Business Ethics and Analysis for Pharmaceutical Industry Assignment

Introduction

Task 1

1.1 Importance of ethics in pharmaceutical industry

Ethics are those principles which guide the one between right and wrong practices and decisions. The business ethics in the pharmaceutical industry is an essential element for the growth and success of the industry. It is the moral responsibility of the pharmaceutical sector to take care of the health of the users by providing them genuine products and services (Smith, 2011). The industry of pharmaceuticals is growing at a rapid rate. As per Statista (2017), the pharmaceutical industry gains revenue of more than 1 trillion US dollars as per the data collected in 2014. North America is the largest contributor of this revenue and China has shown the highest growth. The growth of the industry raises a question of the adoption of business ethics by the industry players.

 

According to Salehi, et. al., (2012), the ethics in business is the set of rules and regulations framed and formulated in order to operate the business. The ethical considerations include the practices relating to the corporate governance in the organization and the social responsibility through which the organization initiates the steps towards the betterment of the society.

1.2 Ethical Issues faced by the Industry

There are many issues which are faced by the pharmaceutical industry across the world. These issues are listed below:

Issues of marketing of drugs: The companies in the pharmaceutical industry spend billions of amounts in advertising or marketing management . The physicians or doctors are given free locusassignments. gifts, and commissions to prescribe the medicines of the particular company. In many cases, the locusassignments.which are given to doctors for patients are not given to them. Instead of that, the patients are prescribed the medicines which benefit the doctors the most.  The marketing experts of the companies persuade the doctors to prescribe their drugs, no matter how effective or costly they are for the patients (Connolly, et. al., 2017).

Increase in the prices of drugs: In some of the cases, the companies in the pharmaceutical industry charge unreasonably high prices for the customers. There are some of the cases, where the prices of drugs are increased which are disproportionate with the rate of inflation or the cost of the drugs. US is facing high drug prices issue because the companies are free to decide the prices and there are restrictions on FDA to approve generic drugs (Lupkin, 2016).

Issues of Corporate scandals: Sometimes, the pharmaceutical companies get engaged in the illegal or inappropriate practices. For example, Valeant, a drug company in the USA adopted a new business model and overstated the earnings of the company by $600 million in 2015 (Gandel, 2016).

Issues in the clinical testing of drugs: the company sometimes fails in their drug testing procedures. This shows that how companies are playing with the health and safety of the patients. Recently, many drugs failed during their tests in India. These included an antibiotic drug of Abbott India, cough syrup by Glenmark and much more (Patel, 2016).

2. Critical Business situation & Decision

The companies in the pharmaceutical industry face the situations of ethical dilemma in many cases. As discussed in 1.2, there are various types of ethical issues which are to be handled by the company. For an example, a critical situation for the business may arise where the company has to cover its high costs of R&D and marketing and they charge it from the customers.  In this context, the pharmaceutical companies are required to take the decision in relation to the maintenance of quality and implementation of the policies regarding quality assurance and earning of profits (Salehi, et. al., 2012).

Also, many corporate scandals are done by the pharmaceutical companies across the world. In this critical situation, the businesses have to take decisions as to what should be done which is beneficial both for the stakeholders and the business itself. For example, the big corporate scandal of Martin Shkreli, the CEO of Turing Pharmaceuticals, in the USA where they bought rights to the drug named Daraprin and hiked the prices by 5000%. This incident led awareness among the public and they started giving and presenting their views on social media. Martin Shkreli was arrested for the fraud on securities fraud charges (Sheffield, 2016). The businesses have to take critical decisions like these so that the sentiments of the public can be controlled. Here, the ethical dilemma in the industry was corporate scandal taken by martin Shkreli to increase returns for the investors. The critical business situation was that the unethical practices of using the funds of one business to pay off the debts of other were revealed. The business decision was taken in which Martin was arrested and the prices for the drug dropped by the business (Sheffield, 2016).

3. Stakeholder impact analysis

3.1 Identification of stakeholders

As per Hult, et. al. (2011), there is a different kind of stakeholders of an organization that is impacted by the ethical and unethical behavior of the business. The stakeholders are of two types, internal as well as external stakeholders. Internal stakeholders consist of management, shareholders, and employees. On the other hand, external stakeholders are government, suppliers, trade unions, customers, etc. 

3.2 Stakeholder impact analysis

3.2.1 Employees

Corporate scandals in the pharmaceutical companies have a major impact on their employees. Corporate scandals, if identified, lead to the punishments for the companies which can be a high amount of penalties. It is because of the noncompliance of the ethical standards. The employees are affected as the companies do massive firing of employees which ultimately hampers their living standards (Hult, et. al., 2011).

3.2.2 Government

The government is highly affected with the involvement of the pharmaceutical companies in corporate scandals. The goodwill of the pharmaceutical companies is also adversely affected as a result of the corporate scandals. It also minimizes the investment options and as a result affects the revenue generated by the government. The corporate scandals make the pharmaceutical industry less attractive in terms of import and export activities and thus impact the government revenues of that particular country (Hult, et. al., 2011).

3.3.3 Shareholders

The corporate scandals affect the investments made by the shareholders in the organization. The investors invest their money in the companies by relying on their books of accounts or their credibility. In the case of involvement of the pharmaceutical companies in any kind of scandals, the investors lose their money. Also, it makes the companies unattractive to the prospective shareholders with regard to the investments (Connolly, et. al., 2017).

3.3.4 Customers

Customers or the service users are the most important stakeholders of the companies operating in the pharmaceutical industry. The scandals like hiking the prices of drugs or using inferior quality of drugs, etc. ultimately shows their effect or impact on the customers. The lower quality drugs cause the ill and adverse effects on the health of the customers and the service users consuming such drugs. Also, the hike in prices deprives the customers of the consumption of necessary drugs (Connolly, et. al., 2017).

4. Ethical analysis

4.1 Normative theories

The ethical issues concerning the business decision making are taken by the pharmaceutical companies involved in the corporate scandals can be analyzed with the help of some of the factors of normative theory. The normative theories have been divided into two types namely, consequentialist theories and the non-consequentialist theories. These theories are further divided into several types such as utilitarian and egoism forming part of consequentialist theories. On the other hand, ethics of duty and ethics of rights which are the part of non-consequentialist theories.

4.1.1 Consequentialist theories

4.1.1.1 Utilitarian

The theory of utilitarian, as defined by Jeremy Bentham, is based on the ethical conduct which is capable of making good to the stakeholders and the society to the greatest. The decisions taken by the pharmaceutical companies when they are involved in corporate scandals can be aimed to the increase in revenues which can be good for the shareholders of the company. But, the customers will get suffered due to the unethical increase in prices of medicines or poor quality of drugs available in the market.

4.1.1.2 Egoism

In the words of May (2011), egoism is the element in the normative theories which relates to the self-interest and the actions taken in order to satisfy the self-interest. The self-interest of the owners of the pharmaceutical companies can be satisfied with the generation of a higher volume of revenues when the management of the companies are involved in the practices of corporate scandals. The egoism lies here with the interest of the owners which are being satisfied. But, in order to maintain the long-term relationship with the customers, the corporate scandal practices can make the companies lose their reputation in the market as well as the attractiveness of further investments.

4.1.2 Non-Consequentialist theories

4.1.2.1 Ethics of duty: The decisions taken in the interest of stakeholders while performing according to the ethical standards are the ethical duties of the organizations. Pharmaceutical companies breach the ethical duties to serve the customers with quality medicinal products at affordable pricing and involve in corporate scandals leads the adverse impact on its reputation.

4.1.2.2 Ethics of rights and justice

Theory of right: The ethics of right is considered to be the ethical principles being performed in the interest of the larger group of people. The corporate scandals affect the ethics of rights concerning the customers of the pharmaceutical companies. The pharmaceutical companies have the obligation to operate while keeping the rights of the stakeholders into consideration.

Theory of justice: The fair decisions taken by the pharmaceutical companies that can provide justice to the interest of the stakeholders is essential. There should be strict laws regarding the penalties to those companies which are involved in corporate scandals. Such initiatives by the government can bring fairness to the market of pharmacy.

4.2 Virtue ethics: 

Virtue ethics are the actions done in past on which the judgments are based. For the pharmaceutical companies, it is important to behave ethically to maintain its virtue among the customers. Once, the companies are involved in any kind of scandals, it hampers the long-term sustainability of the industry.

4.3 Triple font theory

There are three determinants of the triple font theory;

4.3.1 Moral object: Involving in the corporate scandals have an impact on the moral responsibility of the pharmaceutical companies towards the society. It also hampers the establishment of long-term sustainability.

4.3.2 Intention: The intention behind the companies that are involved in practices of corporate scandals is to earn higher profits while reducing the cost. Moral objectives are not considered by the companies indulging in such scandals.

4.3.3 Circumstances and consequences:  The circumstances and the consequences of the outcome of these corporate scandals result in higher penalties to the companies. The companies suffer huge losses and lose the trust of customers as well.

5. Recommendations of policies

It is now very common to hear about the corporate scandals in the pharmaceutical industry. The companies are focussing more on making money rather than focussing on their main motive which is health and safety of the service users. To reduce such incidents of using unethical practices in the pharmaceutical companies, Policies can be framed for the establishment of the ethical standards in the company. Some of them are discussed below:

Whistleblower policy can be implemented in the industry in order to maintain the ethics. As per WaytzCode of conduct is the set of rules and standards that obligate the company to work according to the social norms. It provides the guidelines for the company regarding the direction in which the company has to perform. Code of conduct should be formulated by the management of the company and the employees are required to follow the practice accordingly. The ethical conduct also focuses on the policies such as honesty in the activities performed, fair business to the customers and maintaining the quality of the drugs and medicines (Zaineb, 2016).and Young (2013), the whistleblower policy refers to the practice in which the whistleblower exposes any unethical behavior or activity being performed in the organization. With the implementation of the policy, the company can get to know about the unethical activities of the organization. Reporting of the unethical behavior of the employees can help the company in the establishment of ethics

Code of conduct is the set of rules and standards that obligate the company to work according to the social norms. It provides the guidelines for the company regarding the direction in which the company has to perform. Code of conduct should be formulated by the management of the company and the employees are required to follow the practice accordingly. The ethical conduct also focuses on the policies such as honesty in the activities performed, fair business to the customers and maintaining the quality of the drugs and medicines (Zaineb, 2016).

According to Yates (2012), sustainability in business has become the necessity in the today’s world. The pharmaceutical industry is required to frame the policies for sustainable business. The sustainability report can be prepared by the organizations on the regular intervals to increase the effectiveness of the operations. The report should mention the activities conducted by the company in a direction to the protection of the stakeholders.

Conclusion

It can be concluded that ethical standards are very important to be followed by the organizations especially in the businesses of the pharmaceutical industry.  It is discussed how the companies in the industry face different ethical dilemmas and critical decisions are taken in order to be out of these dilemmas. The companies sometimes involved in the corporate scandals for either increasing the prices of drugs to cover up their costs and for earning higher profits or artificially reflect their books of accounts to attract investors. Unethical practices in the pharmaceutical industry impact the stakeholders of the business. It can lead to the deterioration of health care system, the layoff of employees, decrease in the revenue of government and loss to the investors. Different ethical theories are discussed in order to understand the impact of ethics in the workplace. Policies are recommended to resolve the issues and improve health care system.

References

Connolly, P., Althaus, R. A. & Skipper, R. B., 2017, “The Ethics of Pharmaceutical Marketing”. Santa Clara University.
Gandel, S., 2016, “What Caused Valeant’s Epic 90% Plunge”, Fortune.
Hult, G.T.M., Mena, J.A., Ferrell, O.C. and Ferrell, L., 2011, “Stakeholder marketing: a definition and conceptual framework”, AMS review, 1(1), pp.44-65.
Lichtenwalner, B., 2017, “Do You Really Know Your Stakeholders?”, Modern Servant Leader
Lupkin, S., 2016, “5 Reasons Prescription Drug Prices Are So High in the U.S.”, Money.
May, J., 2011, “Egoism, Empathy, and Self-Other Merging”, Southern Journal of Philosophy, Vol. 49, pp. 25-39
Northrop Grumman, 2017, “Ethics and Business Conduct”, Northrop Grumman
Patel, D., 2016, “Drug regulation: 27 medicines sold by top firms ‘fail’ quality tests in seven states”, The Indian Express.
Salehi, M., Saeidinia, M., & Aghaei, M., 2012, “Business Ethics”, International Journal of Scientific and Research Project Publications, Vol. 2, Issue 1, pp. 1-5
Sheffield, H., 2016, “Martin Shkreli, the CEO that hiked price of HIV treatment drug, arrested on securities fraud charges”, Independent.
Smith, R.E., 2011, “Defining corporate social responsibility: A systems approach for socially responsible capitalism”