The Opiate of the Bosses

LONDON – Business ethics are again making headlines. This time, the focus is on the rapidly escalating opioid crisis that is destroying lives across the United States. While there is plenty of blame to go around, the largest share of the guilt belongs squarely on the shoulders of the major drug companies – Big Pharma.

The cynicism with which pharmaceutical firms have encouraged opioid drug use is appalling. Providing far too little analysis and oversight, they distribute opiates widely, alongside misinformation about how addictive the drugs truly are. Then they entice doctors with inducements and giveaways – including trips, toys, fishing hats, and, in one case, a music CD called “Get in the Swing with OxyContin” (one of the most popular opioids) – to prescribe them.

In 2007, several executives of the parent company of Purdue Pharma, which markets OxyContin, pleaded guilty to misleading doctors, regulators, and patients about the risk of addiction associated with the drug. The company was hit with some $600 million in fines and penalties.

Yet Big Pharma was undeterred. In the decade since, the distribution of opioid drugs has expanded substantially, driving a rapid increase in addiction and death rates. Multiple state attorneys general are now taking drug manufacturers – including Purdue Pharma, Johnson & Johnson, Endo Health Solutions, Inc., and their subsidiaries – to court for marketing and distributing their products by “nefarious and deceptive” means.

Of course, Big Pharma is treading a well-worn path. Energy companies have long been known to make false statements about climate change intentionally, just as mining companies and manufacturing firms, whether in clothing or tech, have persistently turned a blind eye to terrible, even abusive, conditions faced by their workers.

In 1994, the so-called Cigarette Papers, some 4,000 pages of internal documents leaked from the tobacco company Brown & Williamson, showed that the industry engaged for years in a public campaign to deny the addictive qualities of nicotine and the health hazards of smoking, despite industry-funded research showing otherwise. This year, new investigations, including by the World Health Organization, showed that major tobacco companies like Philip Morris have continued to use covert and illicit tactics to advance their business interests, at the expense of public health.

All of this highlights the fundamental flaw in the argument that large-scale deregulation, such as that advocated by US President Donald Trump, benefits societies. Yes, eliminating regulation can help companies to increase their profits. But at what cost?

The opioid epidemic, for example, has become a heavy burden for the US government (and thus taxpayers), as it has strained law enforcement and the health system. And that does not even include the costs borne by the epidemic’s victims and their families and communities. Even funeral directors are facing new risks and challenges, from dealing with overdose victims’ relatives to safe handling of victims’ bodies.

Meanwhile, the companies that have so gleefully enriched their executives and shareholders typically face little, if any, blowback from their illicit or unethical activities. Even when they do, other companies and industries don’t seem to learn from it – or, worse, they learn the wrong lessons.

The lesson pharmaceutical companies seem to have taken from the challenges to Big Tobacco is to hide their activities better, rather than to be better. Perhaps they assumed they would have more leeway, because they also produce life-saving medications.

The good news is that pressure on companies is mounting, not least because some investors are becoming jittery. Last month, a coalition of unions, public pension funds, state treasurers, and others established the Investors for Opioid Accountability. Bringing their collective $1.3 trillion in assets to bear, the coalition’s members plan to scrutinize the actions of boards of directors more closely, in order to strengthen accountability and encourage independent board leadership.

The Nobel laureate economist Milton Friedman famously argues that the only social responsibility of business is to maximize profits. But, when firms’ efforts to create shareholder value lead to such far-reaching consequences – or “externalities,” in economists’ parlance – for the rest of society, the argument that self-interest advances social welfare falls apart.

Physicians are bound by the Hippocratic Oath, which obliges them to do no harm and to uphold medical ethics. But companies, too, have an enormous capacity to do harm, and investments in corporate social responsibility initiatives or community projects do little or nothing to mitigate that harm or offset ethical breaches. If managers’ business strategies fail to reflect their companies’ social responsibility – or, worse, depend on ignoring it – they must be held accountable, just as rogue doctors are (or should be).

Leaders like Trump, who value protecting corporate interests above nearly all else, may be encouraging companies to believe that they have nothing to worry about. But they do. As the US opioid crisis shows, a bottom-line mentality inevitably increases the number of people directly harmed by companies’ behavior. And those people can no longer afford to ignore the lasting damage done to their environment, communities, and families.

Lucy P. Marcus is CEO of Marcus Venture Consulting.

By Lucy P. Marcus