The Ethics of Global Business

Andy Gustafson

Creighton University

Global Ethics IssuesGlobal Ethics Issues• 1.Power/Force of Multinationals • 2. Fair Trade: Lack of Laws and Regulations

in LDCs• 3. Lack of Infrastructure and Competition• 4. Colonial-Style Practices • 5 Workers rights. • 6. Cultural Variations • 7. Butterfly Effects of Consumer Demands• 8. Cultural Transformation of Consumer

Culture Invasion• 9. Copyright Infringement

#1 #1 Power/Force of MultinationalsPower/Force of Multinationals

• Of the world's largest 150 economic entities, 95 are corporations (63.3%) according to a report in Fortune Magazine by the World Bank (2005).

Multinationals Trump Nation GDPsMultinationals Trump Nation GDPs

• Wal-Mart, BP, Exxon Mobil, and Royal Dutch/Shell Group all rank in the 25 largest entities in the world, above countries like Indonesia, Saudi Arabia, Norway, Denmark, Poland, South Africa, and Greece.

Country/Corporation GDP/RevenueCountry/Corporation GDP/Revenue $ millions $ millions

• 1US 11,667,515• 2 Japan 4,623,398• 3Germany 2,714,418• 4UK 2,140,898• 5France 2,002,582• 6Italy 1,672,302• 7China 1,649,329• 8Spain 991,442• 9Canada 979,764• 10India 691,876

• 11Korea,Rep. 679,674• 12Mexico 676,497• 13Australia 631,256• 14Brazil 604,855• 15Russia 582,395• 16Netherlands 577,260• 17Switzerland 359,465• 18Belgium 349,830• 19Sweden 346,404• 20Turkey 301,950• 21Austria 290,109

Country/Corporation GDP/RevenueCountry/Corporation GDP/Revenue $ millions $ millions

• 22Wal-Mart 22Wal-Mart 287,989287,989• 23 BP23 BP 285,059285,059• 24ExxonMobil24ExxonMobil 270,772270,772• 25RD/Shell Group 268,690• 26Indonesia 257,641• 27SaudiArabia 250,557• 28Norway 250,168• 29Denmark 243,043• 30Poland 241,833• 31South Africa 212,777• 32Greece 203,401• 33General Motors33General Motors 193,517193,517• 34Finland 186,597• 35Ireland 183,560

• 36DaimlerChrysler 176,688• 37Toyota Motor 172,616• 38Ford Motor 172,233• 39Portugal 168,281• 40Thailand 163,491• 41Hong Kong 163,005• 42Iran 162,709• 43General Electric 152,866• 44Total 152,610• 45Argentina 151,501• 46Chevron 147,967• 47ConocoPhillips 121,663• 48AXA 121,606

Other Huge CompaniesOther Huge Companies

• In top 75:

• Volkswagen, Hitachi, IBM, Honda, HP

• Top 75-100:

• Nissan, Fortis, Berkshire Hathaway, Home Depot, HSBC, Verizon, Samsung, Peugeot, Nestle, US Postal Service, China National Petroleum, Sony

Lack of Consumer Power in Face Lack of Consumer Power in Face of Huge Corporate Power in LDCsof Huge Corporate Power in LDCs

• Very little transparency demanded by consumers

• Consumers often have no means of accessing information

• Most companies are foreign owned• Domestic companies already at

competitive disadvantage

#2 Fair Trade: Lack of Laws and #2 Fair Trade: Lack of Laws and Regulations in LDCsRegulations in LDCs

• Lack of Domestic Laws

• Lack of transnational laws or guidelines

• Lack of enforcement (of UN guidelines)

•

Example: Pharmaceutical Example: Pharmaceutical CompaniesCompanies

Lack of Regulation WorldwideLack of Regulation Worldwide

In 2004, the World Health Organization established that less than one-sixth of countries had a well-developed system of drug regulation, and one-third had little to no regulatory capacity.

Consequences of Poor Marketing Consequences of Poor Marketing Information:Information:

It is estimated that up to 50% of

medicines in developing countries are

inappropriately prescribed, dispensed

or sold.

Irrational Drugs Irrational Drugs

• In 2005, the Indian National Commission on Macroeconomics and Health labeled 10 out of 25 top selling brands of medicines in the country as being either “irrational or non-essential or hazardous.”27

Non-Essential DrugsNon-Essential Drugs

Are new Drugs Necessary??Are new Drugs Necessary??

• A breakdown of more than 1,000 new drugs approved by the US Food and Drug Administration between 1989 and 2000 revealed that more than three-quarters had no therapeutic benefit over existing products.30

Success: China’s ResponseSuccess: China’s Response

• A stark example comes from a leading industry report that attributed China’s considerably slowed growth rate in the sector (from 20.5% in 2005 to 12.3% in 2006) to a government anti-corruption campaign. The campaign was introduced during the second quarter of 2006 to set limits on physician directed promotion, and according to the report, served to dampen sales in the region.

$$ Pharmaceuticals $$$$ Pharmaceuticals $$

• The pharmaceutical industry in 2006 was worth US$ 643 billion.

• Total pharmaceutical sales from the top 10 companies accounted for more than 40% of the total market (see table).

Top corporations by global pharma Top corporations by global pharma sales: 2006sales: 2006

Industry growth rate 1999-2006Industry growth rate 1999-2006

Pressures on Pharm CompaniesPressures on Pharm Companies

It is estimated that:• 90% of current profitable drugs are over 5 yrs old.

• In 2009 patents on 1/3 of top 35 branded drugs expire

• Exposing an estimated $157 billion worth of sales to generic erosion.

• Leading pharmaceutical companies will lose between 14% and 41% of their existing revenues as a result.

• The industry’s growth rate is now at 7% compared to 14.5% in 1999 (see table).

Industry Growth RateIndustry Growth Rate

Fast Growth!Fast Growth!

• For example, India was one of the fastest growing markets in 2006, with pharmaceutical sales increasing 17.5 percent to $7.3 billion.

How to Sell more How to Sell more

1. Increasing the perceived frequency and/or severity ofthe indications.

2. Widening the indications to include more people.3. Increasing the perceived likelihood and magnitude of benefits.4. Decreasing the perceived likelihood and magnitude of harms.5. Increasing the use of the drug for longer durations.

Pharmaceutical Gifts in PakistanPharmaceutical Gifts in Pakistan

• Low cost: pens/pads/diaries/calendars.• Medium cost: stethoscope/books/briefcases.• High cost: air conditioners/laptops/desktop

computers/club membership.• The latest practice is: For writing 200

prescriptions of the company’s high priced drug, a doctor is rewarded with the down payment on a brand new car.

Advertising with Incomplete Advertising with Incomplete InformationInformation

• 2005 study of Psychobiology of the Paulista Medical School of the Federal University of São Paulo Brazil

• Analysed 24 Brazilian advertisements for the same psychoactive drugs as advertised in American and/or British publications from the same period.

• Observed that “Brazilian advertisements omitted information on usage restrictions, such as contraindications, adverse reactions, interactions, warnings and precautions, and that such information was present in American and British advertisements.”

Doctors’ Biased BehaviorDoctors’ Biased Behavior

Evidence shows that biased doctors are more likely to:

• Prescribe a drug if they had recently attended a sponsored event by the manufacturer.

• Prescribe a drug that is not clinically indicated.

• Have a drug placed on a hospital formulary.

Health expenditure in developing Health expenditure in developing countriescountries

*Governments’ Key Recommendations:*Governments’ Key Recommendations:

1. Implement, improve and monitor legislation in line with the WHO Resolution on the Rational Use of Medicines and the WHO Ethical Criteria for Medicinal Drug Promotion.2. Support the provision of independent information on drugs for consumers and health professionals.3. Implement and enforce a ban on gifts to doctors.4. Enforce strict sanctions that will deter poor corporate practice in drug promotion.5. Take measures to improve the transparency of drug companies’ marketing activities and seriously address the conflict of interest encountered in drug companies’ funding of medical education.

**Key Recommendations at the **Key Recommendations at the Company Level:Company Level:

1. Stop the practice of gifts to doctors

2. Implement rigorous policies on vetting of drugpromotion materials and adherence to existing codesof conduct

3. Provide transparent and verifiable informationon the precise nature of relationships and associatedfunding for all stakeholder groups, including healthprofessionals, pharmacists, students, journalists,clinical research organisations and patient groups.

**Industry-Wide Level:**Industry-Wide Level:

1. Ensure codes of conduct on drug promotionextend to interactions with health professionals ANDconsumers.

2. Invest in innovative partnerships withgovernment and civil society organisations sothat corporate funding of disease awarenesscampaigns, and CME may be channelled via blindtrusts in line with specific health priorities ofconsumers at a community or national level.

BibliographyBibliography

• Drugs, Doctors and Dinners: How drug companies influence health in the developing world

• Managed Care and the Morality of the Marketplace(NEJM, 333:50-52, 7/6, 1995)

#3#3 Lack of Infrastructure and Lack of Infrastructure and CompetitionCompetition

#4 Colonial-Style Practices#4 Colonial-Style Practices

• Companies convert land from food crops to cash-crops for export

#5 #5 Workers rightsWorkers rights

Jobs in Foreign CountriesJobs in Foreign Countries

• Most of the outsourced jobs from the US have gone to LDC (less developed countries) in recent years.

Goods can be produced at much Goods can be produced at much lower cost in developing countrieslower cost in developing countries

• Higher unemployement

• Lower wage rates

• Fewer effective unions

• Less effective labor laws

• Fewer producer constraints

• Lower environmental standards

Benefits to the developing Benefits to the developing countrycountry

• Increased exports

• Jobs

• Hard currency

• Economy improves

• Standard of living increases

# 6 # 6 Cultural Variations Cultural Variations

Cultural VariationsCultural Variations

• Bribery vs Gift

• Friendship vs Old Boys Network

• Proper relationships of women to men

• Rights: Right to kidney dialysis, CAT scan

• Norms of expectations

#7 Butterfly Effects of Consumer #7 Butterfly Effects of Consumer DemandsDemands

• Example 1: Ethanol and the Amazon

Cheaper Fuel = Less AmazonCheaper Fuel = Less Amazon

• 1. Desire for alternate fuel (Ethanol)

• 2. US demand drives Corn price to $7

• 3. Supply of Corn is strained

• 4. LDCs convert more land to Corn-Farming

• 5. An area the size of Rhode Island in Amazon was converted from rainforest to corn in 1 year.

Our Demands have long-distance Our Demands have long-distance effectseffects

• Consumer demand for cheap goods = pressure for cheap labor in LDCs

• Negative Externalities of– Oil Production– Toxic Waste Production

#8 Cultural Transformation of #8 Cultural Transformation of Consumer Culture InvasionConsumer Culture Invasion

• As markets invade LDCs, there is a transformation of culture which occurs. Sometimes this is good. Sometimes it may not be.

Example 1: Consumer Market Example 1: Consumer Market Change: Iran’s PaykanChange: Iran’s Paykan

Ex 2: Cultural Change in ChinaEx 2: Cultural Change in China

• After 27-years of market reforms, China has undergone a profound transformation that has given people more freedom of choice over their personal lives.

ChinaChina

• Walmart Effect– good and bad

• Internet spread– freedom of information

• Entrepreneurial innovation

• Increased Competition

• Matured market demands regulation (i.e., copyright controls)

2 Key Foundations Lacking in 2 Key Foundations Lacking in Developing CountriesDeveloping Countries

•1. Transparency

•2. Competition