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Feb 11, 2008

Corporate Social Responsibility

  • The following post is in response to a Point of View column by Henry I. Miller, M.D. that appears in the February 1, 2008 issue of GEN entitled Firms Need to Focus on Profits.

    Dr. Henry I. Miller, a fellow at the right wing think tank Hoover Institute, trashes bleeding hearts like Novartis CEO Daniel Vasella for their obsession with social responsibility and human values. He substantiates his views with a quote from Calvin Coolidge, widely acclaimed as our worst president until the current occupant came on the scene.

    Miller adheres to a view that is quite popular within the corporate establishment, that the business of business is business, and that corporations are ignoring their responsibility to their stockholders if they do not seek to maximize profits. He is also astonished that a major drug company would throw away its profits by sponsoring Garrison Keilor's Prairie Home Companion on NPR. His only conclusion is that they seek to mollify activists. Apparently it never occurred to Miller that San Franciscans who listen to NPR buy drugs.

    But, the good doctor sees much more underhanded behavior in these corporate pashas: Are they purely altruistic? Hardly. Often their motive is to use 'corporate social responsibility' as a non-productive-based advantage over the competition. For shame! The very idea that corporation would use non-productive means in their battle for profits! Is nothing sacred?

    But Miller's critique makes no sense at all! If Daniel Vasella pursues the development of drugs for the treatment of third world diseases that will never match the profits of the next erectile dysfunction treatment, he is betraying his stockholders trust, yet if he made this decision because he were seeking a “non-productive-based advantage over the competition” then he being non-altruistic, and seeking an unfair advantage, according to Miller. Damned if you do, damned if you don't!

    Miller ignores the fact that big pharma spends billions on advertising in order to crank up consumer enthusiasm for drugs that only marginally better than their generic equivalents, that they have promoted drugs whose safety record was marginal and later were withdrawn. I’m sure that Merck was seeking to maximize its profits when it pushed Vioxx onto the market, even in the face of ambivalent data from clinical trials.

    Miller should face up to the fact that dozens of global corporations have followed his admonition to maximize their profits with grievous consequences to consumers and to their own bottom line. Early in the last decade Nestle pushed sales of infant formula in Africa, knowing that it was inferior to breast feeding of infants and that there was no way African mothers could obtain sterile water. In the late 1990s Union Bank of Switzerland settled a multibillion dollar lawsuit and accepted responsibility for hiding Jewish assets that were left in Swiss banks by holocaust victims during World War II. I cite these two examples of corporations seeking to maximize their bottom lines because they contrast so dramatically with Vasella's corporate strategy, and they reflect directly on how Switzerland views its place in the world order. I know from many conversations with Swiss colleagues how humiliating these revelations are for the vast majority of Swiss citizens who feel strongly that their business institutions have a responsibility to improve upon this shoddy record.

    But if corporations have as their ultimate responsibility the maximization of shareholder value as Miller claims, then doesn't Exxon have a responsibility to fight damage claims by Alaskan fisherman, rather than reimbursing them for trashing Alaskan water ways? Doesn't Altrea have a responsibility to push cigarettes in third world countries as smokers die off in the first world? Doesn't BP have a responsibility to fight claims by families who relatives were killed due to negligence in plant maintenance? Doesn’t Countrywide have a responsibility to sweep embarrassing default rates under the rug, hoping that they will recover before their stock craters?

    Although Miller feels that Novartis is betraying their stockholders trust, clearly the stockholders don't agree. Novartis has a huge R&D division, its research park in Basel is sprawling and it has what may be the most vigorous pipeline in the industry.

    Today the world is faced with unprecedented danger and challenges. Global warming will flood half of Florida and make New Orleans into an island by the end of the century. Third world diseases ravage continents and provide breeding ground for revolutions and terrorism. Destruction of the oceans threatens the extinction of hundreds of species that the whole world relies on for nourishment.

    The pharma giants are the only institutions in the world with the organization, resources, networks and staff able to effectively address some of problems that threaten to destroy our civilization. I believe that Vasella and other thoughtful CEOs realize that while they may safely bail out, open their golden parachutes and live in comfort for the rest of their days, their children and grandchildren will not be so lucky.



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