Methodology
Data Analysis
The theories that will be analyzed in this research paper are the Corporate Social Responsibility (CSR) model elaborated by Archie B. Carroll; the Stakeholder Theory; the limited, the equivalent, three perspectives on Corporate Citizenship (CC); and the Normative Ethical Theory. These four distinct views on the conception of ethics and ethical behavior cover the whole range of matters an organization faces in business conduction, and the analysis of the given theories is expected to answer the fundamental questions of the research from the perspective of ethics: how should pharmaceutical companies make pricing for drugs? And which factors affect the prices?
Carroll’s CSR model.
The compliance with the four basic responsibilities of Carroll’s model supports efficiency and ethics of business. It is commonly accepted to regard the CSR model as a pyramid where economic responsibility lies in the basis while the philanthropic responsibility is at the top of it. However, it is right to comprehend the pyramid as a whole where the responsibilities are interdependent and consequently affect each other.
The economic responsibility concerns with profitability and financial turnover. It also implies the strategic financial and pricing decision-making. The pricing affects not only the company but the whole market and economy. The well-balanced prices support the capitals flow and, therefore, have a positive impact on the economic sustainability. One of the economic responsibilities of an organization is thus to provide the prices that would maintain the customers’ attraction, ensure the corporation’s profitability, and enable the financial performance of both customers and organization.
Economic responsibility is evidently connected to the legal responsibilities because the decision in pricing, the financial inputs and outputs must be followed by the proper legal regulations. The legal responsibility is thus in the obedience to law and political regulations, and it is socially required. When talking about the pricing, the laws regulate the strategic decisions merely to some extent.
The government’s duty is to interfere when a company applies the fraudulent pricing methods. For example, corporations can implement the methods of the “predatory pricing” by making the prices too low in an attempt to knock out the competitors out of the market, or the “price discrimination” by selling the same goods for different prices to the different groups of people (Guo, 2012, par. 4). This kind of pricing strategies is evidently engaged in the illegal activities and demonstrates the legal irresponsibility of a company. Moreover, it jeopardizes the economic balance and stability. However, the fraudulent pricing strategies involve the issue of ethics and morality to a large extent. And the matter of pricing is, therefore, of both legal and ethical character.
It is possible to say that the ethical responsibility of any organization is to ground its business decisions in the respectful attitudes to the customers, partners, competitors, and employees. Ethics implies the total accountability and consideration of benefits and well-being of a large number of people and entities that are in touch with a business. An example of the unethical conduct in pricing by the pharmaceutical companies is the overpricing. It is observed by many researchers that the companies often overprice drugs, and the unaffordable prices inevitably interfere with the access to these drugs by many patients (Cowley, 2013, par. 1).
The overpricing is the most evident in the cancer drugs production. The new and advanced technologies helped some of the pharmaceutical companies to elaborate the medicine that can save lives of people who has the rare forms of cancer, such as chronic myeloid leukemia (CML). For the patients with CML, the drug called Gleevec is a life-saver. Gleevec helps to manage the illness that recently considered being incurable. The drug provoked the increase in the survival rate among the CML patients (Cowley, 2013, par. 5). However, it is claimed by medical researchers and physicians that the prices for this Gleevec are highly exaggerated.
In this case and many other cases of the exorbitant pricing, the main purpose of the companies is profitability. The lack of balance between the economic profitability and the availability of drugs to patients demonstrates the unethical conduct. Only the organizations that regard the human health as the value can claim to be the corporate citizens because this value is the feature of the philanthropic responsibility.
According to Carroll, the philanthropic responsibility is of the greatest significance, and it is comprised of all the mentioned responsibilities: economic, legal, and ethical. The philanthropic responsibility underlines the importance of being a good corporate citizen. It also means that the company’s management must have the concept of humanity as the value that affects the organizational strategies and culture. An organization can be regarded as a good corporate citizen when includes all the responsibilities in the decision-making processes and contributes to the improvement of the society and somehow refines the quality of life.
Building on this the philanthropic responsibility can be shown in the application of the well-balanced and reasonable pricing strategies that would be mutually beneficial for organizations and consumers. The drugs prices must be affordable and available to a vast number of people who need them, yet the pricing strategies must ensure a stable level of income in the pharmaceutical corporations.
The CC Perspectives.
Overall, CC establishes the nature of the relationship between society and organizations. The mentioned views depict the different extents and approaches towards the establishment of the relations. The first one, the limited view, yet is based on the philanthropic approach is also reduced to a narrow range of local stakeholders, primarily employees and local community members. The companies of limited citizenship contribute to the development of the society and prefer the harmless and sound business conduction in all the aspects: finance, laws, and ethics. In this case, an organization is strategic and aims at economic profitability through the reciprocity-based approach. Because of the limited scopes of the functioning, the pharmaceutical corporations, and their policies cannot be efficiently analyzed from the perspective of the limited citizenship.
The extended view of the CC cannot be applied in the analysis as well, primarily because of its emphasis on the political relations with the society. The government affects the organizational business planning and the drug pricing by adopting the legislation reforms (Wechsler, 2002, p. 16). But although the pharmaceutical corporations sometimes can belong to the government sector and, either way, they need to stick to the governmental regulations, the companies in the pharmaceutics usually, if ever, play the significant political roles and take powerful political positions.
However, when evaluating the drug pricing strategies in the industry at the global scale, the equivalent CC view is the best one because it includes the wider range of aspects and motivations and addresses a bigger number of people. The equivalent perspective can be regarded as equal to CSR model, and it thus supports the multilateral evaluation of drug pricing.
From the perspective of the equivalent CC, the drug pricing can be significantly affected by the value of the philanthropy and philanthropic responsibility. It can be observed in the example of the developing countries where the healthcare organizations, such as Biotechnology Industry Organization (BIO), contribute to the proliferation of the affordable drugs and vaccines (Ortiz & Drakulich, 2011, p. 22). In this case, BIO and the other ventures with the similar motivation focus on the highly ethical approach in achievement progress in the resolving of the medical supply issues in the region. It is effectively demonstrated by BIO that they stick to the responsible and conscious approach in business conduct.
The access to drugs is a challenge for the most of the developing countries citizens, BIO and its partners attempt to create the strategies that would positively affect the drug pricing. Additionally, they raise public awareness regarding the medical matters; they educate citizens, investigate the local diseases, and contribute to the adoption of the advanced technologies in the medical industry of the region (Ortiz & Drakulich, 2011, p. 22). BIO contributes to the development of the novel drugs that are meant to be cheap and affordable for the members of the developing countries communities.
Although, in this example, the ethical and philanthropic responsibilities are of tremendous importance, BIO’s economic responsibility can be observed in attempts to increase market demands and attract the financial incentives for the wider and more efficient realization of their strategies. The impeccable compliance with all the legal regulations, the strong motivation, and the economic performance of the organization make it a good global corporate citizen.
Stakeholder Theory of the Firm.
Generally speaking, the stakeholder theory regards the relationship of organizations with the others both in internal and external environments. A stakeholder is a person or legal entity that can influence and can be influenced by an organization: customers, suppliers, government, local communities, etc. The normative stakeholder theory focuses on the reasons why the stakeholders’ interests and benefits must be taken into account.
The relationships between organizations and stakeholders are multilateral I nature and include economic, legal, and moral aspects. According to normative perspective, the sound relationships with stakeholders maintain the business profitability, and it is regarded as the main reason for companies’ accountability. The descriptive theory emphasizes the significance of the company’s efforts in monitoring and determination of the stakeholders’ interests and development of the strategies based on their interests. It can be considered that the stakeholders’ interests are actually taken into account if they are reflected in the organizational decision-making and actions.
When a company addresses the stakeholders’ needs, such as the high level of employees’ job satisfaction or the good quality and the reasonable prices of products provided to the customers, the corporation attains the benefits of different kind: financial profitability supported by the customers’ loyalty; the low rate of the staff turnover and high level of productivity; the business partners’ trust, etc. The factors that ensure the benefits of the stakeholders’ interests’ consideration are the concern of the instrumental stakeholder theory. It determines whether the corporation’s accountability can provoke the development of the competitive advantages and establishes the extent of the benefits for the business.
For answering the questions of this research, it is better to analyze the topic of drug pricing applying the normative stakeholder theory because it is more functional and is supported by reasoning and evaluation of the current situation in the pharmaceutical sector. Since many of the organizations nowadays mainly pursue the inner corporate interests in pricing strategies, it is important to look at the issue from the stakeholders’ point of view and analyze why it can be beneficial for the company to take into account the interests of others as well.
The stakeholders of any pharmaceutical corporation are its employees in the internal environment, government, and customers in the external environment. The government affects the organizations significantly. It is crucial for any business to take into consideration political and legal regulations, without obedience to laws no business can survive. The drug pricing is also controlled by the government. From the legal point of view, the government adopts the policies that have the purpose of “price gouging” fighting (Johnson, 2015, par. 6). For instance, when the US company, Valeant Pharmaceuticals International Inc., have bought the rights to the cheap drugs for the treatment of some serious diseases and then significantly increased the prices, it provoked the consumers’ indignation and the government’s investigation of the case. Moreover, when the drug prices are too high, the political administration can adopt price and cost-cutting reforms to increase the drug accessibility among the citizens and to reduce expenses (Wechsler, 2011, p. 28).
The governmental regulations make the pricing more constrained, and it can negatively affect the organization because when the prices are cut the investments in innovations and development of novel vaccines is reduced. Therefore, it is important for a company to adjust and to forecast the outcomes of the pricing strategies. In case the prices are adjusted to the internal and external interests together, when the prices are affordable for the consumers, meet all the legal and political regulations, and contribute to the organizational development, the negative impacts on business conduction are less (Wechsler, 2011, p. 28). When the drug prices are balanced according to the interests of all, the company reduces the risk of the governmental interference and supports the continuous customer attraction that provokes growth of revenues.
Normative Theory.
The normative theory establishes the rules, conditions, and reasons for the ethical business conduction. For evaluation of drug pricing strategies, the perspective of ethics and duties is the most appropriate one. It looks at responsibilities and morality as the basis for managerial decisions and actions and suggests perceiving a stakeholder as a person with needs, rights, and morality. The aspects of ethics and duties provide the rational explanations of the factors that can influence the drug pricing.
The normative theory in business lies in the respectful attitude towards the stakeholders by the fulfillment of duties and responsibilities. The best example of this approach in the drug pricing is the introduction of the low-cost medicines that can effectively substitute the expensive ones. Daraprim is the drug for treatment of toxoplasmosis; it has a high price in the market and was irreplaceable for a long time (Rhodan, 2015, par. 2). However, recently a pharmaceutical company offered a new drug that includes the essential constituents of Daraprim and can be regarded as the substitution for the expensive medicine. This case demonstrates the respect towards the consumers and pushes the organizational profitability into the background.
The ethics and duties perspective is more suitable in the drug pricing rather than the other perspectives, such as utilitarianism mainly because of the differences in regarding the stakeholders. Although the consideration of the collective interests can be regarded as a virtue, it is not applicable to the analysis of the private pharmaceutical organizations in the capitalist environment.
Results
Among all the results caused by unethical conduction, overvaluing outcomes is the one that explains the increased drug prices in the pharmaceutical industry. Overvaluing of outcomes is a common issue in the pricing strategies. When the financial profits are high the management more likely will not desire to change the organizational behavior that, even if lacks of ethical approach, causes business thriving and prosperity within the corporation.
The development of the novel drugs for serious illnesses is costly and requires a lot of investments. By making high prices for drugs, the pharmaceutical corporations attempt to cover the expenses. When an effective medicine is introduced to the market, the financial reimbursement is quick to come. The prices for drugs stay high, constantly increase, and bring a lot of profit to corporations (Kantarjian, 2013, p. 4). Although the medicine helps patients to manage their diseases, the exorbitant prices make the cancer drugs unaffordable for a greater number of people. Sometimes, even when the drug didn’t prove to be efficient enough, the prices remain exceeded. For example, Avastine, the drug for cancer treatment, is regarded as of trivial positive effects (Pharmaceutical pricing, 2014, par. 5). Nevertheless, the medicine continues to bring billions of dollars to its producer per year.
The drugs inaccessibility is the demonstration of the unethical approach and lack of moral considerations in the corporate culture of pharmaceutical organizations. The management of the pharmaceutical companies intentionally or unintentionally hides the lack of ethics behind the financial profitability. The positive outcomes in profitability thus are over evaluated. When the prices for drugs are extremely high, it is beneficial merely for the corporations. However, for patients with health conditions the access to medicine is of tremendous importance, and, in some cases, it is a matter of life and death. Therefore, the ethical approach and consideration of the consumers’ interests in pricing and business conduction are a necessity.
References
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Johnson, L. (2015). Drug compounder offers cheap version of costly Turing drug. The Big Story. Web.
Kantarjian, H. (2013). The price of drugs for Chronic Myeloid Leukemia (CML); A reflection of the unsustainable prices of cancer drugs: From the perspective of a large group of CML experts. Web.
Ortiz, C., & Drakulich, A. (2011). Global healthcare on the ground BIO and BIO ventures for Global Health focus on creative strategies to help the developing world. Pharmaceutical Technology North America, 35(9), 22-24. Web.
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Rhodan, M. (2015). The $750 per pill AIDS drug now has $1 competition. Time. Web.
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Wechsler, J. (2011). Manufacturers and FDA gear up for user-fee action. Pharmaceutical Technology North America, 35(9), 28-36. Web.