Introduction
Ethics implies the totality of certain moral principles and values that characterize the behavior of a person or a group of people as well as specific assessments of their actions and thoughts in defining and securing the objectives of an organization (Trevino & Nelson, 2010). Ethics about the behavior of the company and its members can be represented by the internal code of ethics and regulation management that reflects the established boundary between appropriate and unacceptable behavior when making concrete long-term and short-term management decisions within a particular external environment (Schwartz, 2011).
Ethics is directly related to the intrinsic values of the organization and is an integral part of corporate culture. There are various examples of scandals related to unethical behavior, one of which is associated with the actions of Martin Shkreli. To understand whether his managerial decision was conducted within the framework of ethics or not, it is necessary to analyze the implemented change from two different perspectives, which are the market relations position and the community perspective.
Social and Ethical Responsibility
Last year, Martin Shkreli (Turing Pharmaceuticals) decided to raise prices for Daraprim from $13.50 a tablet to $750 in an overnight (Pollack, 2015). The drug is prescribed to patients with life-threatening parasitic infections; the groups of patients include women who caught an infectious disease, people with AIDS/HIV, and patients with certain forms of cancer.
According to the estimations, such an increase in price will bring “the annual cost of treatment for some patients to hundreds of thousands of dollars” (Pollack, 2015, para. 2). The described situation provoked a strongly negative response from the community; meanwhile, Shkreli defended Turing Pharmaceuticals explaining the underlying reason for such decision, which was the necessity to gain profit to spend it on the research and development department.
It should be noted that the ethical problem arises in all cases where the actions of managers can affect the people around them (Schwartz, 2011). Ethics is closely related to the influence of the legal norms of society and the freedom of choice in determining the specific behavior. Legal provisions are determined by the legal system of society (international norms and country-specific regulations) while the actions defined by the freedom of choice include the behavior of an individual or organization that are not limited to legal and other regulations (for instance, the scope of the planned production of a specific product).
Ethics occupies an intermediate position between the law and free choice (Schwartz, 2011). From this point of view, Martin Shkreli did not break any law. American “pure capitalism” ended in 1890 with the adoption of the Sherman Antitrust Act (Schwartz, 2011). It was the law that has introduced the notion of social responsibility. Regarding business activity in the framework of the existing legislation, there is no legal force to prohibit producers from setting the price of the goods according to their will and assessments.
If the seller can sell a commodity at a set price, he or she will make a profit; if the company cannot sell the goods or services, the business goes bust. In the United States, it is forbidden to enter into cartel agreements with competitors to raise prices; however, Shkreli did not enter into such agreements. Hence, his decision was lawful (Trevino & Nelson, 2010).
In terms of the pricing strategy, there is a list of social goods and services (such as salt, bread, certain medications, electricity, water) the pricing of which is controlled and approved by the federal government or the state; however, the medicine offered by Turing Pharmaceuticals does not fall under this category of products. Worth mentioning is that the company bought out all the rights to sell the drug in the United States. Accordingly, it has a legal right to set their own pricing. Consequently, no implication could be defined as unethical in terms of Shkreli’s business maneuver.
Managerial Decisions and Their Consequences
Ethical behavior is based on shared principles and values of the society. The peculiarity of ethical standards is that they are characterized by a certain behavior of the individual and the organization, and at the same time, there are no specific sanctions for the violation of these rules. The ethical codes are generated and used both within the organization and outside it (Cavico, 2013). In certain cases, they restrict the freedom of choice based on shared values and principles of the society.
Thus, Turing Pharmaceuticals has faced the challenge of ethical choice. When providing complex (concerning the implementation of ethical norms and rules) solutions, management uses different approaches. The most applicable ones include the utilitarian, individualistic, moral-legal approach and the concept of social justice. The concept of social justice is more focused on the rule of law inherent in the legislative system and supports the values and rules accepted by the society.
The concept implies performing morally and legally acceptable in terms of rules and regulations that reflect the organizational culture (Cavico, 2013). The ethical responsibility in the case of Shkreli was a form of expression of the system of values, attitudes, beliefs, and behaviors adopted in the organizational culture of the company. In this situation, the ethical management issues shall be considered organizational rather than personal.
In addition to the ethical responsibility, it is necessary to analyze the social responsibility of company management. The formal definition of social responsibility involves the recognition of liabilities by the organization’s management to make decisions and implement specific actions that increase community well-being and meet its interests as well as the interests of the company’s key stakeholders (Schwartz, 2011). The complexity of the use and perception of this definition lies in the differences in defining and understanding of the well-being. External and internal company environment includes a specific set of interest groups (for instance, shareholders, investors, company personnel, customers and suppliers, local authorities, the government, and other groups).
Turing Pharmaceuticals has subordinated its decision by one master criteria of social responsibility, which was the economic liability. It lies in the fact that the company’s actions reflected the organization’s responsibility for the production of goods and profit maximization for the shareholders (Cavico, 2013). In this case, the social responsibility has been reduced to maximize profits solely. This approach has received a negative response in the society and was decried from both the ethical and social points of view.
However, Shkreli stated that the company’s mission was to improve profits within the legal framework. He also added that profit maximization would enable directing the funds to research and development of new medical drugs, which will help ease the life of ill people in the future (Pollack, 2015). Nevertheless, the implementation of economic benefits as the only social and ethical liability of the company has led to negative implications for the organization, which was reflected in the negative perceptions of Turing and Shkreli in particular.
Personal Position
If I were to decide upon the same issue, I would not follow the same path as Shkreli did for several reasons. Such a decision would cause millions of deaths while few people can afford to pay the vast amount of money for prescription drugs. The health care industry implies the highest ethical and social responsibility as it is directly linked to the health and wellbeing of the population; for that reason, it seems unethical to evaluate the lives of people to making a profit similarly (Trevino & Nelson, 2010). Besides, the desire to make money causing deaths and affecting the financial stability of the people fighting life-threatening diseases seems indeed out of ethical principles, especially considering the primary aim of drug-producing industries, which is easing the flow of illness and enhancing the quality of life of the ill.
The notions of ethical and social responsibility imply the performance in the best interest of the community; consequently, rationing the social responsibility through the need to make profits seems irrelevant (Trevino & Nelson, 2010). It should be mentioned that pricing strategies for medication should consider a variety of aspects including the research and development costs, the essential laboratory tests, and other production costs. If I were to decide upon the company vs. ethics, I would base my pricing strategy on the production costs and a small percentage to generate profit, though securing the ethics.
I would not develop unaffordable prices for a private gain because the mission of the pharmaceutical company is to produce drugs essential for a satisfactory level of living, which would be impossible if the prices are many times higher than a patient can afford. Moreover, a drastic increase in drug prices would provoke other companies to invest in generic drugs.
Also, it would be cheaper to import medication from other countries rather than to purchase the domestic one. In this relation, there is no rational evidence to perform the way Mr. Shkreli did while it significantly influences the way clients perceive the company in the future, it diminishes its corporate image and may lead to bankruptcy as a consequence.
Conclusion
Shkreli decided that raising prices to a very high level was an effective managerial decision to develop the company. Because previously the drug was available and affordable in America, no alternative technologies were developed. Any pharmaceutical company could start the production of similar drugs but a lot of money and time would be needed for the construction of production facilities and testing processes, and as the drug was affordable, there was no need to invest in the development of generics.
When Turing Pharmaceuticals bought the rights to sell the drug throughout the United States, it received formal legal permission to establish the price, which it deemed proper. However, this solution has received strong criticism in the society for unethical behavior because the pharmacy is directly related to people’s health and maximizing profit is not its primary goal.
The ethical responsibility provides for the implementation of socially useful activities by the company that are not determined by the rule of law or fail to meet the direct economic interests but reflect the ethical norms and rules that have been defined by the principles and values of the society and the corporate culture of the organization. Thus, any decisions and actions of an organization or an individual aimed at obtaining benefits at the expense of society are unethical in nature.
References
Cavico, F. (2013). Corporate social responsibility and leadership. Carrollton, KY: ILEAD Academy.
Pollack, A. (2015). Drug goes from $13.50 a tablet to $750, overnight. Web.
Schwartz, M. (2011). Corporate social responsibility: An ethical approach. New York, NY: Broadview Press.
Trevino, L., & Nelson, K. (2010). Managing business ethics. Hoboken, NJ: John Wiley & Sons.