The Corrupt Industry
issue 165 - November 1986
The corrupt industry
Bribery and corruption, fraud in the testing of drugs, criminal
negligence in the manufacture of drugs, dubious advertising claims -
the pharmaceutical industry has a worse record of law breaking than
any other industry. Dr John Braithwaite of Canberra's Australian
National University explains why there should be such a
high concentration of sinners - as well as saints.
The pharmaceutical industry has contributed more to the well-being of humanity than any other. Arguably among other achievements it has helped to remove tuberculosis, gastroenteritis and diphtheria from among the ten leading causes of death in the western world. Yet the avoidable suffering caused by pharmaceutical companies, particularly to the poor of the world, seems at times beyond comprehension.
As both a consumer activist and a student of business ethics I have been struck by the large numbers of pharmaceutical executives I have met who, in their commitment to socially responsible business conduct, were so much more impressive than the average industrial decision maker. Yet corporate crime is a bigger problem in the pharmaceutical industry than any other. The pharmaceutical industry is a paradox of corruption and conscience.
By corruption, I mean first of all the paying of bribes. Every scholar who has surveyed the comparative evidence on bribery in international trade has concluded that pharmaceuticals is one of the most corrupt, if not the most corrupt, of industries. My own research1 found evidence of substantial bribery by 19 of the 20 largest American pharmaceutical companies. There is evidence of bribes being paid to every type of government official who could conceivably affect the interests of pharmaceutical companies: bribes to cabinet ministers to get drugs approved for marketing, bribes to social security bureaucrats who fix prices for subsidised drugs; to health inspectors who check pharmaceutical manufacturing plants; to customs officials, hospital administrators, tax assessors, political parties, and others.
But a much greater threat to world health than corruption is fraud in the safety testing of drugs. Rats die in trials on new drugs and are replaced with live animals; rats which develop tumors are replaced with healthy rats; doctors who are being paid $1,000 a patient to test a new product pour the pills down the toilet, making up the results in a way which tells the company what it wants to hear.2
But it is the less blatant forms of fraud against health authorities which have caused the greatest loss of life - companies telling half-truths to governments about the severity of side effects or covering up adverse reaction reports from concerned doctors. Last year Eli Lilly was fined $25,000 in the United States after it was charged with covering up deaths and illnesses caused by its anti-arthritic drug, benoxaprofen. The drug was withdrawn from sale in 1982 after it was found to be associated with 61 deaths in Britain and unknown numbers elsewhere. In 1984, Smith Kline was fined $100,000 on charges of covering up adverse reactions to their product Selacryn, which was associated with 36 deaths in the US. Similar allegations of covering up adverse reactions are being made against A. H. Robins in the litigation over the Dalkon Shield intrauterine device. A former company lawyer has testified that he was ordered by his superiors to shred sensitive evidence.
Beyond bribery and fraud, misrepresentation in advertising, breaches of laws which ensure the sterility and purity of products and antitrust offences, have all been widespread.
The reason for the paradox of corruption and conscience in the pharmaceutical industry is first that it attracts a lot of idealistic people keen to work on ways of solving health problems, but second that the realities of the pharmaceuticals' market make the temptation for corporate crime unusually acute.
The pharmaceutical industry is very much like the aerospace and defence industries - the future of a company often depends on securing the support of a small number of people who can unlock a big market for a single product which has already cost the company a fortune to develop. Just as aerospace companies face great temptations to bribe defence chiefs to secure one big sale of their new supersonic fighter, pharmaceutical executives confront massive win-lose decision points when national health authorities decide whether to approve their new drug for marketing.
Often the product will have cost $50 million of company funds to develop. A single national market might recover that entire up-front expenditure. Equally, a single pricing decision by a social security bureaucrat on a company's leading product will often decide whether the national subsidiary will run at a profit or a loss for the year. In this way companies which sell pills are different from those which sell breakfast cereals. The temptation to dishonestly secure the one big sale of cornflakes is not common; so one does not see the culture of corruption which characterizes the pharmaceutical industry.
How do honest people survive in an industry where so much unethical and downright criminal conduct occurs? They survive because they have no contact with it and mostly no knowledge of it. Organizational complexity in a large corporation makes it quite possible for the left hand not to know what its right hand is doing. And if the right hand is engaged in fraud and bribery, then organizational complexity is exaggerated to prevent knowledge of wrongdoing from spreading to other parts of the firm. The left hand would probably rather not know about it in any case.
Some American pharmaceutical companies take this to extraordinary lengths: they have 'vice-presidents responsible for going to jail' whose job it is to act as a scapegoat for corporate crime, to have the buck stop with them rather than taint the chief executive with knowledge of illegality.
But mostly the ways of protecting pharmaceutical executives from their own consciences are more straightforward. The quality control manager is an honest person who takes pride in producing a product which is always sterile, pure and made exactly to specifications. She or he is very busy at this important task and doesn't take time to find out that these pills are being promoted in Brazil for totally inappropriate conditions or that the specifications she so meticulously follows are partially based on fraudulent testing. Moreover, the corporate culture has taught her that the activities of the Brazilian subsidiary are none of her business.
The difference between socially responsible and corrupt companies is that in the former, ethical questions are everyone's business. In a socially responsible company there are mechanisms for a researcher who discovers a dangerous side-effect to blow the whistle within the company if his superiors cover up the discovery; the researcher can complain to an ethics committee of the board or an internal ombudsman if the Brazilian subsidiary ignores new information on the product.
However most pharmaceutical companies do not look to break down the barriers which protect the ethical majority of executives from their own consciences. That leaves it up to external critics to prick the consciences of the decent corporate employees. For it is insiders who, in the long run, are in the best position to prevent the day-to-day predations of the industry.
The international consumer movement, organized under the umbrella of Health Action International (see page 25), has been the most important of these outside forces.
The consumer movement has become increasingly sophisticated in the way it approaches the industry. There is now a realisation that most pharmaceutical industry executives do have consciences which can be stirred; and there are a great many 'sleepers', covert supporters of the consumer movement's campaigns. Further, because any pharmaceutical company is uniquely dependent on its reputation to sell products to doctors and hospital administrators in a way that companies which sell cornflakes or cigarettes are not, it is highly sensitive to publicity and community campaigns which tarnish its image.
So there are grounds for optimism that consumer activism can deliver reform. Indeed, there is already growing evidence of a willingness of the transnational pharmaceutical companies to respond constructively to the criticisms put publicly by activist groups.
Apart from internal critics and the threat of damage from unwelcome publicity, a further control mechanism to protect public interest is criminal law. It is an under-utilized weapon which can break down the barriers protecting honest executives from their own consciences. Criminal law is also the tonic needed for the consciences of many government officials. After all, with bribery it takes two to tango.
My research found that when bribes are paid to Latin American health ministers to secure government approval of a new product, the proposition is put as one of speeding up the inevitable approval of a product which will prevent much suffering or death. That is, the Minister's conscience is protected because he accepts the company's view that he is acting in the public interest by taking the bribe.
Criminal prosecutions would highlight publicly that when decisions on drug approvals are made on the basis of bribes rather than scientific assessment, lives will be lost, not saved. Fraud and crude misrepresentations in advertising for wonder drugs can have cruel repercussions on the community's health. It is up to the community to enforce the criminal prosecutions needed to jolt the industry into reassessing misplaced priorities. Healthy people are more important than healthy corporate ledgers. And the two need not conflict.
John Braithwaite is Senior Research Fellow, School of Social Sciences, Australian National University as well as author of Inequality, Crime and Public Policy and Corporate Crime in the Pharmaceutical Industry.
1 Corporate Crime in the Pharmacautical Industry, Routledge & Kegan Paul. 1984.
2 These practices are illustrated with many specific examples from North America, Europe and Japan in Corporate Crime in the Pharmaceutical Industry.