Pharma CEO: We’re in Business of Shareholder Profit, Not Helping the Sick

[Bubzer]

This... this stupefying greed, right here... this is the problem.

Another Pharmaceutical CEO is stepping up to challenge Martin Shkreli as world’s most hated man.

Last month, Martin Shkreli became a household name. The CEO of Turing Pharmaceuticals is now infamous for raising the price of a newly-acquired drug to $750 a pill. He also explained in an interview that his company was not alone in acquiring drugs currently on the market to raise their price and, in turn, rapidly drive up their stock price.

Enter J. Michael Pearson, The current CEO of Valeant Pharmaceuticals who recently said that his company’s responsibility is to it’s shareholders, while making no mention of his customers who rely on his drugs to live.


“If products are sort of mispriced and there’s an opportunity, we will act appropriately in terms of doing what I assume our shareholders would like us to do.”

Already this year, Valeant has increased the price of 56 of the drugs in its portfolio an average of 66 percent, highlighted by their recent acquisition, Zegerid, which they promptly raised 550 percent. Not only does this have the unfortunate side effect of placing the price of life-saving drugs out of reach for even moderately-insured people, but it has now begun to call into question the sustainability of this rapidly-spreading business model.

http://usuncut.com/class-war/valeant-ceo-shareholder-profit/

[randys1]

1. Repeat after me, capitalism is broken and harmful to your health.

No, you dont need the promise of obscene profits for such a company to exist, discovering life saving meds, in the first place.

[Wounded Bear]

8. capitalism is broken and harmful to your health.

Well, you told me to repeat after you.

[sharp_stick]

2. Valeant is no more a pharma

company than the fraud run by Shkreli.

These scumbags do nothing but buy old drugs and jack the prices because nobody else is making them.

They pretend they do research but don't even have a a Discovery or Development program.

The website shows lots of scientists at work but no scientists actually work there.

[2naSalit]

3. THere is no direct, positive

correlation regarding capitalism and humanitarianism. This is just the obvious conclusion or logical conclusion of that fact.

[hifiguy]

4. Everything that is wrong with capitalism

in one sentence. Time for the torches, pitchforks, tumbrels and guillotines, IMO.

[MagickMuffin]

5. So, when we poorer folk die off, only the top 1% will be around to buy the drugs

What, oh what, will they do without the serfs around to do their dirty work?

[moondust]

6. Greed rulez!!!!

Thanks largely to the Reagan Devolution.

[spanone]

7. in the business world money trumps everything including humanity

[SoLeftIAmRight]

9. profiting on illness

capitalism - got to love it

[lancer78]

10. Legally he is correct

A CEO has a legal fiduciary duty to do what is in the best interest of the shareholders. Currently that is to maximize profits. I believe any CEO that fails in this duty can be criminally charged, or at the least sued by the shareholders.

[HughBeaumont]

19. Nope.

https://www.washingtonpost.com/opinions/harold-meyerson-the-myth-of-maximizing-shareholder-value/2014/02/11/00cdfb14-9336-11e3-84e1-27626c5ef5fb_story.html

I never sought the opportunity to correct Wikipedia’s founder. Nevertheless, facts are facts, and the fact is that there is no legal requirement for for-profit companies to maximize returns to shareholders. When a company is for sale, its directors are required to do all they can to maximize its value. At any other time, corporate law simply dictates that directors are supposed to help the company prosper and do nothing to benefit themselves at the company’s expense. But no law requires corporations to maximize returns to shareholders. Say a company would prosper by hiring more skilled but more costly workers, by building a new factory or outlet, by spending more on research and development — even if such actions reduce returns to shareholders in the next dividend payment. Those actions are entirely legal, not to mention existentially smart.

Don’t believe me, Mr. Wales? Check the Wikipedia entry on “Corporation.” Check the Wikipedia entry on “Corporate law in the United States.” No such law in any of the 50 states even raises the topic of maximizing shareholder returns. A survey by Cornell law professor Lynn Stout couldn’t find a corporate charter that listed as the company’s mission maximizing shareholder value.

snip

Apologists for the 1 percent generally argue that our rising levels of inequality are the consequence of globalization and technological change — forces of nature over which mere people and nations have had no control. They often blame U.S. workers for lacking sufficient training. But they omit from their diagnosis the shift from stakeholder to shareholder capitalism. This is not surprising, as it’s a shift that Wall Street and corporate executives brought about. Indeed, the German economy is every bit as subject to the forces of globalization and technology as ours, but inequality is lower there, and German workers have more security and opportunity than ours, because German capitalism still adheres to the stakeholder model.

If we think, as Wales apparently does, that our own form of capitalism is required by the legal obligations on corporations, we’re sadly misinformed. Shareholder capitalism is sustained not by law but by an institutional edifice of greed. The U.S. economy will not work again for the American people until they tear down that edifice.

[ProfessorGAC]

24. Got Your Back, Hugh

There is no such fiduciary duty. There is actual value in upholding stakeholder value as well as shareholder, so merely doing something because you can, at the expense of other stakeholders is actually irresponsible business. But, as long as we continue to reward short term strategic thought over long term sustainability of a business model, we are going to see this sort of mentality.

[zipplewrath]

25. Serving the best interests of the shareholders

Typically the requirement is that they represent the best interest of the shareholders. That's a fairly vague term and since they control the voting, they get to decide what that is. Occasionally though, when there is a shareholder battle of some sort, this issue will be brought up.

[Initech]

11. Well to be fair, he did showcase everything wrong with the American healthcare industry

In one sentence.

[CommonSenseDemocrat]

12. He's right, but the fault lies with the government

Before I get flamed, read my entire response:

The government has decided to prohibit competition in the market through the FDA, sometimes rightly/sometimes wrongly, at the same time abdicating economic regulation. You cannot do one and not the other. That's how big pharma is incentivized to go patent trolling and jack up prices, the only deterrent being reputational risk only.

I think drugs that are regulated by the FDA must also require sign off by the FDA if there are changes in price, only approved if that is required for solvency of the company (not shareholder value). Alternately, the company can allow other companies to make their drug and there be free price competition. But you cannot have your cake and eat it too.

[dembotoz]

13. time to nationalize it

[CommonSenseDemocrat]

15. Or regulate it at least

[malaise]

14. Market over society

Well that's neo-liberalism so he's not wrong which is why Bernie is correct.

[HughBeaumont]

16. No. YOU'RE NOT.

"Chasing shareholder value is a managerial choice, not a legal requirement."

Shareholder value thinking is endemic in the business world today. Fifty years ago, if you had asked the directors or CEO of a large public company what the company’s purpose was, you might have been told the corporation had many purposes: to provide equity investors with solid returns, but also to build great products, to provide decent livelihoods for employees, and to contribute to the community and the nation. Today, you are likely to be told the company has but one purpose, to maximize its shareholders’ wealth. This sort of thinking drives directors and executives to run public firms like BP with a relentless focus on raising stock price. In the quest to “unlock shareholder value” they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance, and research and development; delay replacing outworn, out- moded, and unsafe equipment; shower CEOs with stock options and expensive pay packages to “incentivize” them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency; and lobby regulators and Congress to change the law so they can chase short-term profits speculating in credit default swaps and other high-risk financial derivatives. They do these things even though many individual directors and executives feel uneasy about such strategies, intuiting that a single-minded focus on share price may not serve the interests of society, the company, or shareholders themselves.

This book examines and challenges the doctrine of shareholder value. It argues that shareholder value ideology is just that—an ideology, not a legal requirement or a practical necessity of modern business life. United States corporate law does not, and never has, required directors of public corporations to maximize either share price or shareholder wealth. To the contrary, as long as boards do not use their power to enrich themselves, the law gives them a wide range of discretion to run public corporations with other goals in mind, including growing the firm, creating quality products, protecting employees, and serving the public interest. Chasing shareholder value is a managerial choice, not a legal requirement.

Snip

Today, questions seem called for. It should be apparent to anyone who reads the newspapers that Corporate America’s mass embrace of shareholder value thinking has not translated into better corporate or economic performance. The past dozen years have seen a daisy chain of costly corporate disasters, from massive frauds at Enron, HealthSouth, and Worldcom in the early 2000s, to the near-failure and subsequent costly taxpayer bailout of many of our largest financial institutions in 2008, to the BP oil spill in 2010. Stock market returns have been miserable, raising the question of how aging baby boom- ers who trusted in stocks for their retirement will be able to support themselves in their golden years. The population of publicly held U.S. companies is shrinking rapidly as for- merly public companies like Dunkin’ Donuts and Toys“R”Us “go private” to escape the pressures of shareholder-primacy thinking, and new enterprises decide not to sell shares to outside investors at all. (Between 1997 and 2008, the number of companies listed on U.S. exchanges declined from 8,823 to only 5,401.)5 Some experts worry America’s public corporations are losing their innovative edge. The National Commission found that an underlying cause of the Deepwater Horizon disaster was the fact that the oil and gas industry has cut back significantly on research in recent decades, with the result that “knowledge and experience within the industry may be decreasing."

[Octafish]

17. Ask Saddam Hussein about drug company CEOs (if only Pearson could).

Shaking Hands: Iraqi President Saddam Hussein greets Donald Rumsfeld, then special envoy of President Ronald Reagan, in Baghdad on December 20, 1983.

At the time, Rummy worked as CEO of what was then G.D. Searle & Co.

[HughBeaumont]

18. Started by economists. Egged on by Uncle Milty. Quelle Surprise.

Seems like if we push a myth hard enough, it will become true. Never mind how much damage it's already done.

So who was the first to insist that the old managerial model needed to be turned upside down and shareholders interests should be paramount? It turns out it was Milton Friedman, in a widely-cited 1970 New York Times op-ed. And Friedman being Friedman, he advocated an extreme form of his thesis. A key excerpt:


The businessmen believe that they are defending free en­terprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the “social responsibili­ties of business” are notable for their analytical looseness and lack of rigor. What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom….

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom

You can see how incoherent this is. Shareholder are not bosses of corporate executives. They are diffuse and large in number, and if you got them all in a room to tell the corporate executive what to do, you’d be more likely to see fisticuffs than agreement.

[hifiguy]

21. Milton Friedman is responsible for more

pointless and needless human suffering and deah than anyone in the last hundred years and maybe ever. And I am not forgetting about Stalin, Mao, and the Austrian corporal.

[alcibiades_mystery]

20. "is to it's shareholders" ... its

J. Michael Pearson is correct: the only duty of a public company is to its shareholders.

That's one of the main reasons our system for organizing public goods (like medication) is flawed and contradictory. The only duty is to the shareholders. There are other requirements and regulations, but these are portrayed as onerous intrusions.

Free market logics are deeply predatory.

[Volaris]

23. They're just determined to justify their way right into a single-payer system, aren't they?

How's THAT profit model gonna work out for their shareholders??
These people were supposed to be smart. Oh well. Not my loss (I'm not a shareholder).

[gwheezie]

26. I have been saying this for decades

Business does not function to correct social and economic problems. They function to make money for the shareholders. The idea that private sector business will correct any national problem is ludicrous. Businesses are not patriots, they have no national boundaries. The notion that multinational corporations would act in our national best interest makes no sense.