PRODUCT SAFETY AND ADVERTISING
For years, arthritis sufferers have risked intestinal bleeding from the long-term consumption of nonsteroidal anti-inflammatory drugs (NSAIDs) such as Advil, which are used to ease chronic joint pain. Your company, Big Pharma, introduced a new type of painkiller, a COX-2 inhibitor that addresses the pain without the intestinal effects.
To get the word out to consumers, Big Pharma decided to market the new painkiller directly to consumers so that they could ask their doctors about it. The marketing was extraordinarily successful, ultimately creating a multibillion-dollar market. Over 100 million prescriptions were written in just five years, and the drug was a big contributor to your company's bottom line. Patients and doctors seemed grateful for the alternative, and doctors began using it to treat all kinds of pain. Then, complaints began coming in about cardiovascular events (heart attacks) associated with taking the new drug.
Early scientific studies suggested that there might be a problem, but the science remained inconclusive. It appeared that many of these patients had other health problems that may have caused their heart attacks. So your company undertook a more definitive double-blind placebo-controlled study (the only kind that can truly demonstrate cause and effect), which eventually showed a link between your drug and an increased risk of cardiovascular events if the drug is taken consistently for more than 18 months. The Food and Drug Administration suggested a stronger black-box warning on the drug packaging to warn of potential cardiovascular side effects from prolonged use. Your senior management team met to discuss what to do.
Should you follow the FDA's suggestion or do something else? The discussion included reference to your company's values and strong commitment to integrity and human welfare. You also referred to the famous Johnson & Johnson Tylenol incident and the success of that recall effort. After much discussion, you decided to recall the drug and cease manufacturing it.
The negative reactions were instantaneous. In stinging press reports and congressional hearings at which your CEO had to appear, your company was criticized for not recalling sooner based on the earlier evidence. And then the lawsuits began. It seemed that anyone who had ever taken your company's drug and then had a heart attack was bringing suit. Ironically, on the other side, patients and doctors who had been using the drug successfully also complained. They thought you should return the drug to the market with a stronger warning, so that they could do their own risk assessment.
Nothing else worked for some patients, and they were suffering. But, after careful deliberation, you decided to stick to the recall decision and fight (rather than settle) the lawsuits. Early in the fight, your company won some lawsuits and lost some, but vowed to continue fighting them all because you were convinced that you had done nothing wrong. The fight was costly in dollars and reputation. Eventually, after several years and winning more lawsuits than you lost, you decided to settle all remaining lawsuits and move on, a decision that was considered to be wise in the business community. Your company's financial performance took a big hit, but it is now rebounding and the future looks more hopeful as some promising new treatments appear on the horizon.
Who are the stakeholders in this situation? Experts claim there's always a risk when people take prescription drugs. How much risk is too much?
How widely do drug companies need to publicize the risks of prescription medications? Or, is that the doctor's responsibility? Do consumers really understand these risks?
Do drug companies have an obligation to ensure that doctors don't overprescribe their drugs?
Is that a reasonable expectation? Was direct-to-consumer marketing appropriate for this type of drug? When is it appropriate, and when is it not?
Do drug companies have a bigger obligation to explain the risks of the drugs that they heavily market directly to consumers because such consumers are more likely to ask their doctors for these drugs?
Why do you think the reaction to the decision to recall in this case was so different compared to the Tylenol situation? Should senior management have expected the reactions they got? Was there anything they could have done to change the reactions?
SHAREHOLDERS
You work for an investment bank that provides advice to corporate clients. The deal team you work with includes Pat, a marketing manager, Joe, the credit manager for the team, and several other professionals. Just before your team is scheduled to present the details of a new deal to senior management, Pat suggests to Joe that the deal would have a better chance of being approved if he withheld certain financials. "If you can't leave out this information," Pat says, "at least put a positive spin on it so they don't trash the whole deal."
The other team members agree that the deal has tremendous potential, not only for the two clients but also for your company. The financial information Pat objects to- though disturbing at first glance-would most likely not seriously jeopardize the interest of any party involved. Joe objects and says that full disclosure is the right way to proceed, but he adds that if all team members agree to the "positive spin," he'll go along with the decision. Team members vote and all agree to go along with Pat's suggestion-you have the last vote. What do you do?
In this hypothetical case, what is your obligation to the shareholders of your organization and to the shareholders of the two organizations that are considering a deal?
Are shareholders a consideration in this case? Are customers? Are employees?
Could the survival of any of the three companies be at stake in this case?
In a situation like this one, how could you best protect the interests of key stakeholder groups?
COMMUNITY
You have just been named CEO of a small chemical refinery in the Northeast. Shortly after assuming your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters location sits atop thirty 5,000-gallon tanks that have held a variety of chemicals-from simple oil to highly toxic chemicals. Although the tanks were drained over 20 years ago, there's ample evidence that the tanks themselves have begun to rust and leach sludge from the various chemicals into the ground. Because your company is located in an area that supplies water to a large city over 100 miles away, the leaching sludge could already be causing major problems.
The costs involved in a cleanup are estimated to be astronomical. Because the tanks are under the four-story headquarters building, the structure will have to be demolished before cleanup can begin. Then, all 30 tanks will have to be dug up and disposed of, and all of the soil around the area cleaned.
You're frankly appalled that the last three CEOs didn't try to correct this situation when they were in charge. If the problem had been corrected 15 years ago before the building had been erected, the costs would be substantially less than they will be now. However, as frustrated as you are, you're also committed to rectifying the situation.
After lengthy discussions with your technical and financial people, you decide that a cleanup can begin in two years. Obviously, the longer you wait to begin a cleanup, the riskier it becomes to the water supply. Before you begin the cleanup, it's imperative that you raise capital, and a stock offering seems to be the best way to do it.
However, if you disclose news of the dump problem now, the offering will likely be jeopardized. But the prospect of holding a news conference and explaining your role in keeping the dump a secret keeps you up at night.
Who are the stakeholders in this situation?
What strategy would you develop for dealing with the dump and its disclosure?
Are you morally obligated to disclose the dump right away?
How willWall Street react to this news? Does your desire to correct the situation justify keeping it a secret for another two years?
Think about the due care theory presented earlier in this chapter. Can we draw parallels between due care for the consumer and due care for the environment? What if the dump for abandoned oil tanks mentioned in the hypothetical case was located in a foreign subsidiary of a U.S. company, and the country where it was located had no laws against such a dump? Would the CEO be under any obligation to clean it up? ShouldAmerican companies uphold U.S. laws concerning the environment in non-U.S. locations? How much protection is enough?