Sunday, July 25, 2010

Sustainability, Corporate Social Responsibility and the Pharmaceutical Industry

Dear Colleagues

On Monday (July 26th) I will attend a meeting at Fairleigh Dickerson University (FDU) to listen to some corporate folk talk about sustainability, corporate social responsibility and the pharmaceutical industry. It should be interesting.

I am not sure what to expect ... and in some ways I expect to be very disappointed. I hope not, but my expectations are low. Maybe after the presentation I will be able to write an update to show how much my opinions have been changed!


Sustainability is a "popular" subject, but I am never sure what is meant by the word. I see sustainability as a engineering construct, and in this construct very little in the modern economy is truly sustainable. In time, almost everything we do in our modern society will stop because the raw materials are no longer available. In most cases this generation can ignore the problem because we run out in the future ... but soon the future will be now!

Most people operate with the idea that "sustainability" is an accounting construct. In the business world a company can sustain itself as long as there is cash flow that will pay the bills. A company with a lot of cash can lose money for a long time ... but when the money is gone, then the company folds. The same is true of society ... and in the case of the US society the "system" has facilitated turning everything into cash that could be spent so that the society could sustain itself way longer than was good for its long term health.

In the international relief and development assistance sector "sustainability" is sometimes taken to mean having the money to do what the organization is aiming to do ... with the activity sustainable as long as someone is prepared to give money to fund it. This is not sustainable in my interpretation of the concept. Welfare is never sustainable ... but work for money may be when the work done is valuable for society!

If "sustainability" is an engineering construct ... then what metrics are going to help to guide decision making. I argue that people should be the focus of society ... and the community the entity where progress gets measured and gets reported. People have needs and people are a critical resource. People should be, more than anything else, doing things that will satisfy the needs of people, themselves included. Local trade and commerce is important ... not so much global trade which may be profitable for the organizations engaged in it but terribly damaging for local trade and commerce. A lot of happiness can be generated with activities that do not require huge investment and the consumption of all sorts of scarce resources ... but why bother when happiness is nowhere in any system of socio-economic performance measurement.

Corporate Social Responsibility (CSR)

If CSR was a big thing in the pharmaceutical industry there would be much less disease in the world. I have no idea what the pharmaceutical industry is going to say about its CSR efforts ... but I rather imagine it will be something about how much "free" product they deliver into the world's healthcare industry. This is good ... but my expectation is that the amount of this will be tiny relative to the total sales of the industry.

This is very bothersome. The sales of the pharmaceutical industry are very large with a big proportion going to markets where wealth is high, prices are high and the health situation relatively good. The pharmaceutical industry does little in absolute terms for the diseases that affect the poor of the planet.

The behavior of the big pharmaceutical industry as the global HIV-AIDS pandemic spread round the world was a disgrace ... with fight after fight to maintain very high prices for life saving drugs and to avoid at all costs the competition of "generic" manufacturers. During the Clinton administration the pharmaceutical industry and the EximBank came up with a cockamamie scheme for drugs purchased by South Africa from US pharmaceutical companies for HIVAIDS programs to be financed by EximBank at full price and full interest! The procurement program more recently organized by the Clinton Foundation and now in place to make drugs affordable in developing countries seems to be using donor funds to protect pharmaceutical company profits more than anything else.

I know something about what might be considered reasonable profits. I base this on the capital employed to generate profits. Mostly modern corporate decision makers base their profit expectation based on stock market expectations ... a metric that diminishes the potential of long term excellence in the sector.

How pharmaceutical CSR fits into this, I do not know. It will be interesting to find out!

Pharmaceutical industry.

The pharmaceutical industry can never be "sustainable" ... the industry is a cost that must be paid for by someone ... some organization ... that has money.

The industry argues that high profits are required in order to attract investors so that the industry can engage in high cost research. This argument is widely used, but is not in any way valid. The industry does not invest to do research and improve healthcare, but it allocates resources to make profit ... and attracts investors interested in profit and not in healthcare.

With a paradigm shift in metrics, the industry could position itself not to be the most profitable in the healthcare sector, but to be the most effective in the healthcare industry ... doing things that get the most value for money from healthcare moneys.

The pharmaceutical industry invests heavily in R&D ... but it also used large funding flows from institutions like the National Institutes for Health in the USA and the equivalent in other parts of the world. Are they efficient researchers? Not sure ... but my impression is that the answer is "maybe not!".

I am impressed with what can be accomplished by modern medical science ... but I am less than impressed by the way the profit motive has taken over from medical professionalism. I believe in enterprise and investment ... but the profit motive is not the only thing that motivates for efficiency and allocation of resources. The value of a good medical outcome is way more than the corporate profit arising from providing the medical care and the associated drugs and supplies. But value is ignored by the pharmaceutical industry ... and profits are not. In the end the pharmaceutical industry and its advocates have a huge responsibility for the rather pathetic state of global health.

1 comment:

  1. Dear Colleagues

    The meeting at Fairleigh Dickerson University organized by NetImpact was way better than I expected. The moderator and panel positioned their work with sustainability and corporate social responsibility very well and the audience was a good combination of youth and experience.

    I raised the issue of how to get more value metrics in play ... and while there is no easy answer, the question was not avoided. In fact the panelists were generally in favor of the idea that some ubiquitous meaningful metrics about value would be very helpful.

    More to come

    Peter Burgess