in fines and other payments to resolve the criminal charge of “misbranding” the product, one of the largest amounts ever paid by a drug company in such a case.
The three executives, including its president and its top lawyer, also pleaded guilty to misdemeanor charges of misbranding the drug. Together, they agreed to pay $34.5 million in fines.

Note that the kind of deception that was a the centre of this case is the kind that jeopardizes the efficiency of (i.e., roughly, the social benefit to be had from) free markets. One has to wonder how much flack pharmaceutical companies would take with regard to, say, their pricing strategies, if they managed to keep their noses clean more generally and actually stuck to the rules that are supposed to define a free and competitive market. (For a more complete exploration of that type of question, I again recommend to you Joseph Heath’s paper “Business Ethics Without Stakeholders,” Business Ethics Quarterly, 2006, Vol 16 Iss 3.)

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Update, November 2008:
For more recent developments on this story, see:
Bereaved Mom Sings Oxycontin Blues on Wikipedia
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Here’s yet again still another further additional corporate ethics ranking, this time from Ethisphere, an on-line compliance & ethics magazine: 2007 WORLD’S MOST ETHICAL COMPANIES

The page linked above includes a chart showing winners in each of 30 different industries (interesting in itself), but you have to register if you want more details.

Generally, Ethisphere gets high marks for being interesting reading, and especially for having a sense of humour (whichs is way too rare in the world of ethics). Another of their articles, 50 Codes of Conduct Benchmarked, includes both a serious assessment along with lots of snippy annotations (such as pointing out that the code for the Janus Capital Group “Comes across like the operating manual for a nuclear powerplant,” and noting that the code for Nomura Holdings is “Basically a 5 page haiku.”)

Since the folks at Ethisphere have a sense of humour, I hope they won’t mind some teasing. As an educator I have to register a grammatical complaint. Here are the opening sentences of the “Most Ethical” ranking:

Ethics are absolute. Business ethics are relational.

I love hate to be picky, but they’re misusing the word “ethics.” “Ethics” is a singular noun that happens to have an “s” at the end (just like “mathematics,” and “linguistics”) . So, it should read “Ethics is absolute. Business ethics is relational.” There are a few limited cases in which “ethics” can be taken as plural, but this isn’t one of them.
(Sometimes my students make the same mistake. But a magazine devoted to the topic?!)
By the way, I did alert the magazine to the error, and then waited 24 hours before posting this, just to be fair.

From yesterday’s L.A. Times: Buffett rebuffs efforts to rate corporate conduct

Warren E. Buffett, chairman of Berkshire Hathaway Inc., said Sunday that he regarded efforts to rate the performance of companies on social, human rights or environmental measures to be of dubious merit and would not consider such factors when selecting investments.

“I don’t know how I would rate Exxon versus Chevron versus BP,” he said at a news conference one day after Berkshire’s annual meeting. “It’s very difficult to judge the actions of companies that act on thousands of things every day.”

Here’s the potential essay question for biz ethics students:
Explain the following quotation from Berkshire Vice Chairman Charles Munger:

“I don’t think that the people who do that philanthropy are all that good at knowing whether they are doing more good than harm,” Munger said. “If you put a gun to my head and asked which one has done more good for the world, the Ford Foundation or Exxon, I’d have no hesitation in saying Exxon.”

From the BBC: Early baby sex test over the web

A test is being sold on the internet that enables parents to check the sex of their unborn baby at just six weeks.
The kit, sold by DNA Worldwide for £189, is controversial. Critics claim it may prompt parents to abort if they are unhappy with the test result.

The company rejected these claims, saying the early results, obtained from a finger-prick of blood, allow parents more time to plan for their baby.

According to the company’s ethics page

DNA Testing Direct are aware that there are some concerns that the Pink or Blue Test could lead to gender selection and are keen to encourage the ethical debate in this new area. As a company we, together with the manufacturers of the test, have decided not to sell the early gender test into China and India and some other areas, as it is not our intention that the Pink or Blue test should be used, either directly or indirectly, for sex selection.

The company operates in the UK, a liberal society that does not prize babies of one sex over another, a culture which also places the responsibility for the unborn baby firmly with the mother. As this is the case with most if not all Western cultures we are happy that, with education and informed debate, responsibility should lie with the individual.

The Business Ethics Blog is shifting gears for summer!

I’ll be busy, working intensively on a book project (on business ethics issues within the biotech industry).

Rather than shut the blog down for the summer, I’ve decided to put it on auto-pilot, so to speak. I’ll endeavour to keep posting, but postings will be limited to:

a) links & news items (sans commentary, for the most part)
and
b) the occasional longer posting directly related to my book project (like yesterday’s posting about GM crops).

The blog will return to business as usual, during the first week of September, 2007.

Here’s an interesting article about using genetically-modified (GM) crops as a source of pharmaceutically-useful chemicals. From The Guardian: Down on the pharm
The story starts off at a high-security, sealed research lab where GM plants are being grown:

The plants are tobacco, but they are not intended to be smoked. Instead, the scientists who work on them believe they could save lives. Each has been genetically engineered to carry a gene that is usually found in common algae. Inside its cells, the foreign DNA forces the tobacco plant to churn out a protein that is useless to it, but that happens to be a potent drug against HIV. The scientists say the drug, and others like it, could save millions of lives across the developing world. The technique has been dubbed pharmaceutical farming, or pharming, and it is emerging as the latest battleground in the war over genetic modification.

The fundamentals of the battle are pretty familiar:

One one side, activist groups such as Genewatch, who fear that “If they put these genes into food crops then it is only a matter of time until there is a mix-up and they get into the food chain.”
On the other side: scientists, frustrated by the possibility that a technology they see as having the potential to save millions of lives may be stymied by fears that they see as unfounded.

What about the corporate side of things? Mostly, industry hasn’t been that interested. Why? The Guardian piece cites two reasons. The first has to do with market. The places most likely to benefit from pharming are also among the least able to pay. Here’s why pharming holds promise for poor countries:

Conventional ways to make modern medicines are expensive, which means pharmaceutical companies generally target those diseases that affect lots of people who can pay. Plants can be grown, harvested, and the useful medicine purified from them at a fraction of the price, so using them as leafy drug factories saves a fortune, and opens the doors to treating people in poorer countries. Advocates say just 250 acres of GM potato crop could churn out enough hepatitis B vaccine to protect the entire population of south-east Asia from the disease for a year.

But as the story notes: “With a few exceptions, the big companies do not smell big profits in the vulnerable people or regions of the world that would benefit most.”
The second reason has to do with what some might call “contextual” or (broadly) “environmental” issues. According to one industry spokesperson: “There is no tolerance, either regulatory or in public perception, for a human gene-based pharmaceutical to end up in the world’s food supply.” In other words, even if industry believes this process is safe, not enough people outside of industry are convinced of that to make it a viable business.

A final twist in this story has to do with stakeholders:

Britain has rejected GM plants once already – a media and consumer backlash persuaded most companies there was little market in the UK for crops that have had their genes tweaked to be resistant to pests or herbicides. But with pharming the battle lines are less clearly defined, as protesters who trashed experimental GM corn plants in France discovered. The crops were making a protein that could be used to treat cystic fibrosis, and when patient groups angrily denounced the action, mainstream green campaigners were forced to deny involvement.

So, what is a company engaged in this sort of work supposed to do when told (as companies often are) that they’re ethically obligated to take stakeholders into account? Key stakeholders, here, disagree with each other. Should the company side with patient groups (how could anyone have more of a stake than them?) or with environmental groups (who, after all, claim to represent the interests of nothing less than the planet and every living thing on it)?

This is just the kind of real-life case-study that everyone with a theory (or even just an opinion) about business ethics ought to be thinking about. Ask yourself this: does your way of thinking about business ethics (or the theory proposed by your favourite guru) help you sort your way through to a reasonable point of view on pharming?

(In fact, I find this stuff so interesting that I’m writing a book on it. That will be the topic of my very next posting.)

I’m still blogging “on the road,” reporting from sunny Southern California. I’m in Claremont, primarily for a symposium on “Biotechnology and Human Rights: Industry’s Responsibility?” at the Keck Graduate Institute. (Here’s the symposium website.)

Interestingly, even though the Symposium was (at least judging by its title) about biotechnology, a lot of the day’s discussion ended up centering on the pharmaceutical industry. There’s an increasing convergence, of course, between the pharma industry and health-related biotech. But there was almost no mention at all of the other two branches of biotech, namely agricultural biotech and industrial biotech. (There was a fair bit of talk about Intellectual Property rights, which in principle span all 3 branches, but most of the examples cited — in fact, I think all of them — had to do with drug patents.) The focus on pharma (and bio-pharma) probably has a lot to do with the awful, awful reputation the pharma industry currently has in North America.

Look, for example, at this press release from Ipsos about Pharma’s public image.

The pharmaceutical sector is suffering from a poor reputation among Americans, according to new research by marketing research firm Ipsos. … [N]nearly as many Americans hold an “unfavorable” opinion of the pharmaceutical sector (32%) as have a “favorable” opinion (35%), while 33% are neither favorable nor unfavorable. Among other sectors measured, only the oil and gas, chemicals, and tobacco industries fare worse than the pharmaceutical sector.

What’s the solution? The folks at Ipsos have exactly the wrong idea:

Pharmaceutical companies receive little recognition from the public for their social contributions and investments. … If pharmaceutical companies could raise awareness of their philanthropic actions, they would undoubtedly make gains in countering negative feelings toward the sector.

Well, to be fair, the industry does engage in some significant philanthropy (for example they give away millions of dollars worth of drugs every year — a drop in the bucket, given the world’s needs, but still big big dollars by anyone’s accounting). But doing better at advertising that fact is highly unlikely to make everything all better. In point of fact, the Pharma industry gets slammed for two main problems, neither of which is going to be easiy papered over by philanthropy:
1) Drug development is relatively expensive, the market for drugs is mostly unregulated (from a pricing point of view) and the ‘market price’ for many crucial drugs is quite high. The result is that not everyone (even in affluent America) has good access. To make things worse, certain governments do little to help their poorest citizens gain access. This is largely beyond Pharma’s control & responsibility.
2) The industry keeps getting caught doing sleezy things. Or at least, some of the big players (and probably others) are getting caught doing things like defrauding governments, jeopardizing patient safety, and interfering in the peer review process for scientific publications. Unlike the previous problem, this is entirely within Pharma’s control & responsibility.

There is a very good argument in favour of the public not expecting philanthropy at all, but for the public (and their elected representatives) being much more demanding of Pharma in terms of basic business integrity.

(By the way, the Symposium was fantastic. Gary Cohen and his team at KGI deserve a huge round of applause for putting together a programme that was both stimulating and well-run.)

I’m blogging from the road again, this time from Claremont, California, where I’ll be part of a symposium tomorrow called, provocatively, “Biotechnology and Human Rights: Industry’s Responsibility?” at the Keck Graduate Institute. (Here’s the symposium website.)

My talk tomorrow is going to cover a range of material, from the nature of rights, through an introduction to Business Ethics, to rights-claims in biotech, ending with a bit on how to evaluate rights claims.

I’ll be presenting (or maybe just implying) two main conclusions:

1) The website for the conference asks whether biotech companies should undertake a reorientation from thinking in terms of bioethics to thinking in terms of human rights. I’m going to suggest that while thinking in terms of bioethics is certainly problematic (after all, bioethics is also know as healthcare ethics, and not all biotech is health-related), switching to a human rights framework would be a bad idea. Basically, I think that all sensible people ought to applaud the proliferation & spread of human rights across the globe, but I think a commitment to human rights would be a very incomplete description of any firms actual responsibilities, and one that’s not very useful beyond a narrow range of questions.

2) While businesses ought to be committed to respecting a handful of basic human rights, such as freedom of association (for workers), we should be hesitant to encourage businesses to shoulder, as some have suggested, the burdens associated with things like the right to healthcare. We ought to be very careful about imposing additional duties on business that go beyond the role we really want them to play in a free market (roughly to produce useful goods & services, while behaving honestly and cleaning up any messes they make).

(Related to that last point, I strongly recommend Joseph Heath’s wonderfully instructive paper “Business Ethics Without Stakeholders,” Business Ethics Quarterly, 2006, Vol 16 Iss 3. It’s the best business ethics paper I’ve read in the last year.)

We Canadians are generally modest folks, but we do like to remind the world of our accomplishments now and then. This is true even regarding business scandals. We’ve got ’em, just like everyone else does.

Here’s an article by Al Rosen, Canada’s dean of forensic accounting: On trusts and Greedy Media from yesterday’s Financial Post.

The article is about how the business media in Canada are complicit in hurting the investing public by unreflectively promoting “Income Trusts.” [Wiki-Warning] The technical details aren’t important here, so suffice it to say that investment trusts are essentially a kind of investment vehicle, more common in Canada than in the U.S., designed to produce a constant trickle of income for investors and (until recently) offering certain tax advantages over other investments.

Rosen’s main point about Income Trusts is that, as investments, they’re a mixed bag. Because of this they ought to be invested in only very carefully, something perhaps best left to professional fund managers and avoided by “retail” investors.

But Rosen has a more general point to make about the naivete of Canadian investors regarding the security of their investments — which depends, of course, in part on credible financial reporting:

Whereas the evidence is overwhelming that financial reporting chicanery abounds in our prosecution-free country, we choose to our detriment to pretend otherwise. Instead of being able to name 25 recent Canadian fiascos, most Canadian investors can refer only to U.S. examples. The home-grown disasters are simply not registering in our collective consciousness, and our national media are a significant reason for that.

Instead of referencing Canadian misfortunes such as Bre-X, Livent, YBM Magnex, Castor Holdings, Nortel, Royal Group, Biovail, Hollinger, Atlas Cold Storage, Heating Oil Partners, FMF Capital, Specialty Foods and others, our media use U.S. examples like Enron and Worldcom.

The media leave the impression that Canada is largely free of any major financial reporting dustups, leaving an investing public that is naive, overly trusting, and all too ripe for the next scam.

Mea culpa! It’s not just the media that is to blame. I teach business ethics — at a Canadian university — yet I too am much more apt to mention Enron and Worldcom during lectures and in conference presentations than I am to mention any of the Canadian examples Rosen mentions. My lazy excuse is that students and others recognize the name “Enron” — heads nod knowingly when I mention it — but would surely stare blankly if I mentioned “Bre-X”, even though the latter is a Canadian scandal that also happens to be the biggest mining scandal in history.

But the risk here isn’t just that Canadian students (or investors!) will forget that we, too, have had our share of corporate scandals. The point is that the overuse of now-standard American examples like Enron and Worldcom is liable to allow people to assume that there is something special about those companies, or perhaps about the American financial market, that allowed those scandals to happen. The truth of course is that no one has cornered the market on dodgy financial reporting. Financial reporting is always going to be fraught with challenges, first because it involves a complex 3-party relationship between a company, its investors, and auditors who are paid by the former yet serve the latter. The second reason why financial reporting is always (and everywhere) a challenge is that it involves a considerable degree of human judgment, judgment that is inevitably affected by varying degrees of greed, incompetence, and excesses of optimism. And those frailties, unfortunately, are universal.

From today’s New York Times: Makers of Artificial Sweeteners Go to Court

The makers of Equal are suing the makers of Splenda over Splenda’s tagline: “Made from sugar, so it tastes like sugar.”

The maker of Equal contends that Splenda has been misleading millions of consumers by fostering the notion, through television and print advertising, that Splenda is made from sugar and is natural. Splenda’s maker counters that the process to make the sweetener does indeed start with sugar.

The court case apparently hings on the meaning of the phrase “made from.” The science is a little complicated, but basically the idea is that the process for making Splenda starts with real sugar, and then adds chlorine atoms to the sugar molecules…through which process sugar (chemically known as sucrose) ceases to be sugar and becomes a novel substance known as sucralose (which is much sweeter than sucrose, but contains no usable calories). So, the question is whether that makes it true, or false, or just misleading, to say that Splenda is “made from” sugar. The process certainly begins with sugar. But to say that Splenda is “made from” sugar is a bit like saying that a certain bit of table salt (sodium chloride) was “made from” hydrochloric acid (because a chemical process that uses sodium hydroxide and hydrochloric acid can be used to “build” sodium chloride chemically). Would people be frightened if told that your table salt was “made from” hydrochloric acid? Probably, at least until someone explained how little that chemical fact matters.

But let’s look again at that tagline: “Made from sugar, so it tastes like sugar.”

It’s important to see that Splenda’s tagline makes 3 separate claims. Two of those claims are obvious: it claims that Splenda is made from sugar and it claims that Splenda tastes like sugar. The dispute is over the first claim; no one seems to dispute the 2nd. But there’s a third claim, namely a causal claim about what it is that results in Splenda tasting like sugar. And the claim is that being made from sugar is what makes Splenda taste like sugar.
The problem is that being made from sugar (in the sense of “made” apparentely intended here) is neither necessary nor sufficient to cause something to taste like sugar. It’s not necessary, because there are other ways to make sucralose, ways that don’t begin with natural sugar. And it’s not sufficient, because there are presumably lots of chemicals that could be made from degraded sucrose molecules that wouldn’t taste at all like sugar.

So, even if we accept the dubious claim that Splenda is “made from” sugar in some meaningful sense, we certainly shouldn’t accept the causal claim about what it is that results in the product’s flavour.

(This blog posting is dedicated to the students in my Critical Thinking class!)