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Ethical considerations, changing reputations:

In the pharmaceuticals industry

by Simon Longstaff

introduction

I would like to begin with a thought experiment.

Imagine that you are travelling through unfamiliar country. Having sampled foreign fare you suddenly fall ill. Although not life-threatening, your illness is sufficiently severe to make life uncomfortable. It is therefore wonderful when a stranger approaches with the offer of a cure for your affliction. “Take this,” he says. “You'll be right in a moment!” At this the stranger proffers a couple of innocuous looking tablets. Would you take them?

At the very least, you might be inclined to be cautious. Then again, the stranger is offering relief. Sensing your uncertainty, the stranger decides to offer a further piece of information. He says, “Trust me, I'm a politician!”

There was a time when politicians were generally regarded as being trustworthy. Alas, this is not so today. Indeed, as the attached survey results on the ethics / honesty ratings given by the public indicates, there are very few groups (or institutions) that have not lost ground in the estimation of the community at large. Reputations are fragile entities. A good reputation will normally take generations to build. It can be destroyed in a moment. This may seem unfair - especially when the innocent are indiscriminately condemned with the guilty. However, such is the environment in which the issues canvassed in this address need to be considered.

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Ethics and the pharma industry

I have found the process of preparing for this conference to be an education in itself. It is amazing how much information about your industry leaps off the page once the mind is focused. It all makes for a complex picture. Part of the image is painted in the positive hues associated with an industry committed to the discovery of remedies to some of life's great scourges.

Also incorporated in the picture is a sketch of an industry under considerable pressure to adapt to a rapidly changing (and, seemingly, more hostile) economic and social environment. And other parts betray the hand of a sceptical draftsman whose jaundiced eye sees nothing other than enterprises for whom the generation of profits is placed before all other relevant concerns.

Each perspective is simplistic and therefore represents the distortion of a much more complex truth. Yet, if left unchallenged, each of these images has the power to capture the mind.

Some might see all of this as providing a challenge for the image-makers. There must be a temptation to turn the problem over to specialists offering the prospect of manufacturing a face that fits the fashion of the times. The trouble is that the image-makers now have to contend with a highly cynical public that has redefined the terms of debate.

The key to understanding the point that I am making can be found in Hugh Mackay's research into public perception of corporate ethics. Australia's leading social researcher has found that members of the community tend to think that people in business regard ethics as an "optional extra". Furthermore, he has found that the level of scepticism about the ethics of business is so high that people automatically 'discount' public claims made about the importance of values to a corporation.

Instead of being swayed by images dreamed up by advertising executives, or by glossy codes of conduct, people apply a simple two-part test when trying to assess the ethics of an organisation.

• The first question to be asked is by a person is: How do members of this organisation treat me?
  Am I treated as if I really matter? Is trouble taken to assess my individual needs and preferences? Or, am I treated according to some sort of stereotype? Am I looked upon as nothing more than a consumer, a convenient source of income?
• The second question to be asked is by a person is: How do members of this organisation treat each other?
  Do they treat each other with courtesy? Is there an air of mutual respect? Do people seem to be happy in their place of work? Or, is there evidence of low morale, of strained relationships and so on?

Hugh Mackay has shown that the quality of relationships lies at the heart of perceptions about the ethics of organisations. Because we live at a time when there is increasing emphasis on the importance of customer service, the first, fairly obvious test is being addressed. Surprisingly, few managers understand the importance of the second test. Beyond being a foundation for sound management practice and harmonious relationship in the workplace, a climate of respect for one's colleagues will be noted by one's customers and help to reassure them that the industry or company is really serious about its commitment to an ethical approach.

Underlying these findings is a fundamental ethical principle that still seems to inform majority opinion. It might not be expressed in these terms, but I believe that Australians are still in tune with the notion of ‘respect for persons’. More specifically, Australians have a history of identifying with two important virtues; namely those of benevolence and justice. In Australia, these virtues achieve a distinctive expression as the ideas of 'mateship' and giving the other person ‘a fair go’.

While I would be the first to admit that these concepts are frequently abused and that they have lost some of their force, I would argue that the residue of their original meaning still has an effect. What is more, I believe that these concepts offer Australians a distinctive 'handle' on which to hang an indigenous response to the problem of navigating across a difficult and uncertain ethical landscape.

The point in all of this is that it is no longer possible (nor was it ever desirable) to fake the conditions in which trust can be established. Reputations cannot be manufactured, they must be earned. But in order for this to happen, there needs to be some fundamental framework of commitment and concerns on which to build.

It seems to me that the makings of this framework may be in place within your industry. I believe that the vast majority of people working in your industry do so because of their belief that they can contribute to the wellbeing of humankind.

For many, a concern about profits is only of secondary importance when compared to more important issues. In this respect, Bryce Carmine's address, as APMA Chairman, sends a number of fairly clear signals that I think that the community would welcome. For example, a serious and disinterested commitment to foster debate about the allocation of health-care resources could be of immeasurable value. But of even greater significance would be a positive and consistent orientation towards ensuring that patients, in particular, are better informed about the medicines that they use. I realise that many people will have difficulty in understanding the full ramifications of some of the information that you might provide.

However, I still think it important that your industry be seen to make a sustained effort in order to address some of the assymetries of power that tend to characterise the relationship between health care providers and their patients. Any move towards enhancing your role as patient advocates will be welcome. If carried through, then actions such as these will do more to establish the foundations for trust in the industry than all the codes in the world. Which leads me to an important point.

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The place for codes

I do not wish to suggest that codes are unimportant. Indeed, I would argue that they can be a very valuable tool if properly developed and implemented. Unfortunately, I see far too many cases where codes are used as a technical 'quick-fix' to the ‘problem of ethics’. I am often amazed by the naive and casual approach adopted by companies and industry associations which, in all other respects, pride themselves on the maturity of their deliberation and processes.

And this leads me to make an observation about the Code of Conduct that the pharmaceuticals industry has developed and applied in Australia. You can feel justifiably proud that your Code has received such positive international attention - topping the score in an international comparison against World Health Organisation (WHO) performance indicators used by Health Action International. However, I wonder if this proper concern with defining behavioural parameters has been balanced by industry debate about the ethical framework which necessarily (albeit obscurely) lies as the foundation for the existing Code of Conduct.

A Code of Conduct is a relatively useless document unless it is embedded in a broad ethical context. For example, I would always argue that organisations should develop a three-tiered approach to developing an ethical framework. A comprehensive framework is going to have:

• A Code of Ethics (or Statement of Principles)
• Statements of Duties to Stakeholders
• A Code of Conduct

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A code of ethics

I have already alluded to a difference between Codes of Ethics and Codes of Conduct. The difference between the two alternatives is relatively easy to describe. A Code of Ethics expresses fundamental principles that provide guidance in cases where no specific rule is in place or where matters are genuinely unclear. A well drafted Code of Conduct will be consistent with the primary Code of Ethics, however, it will provide much more specific guidance. In comparison to a Code of Conduct, a Code of Ethics will tend to:

• be more general,
• contain fewer principles,
• be expressed in terms of 'ought' or 'should' (and not 'must' ),
• be directed to all persons affected (and not just to 'employees'), and
• provide general guidance in those cases where a Code of Conduct is silent, ambiguous or unclear.

Bearing this in mind, a Code of Ethics might include provisions such as:

• That our actions should be based on a recognition of the essential dignity of each and every person.
• That we should have an active concern for the wellbeing of the community and the environment.
• That we should provide a challenging and safe workplace in which people can flourish.

... and so on. Naturally enough the principles need to be amended to take into account the distinctive ends that an organisation might seek to achieve.

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A statement of duties to stakeholders

The Statement of Duties to Stakeholders is based on an identification of the various parties with whom the organisation interacts. Its obvious significance therefore lies in its ability to focus attention on the nature and quality of an organisation's relationships. While each statement is relatively general (when compared to a Code of Conduct), there will still be sufficient emphasis to provide effective guidance. In your case, a list of stakeholders might include:

• health care givers (including doctors)
• hospital owners
• the health funds
• your suppliers
• government
• competitors
• the community
• and so on...

Following advice from St James Ethics Centre, Optus adopted the type of framework that I am articulating here. An examination of their Code provides a very good example of what can be achieved.

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A code of conduct

At the third level, a Code of Conduct will have a number of discreet headings which cover specific instructions. For example:

Gifts & Benefits

Employees must:

• not demand or accept any unauthorised gifts, rewards or benefits because of the employee's status
• disclose to their manager any gift, reward or benefit offered or suggested to them in connection with their duties

Conflicts of Interest

Employees must:

• ensure that there is no actual or apparent conflict between their personal interests and the performance of their duties
• identify, and fully disclose in writing to their manager, possible conflicts of personal or financial interests

At first glance, it may seem that far more use can be made of a Code of Conduct. After all, such a Code provides clear and unambiguous direction about appropriate standards of behaviour. However, further examination of the issue reveals that the less specific Code of Ethics is the more significant document.

Despite (or some would say because of) its 'fuzzy' form, a Code of Ethics is the better vehicle for ensuring long-term commitment to important values. This is because a Code of Ethics demands something more than mere compliance. Instead, such a Code calls forth an exercise in understanding that is linked to a requirement that people exercise judgement and accept personal responsibility for the decisions that they make. As a North American manager observed to Fortune:

Today life is fired at us point-blank. People don't have time to refer to the Bible or to the company handbook. You've got to have all that internalised.

A Code of Ethics should be a document that expresses an organisation's underlying values. It is therefore essential that the document ring true for those to whom it applies. And this means that Codes of Ethics need to be devised in consultation with the people most directly affected by its application.

In other words:

Everyone who's going to have to live with the statement should get a chance to put his or her two cents in.

Codes of Ethics and Codes of Conduct are not 'magic bullets' that solve an organisation's problems. And the fact that an organisation has a written Code will not guarantee that its personnel are especially ethical. But good managers will realise that, if approached with the proper degree of care and sophistication, the very process of developing these Codes can have a profoundly positive effect on the culture of an enterprise.

If it is not already clear, let it be stated directly that organisations should be looking to develop all three levels of a comprehensive framework. The idea is to create a series of 'nested' and logically related documents each of which contributes something different to the process of reinforcing the ethos of the organisation.

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The getting of wisdom

Failure to articulate deeper ethical principles can lead to some most unfortunate outcomes. For example, there are companies that have spent a fortune on developing sophisticated ‘ethics’ programmes. In some cases, the process has been almost copy-book in its facilitation. Underlying principles have been identified, the interests of stakeholders taken into account and a core set of proscribed and prescribed behaviours have been defined. Compliance officers have been appointed and every new employee inducted into the ethos of the company. Yet, some of these companies have found themselves convicted before the courts of the land and public opinion, for having engaged in grossly unethical behaviour.

At first glance this would seem to be mystifying.

However, I believe that there is a compelling explanation for what has gone wrong. Let me illustrate this with a story ...

(Story about taxi driver who, after a long conversation with Simon about the value of ethics and of an ethics centre, then offered to write up a taxi receipt with a figure recorded that is slightly larger than the actual fare. Those taxi drivers who make such an offer do so with a sense of doing a favour for the passenger. From their point of view it seems a good deal for all concerned in that they don't lose anything from the transaction whilst the passenger may gain a little at the expense of an organisation that can probably afford what is perceived to be nothing more than small change. The point is that some drivers and passengers do not even see the possibility of there being anything wrong with such an offer.)

The point of this story should be fairly clear. The majority of people who find themselves in difficulties coping with the ethical dimension of life are those who are locked into patterns of custom and practice. Although a pattern of virtuous behaviour may seem to be entirely preferable to any other, one needs to be aware of the fact that being ethical as a matter of habit is a poor substitute for living a life based on authentic commitments generated through a combination of experience and reflection.

What holds for individuals also holds for organisations. What is needed is a kind of practical wisdom built on the foundation of virtues such as courage (and, in particular, moral courage, justice, benevolence, temperance, fortitude, charity and so on).

Indeed, it seems to me that as current management theory propounds the advantages of the knowledge based companies and industries, I can see the next wave of insight drawing attention to the indispensability of the wisdom base. Remember, you heard it here first.

Wisdom based organisations will not walk blindly into ethical death-traps. This is not because the ethical landscape will become any more easy to traverse; it will still be a place of greys rather than blacks and whites; a place full of the boggy terrain of conflicting principles and ethical dilemmas. However, an orientation towards wisdom instead of mere knowledge will make people alive to the limitations of technique as a way of securing certainty in this inherently uncertain domain of human being. Hence my concern that we see the value of codes in their proper context.

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Is good ethics good business?

Some will be inclined to ask whether or not the effort of developing an organisation with practical wisdom is worth the effort. There have been some attempts to answer this challenge. One of the most compelling pieces of evidence has come from the United States of America. James Burke, former head of Johnson & Johnson, sought to discover if there was some sort of 'objective' indicator to prove the contention that "good ethics is good business". Going straight to the heart of the matter, Burke reasoned that the most persuasive evidence would be found in an examination of performance on the Dow Jones Industrial Index.

Burke compared the performance of several companies selected because of their demonstrated commitment to implementing programmes to strengthen a corporate climate of best ethical practice with the performance of all other stocks. His time of comparison stretched over a forty year period. Where the general improvement in the value of the 'control' group of company stocks during that period was an average increase of 6.2%, that of those selected for study was 11.3%.

There are a number of points where such a finding can be criticised. For example, it could be suggested that the performance of the companies flowed from factors other than their attention to ethics. In reply, it might be argued that in the case of each company selected by Burke, the issue of ethics was addressed across the board. At the very least this would allow for the conclusion that although we cannot know that serious attention to ethics made the crucial difference, it is clear that the programme had no adverse effects.

A critic might then reply by suggesting that the companies might have done even better, if only they had not wasted time and other resources on ethics. There is no way to answer such a hypothetical conjecture except to say that in each case the companies did concentrate on the ethical dimension of their activities!

A second objection might be made by pointing out that some of Burke's companies have since been shown to have acted in ways that most would conclude to be unethical. I don't believe that this reduces the significance of the information. Instead the pounding that one or two of these companies have received on the share market since the untoward behaviour was discovered would seem to confirm the finding. It suggests that there are grave penalties to be paid when sound ethical behaviour is abandoned.

It is not too difficult to see why good ethics might make for good business. An adequate exploration of the full dimension of this topic would take more time than is available today. But let me offer one or two observations. The first of these is that it should be fairly obvious that an erosion of trust nearly always leads to an increase in the cost of doing business. We should never forget that the possibility of a free market depends on their being an underlying ethical framework.

For example, such a market depends on their being a full and frank disclosure of relevant information; it depends on participants refraining from collusive practices that give rise to distortions. As the AMP Professor of Management at the Australian Graduate School of Management, Jeremy Davis, has observed when considering the importance of a world with trust:

... in some sense we are contrasting a world in which the notion of "my word is my bond", a world of high trust, with a world which is purely caveat emptor, which implies very low trustworthy organisations. And the thing that I think economists teach us which bears on our morality is that the first is likely to be a much more productive society in any economic sense, because the entire deadweight loss of inspection, of protection, of insurance and of contracting is held to a minimum.

What holds good for markets, in general, also applies in the case of companies and other organisations. Untrustworthy organisations must carry the cost of dealing with other parties who will look to relatively expensive means for securing arrangements. Organisations with a low level of internal trust have the additional burden of substituting structures of control for the substance of voluntary compliance.

At a superficial level, it may seem cheaper to run an enterprise according to strict and fairly rigid lines of command. However, I would argue that such an approach must include a kind of 'opportunity cost' associated with an absence of open communications and an attendant failure to harness the full value capable of being generated by a workforce that believes itself to be trusted in the management of the enterprise. As observed in an article published in Fortune in 1992:

Successful enterprises are inevitably based on a network of trust binding management, employees, shareholders, lenders, suppliers and customers - akin to the network that Japanese call keiretsu. When companies slip into shoddy practices, these crucial relationships start to deteriorate. ... Eventually a kind of moral rot can set in, turning off employees with higher personal standards and stifling innovation throughout the company. ... "People in these situations feel frightened, constrained. They are not in the proper frame of mind to take prudent risks".

Or putting it more positively, an American manufacturer in The Asian Wall Street Journal reports:

Our highly moral policy had a marvellously beneficial effect on our employees. Because they implemented the policy, they had cause to feel proud of the company simply because they could feel proud of themselves. It added to the creation of mutual trust.

I have gone to some trouble to provide a few grounds for believing that good ethics is good business. Yet, I now want to suggest that the maxim is one that ought to be avoided. It does not matter that we can show that the long-term benefits are there. The point is that we should be ethical even if there is no profit to be made. Or more precisely, we should be ethical - even if there is a cost!

In my experience the most common question faced by people on a day to day basis is this:

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Can we afford the luxury of being ethical?

Specific examples, based on the general form of this question, include:

• Can we afford the cost of making this product safe?
• Can we afford to admit negligence even though we know that we did the wrong thing?
• Can we afford to let the company's accounts show the real value of our assets?
• Can we afford to refuse to carry out a client's instructions even when, in all good conscience, we believe to follow them would harm the community?
• Can we afford to resist paying bribes in order to secure a contract in a difficult market?
• Can we afford to resist taking advantage of an unintended loop-hole in the law or a contract?

As previously observed, there are some people who are totally oblivious to the ethical dimension of their lives. Such people explain their actions by saying things like, "That's just the way we do it around here", or "It seemed like a good idea at the time", or "... everybody does it".

There are others who are wilfully blind to the consequences of their actions, especially as they affect others. Sometimes the rewards for ignorance are so great that people will rationalise behaviour at work, that they would never tolerate in any other setting.

While it is important to accept the very real collateral benefits that flow from being ethical, we need to have a stronger commitment to ethics than that it is likely to deliver a combination of profit and peace of mind. If that was all that there was to it, then a commitment to ethical behaviour would be ditched as soon as one could discover a way to boost profits by being unscrupulous. As a matter of fact, there are some greedy and rapacious operators who thrive, for a time, by developing the facade of trustworthiness.

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The more things change the more they stay the same

Here are just a couple of things that have been written about such people:

... the profiteers insolently and covertly attack the public welfare ... They charge exorbitant prices for merchandise, not just fourfold or eightfold, but on such a scale that human speech cannot find words to characterise their profit and practices.

Or again,

... those I abhor are the unprincipled men who ... use unethical means to obtain undue profits ... they hoard currency or commodities to force the value up ... I will have nothing to do with such people.

I suspect that for most of us the language is vaguely familiar. Yet, each of these pieces is drawn from the fourth Century AD. The first extract forms part of the Roman Emperor Diocletian's decree of AD 301. The second extract is from the pen of the Chinese scholar, Ho Kung. Closer to us in time lies the period of catastrophic social convulsions known as the fourteenth century. In a brilliant depiction of that time, Barbara Tuchman, summarises an age:

... economic chaos, social unrest, high prices, profiteering, depraved morals, lack of production, industrial indolence, frenetic gaiety, wild expenditure, luxury, debauchery, social and religious hysteria, greed, avarice, maladministration, decay of manners.

No wonder she entitled her book A Distant Mirror. As Voltaire noted, "history never repeats itself, man always does".

Now my reason for drawing attention to these observations of and from the past is a simple and, I hope, a reassuring one. One of the benefits of the past is that we can look at where we have been, recognise the footprints that lead to our own time, and know that we too can survive it all, perhaps to be the object of study of an unknown generation of future historians.

Whilst I would not want to suggest that we should return to a position of complacent optimism concerning the prospect of humankind's ultimate perfection, I do want to suggest that we have reason to believe that the cycle of history allows for periods of consolidation and correction.

Governments have a role to play in this period of consolidation and correction. As a rule they need little encouragement to expand their range of activities. And for the most part, I believe that their agenda is driven by a genuine concern to govern well. However, at times when confidence is low, the community looks to government to do something to correct imbalances in the system. In almost every case the government will respond by introducing new legislation leading to an expansion in the regulation of the system.

As noted above, legislation, regulation and surveillance all come at a cost. They cost time and money to those who are subject to these measures and, ultimately, this cost is passed on to consumers. Consumers are charged a second time in the form of taxes needed to pay for the level of bureaucracy required to administer the new systems.

But it is not just the financial cost that should be borne in mind. Of equal or greater significance is the fact that the imposition of systems of external control has a significant impact on the quality of life in a society. I do not mean to suggest that there will be a deterioration in the material standard of living. Rather, there is a reduction in the privacy that we can enjoy as citizens. And this in turn has an impact on the sense of our freedom and autonomy.

Then again, some do find that the prospect of external control is an easier option than that of exercising self-discipline.

We must, however, be wary of thinking that governments can force us to be good - any more than that they can force us to be free! It may be instructive to cast our minds back two hundred years to France.

The Terror was building to its bloody crescendo in Paris. Still sitting at the centre of the maelstrom, Robespierre believed that the guillotine could be used to cut the cloth of France into a shape fitted for his much proclaimed Republic of Virtue. Robespierre was not some wild-eyed fanatic. He really believed that a system of controls could lead people to be good. And in the France of those days, everything was controlled - prices, wages, movement, even places of worship (with Notre Dame turned over to the new civic deity, the Goddess of Reason).

In his turn, Robespierre was sent to the guillotine. As he mounted the scaffold, I wonder if he realised the utter futility of his project? Too much regulation and surveillance destroys the one thing that people need if they are to be truly virtuous; that is, a sense of personal responsibility. It is because of this that we should be wary of any group or individual claiming to have all the answers and a system to make us good.

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Society vs the ‘enterprise association’

In the current social environment there are many who would argue that a genuine commitment to ethics is an unrealisable ideal. Many think that sound ethical principles are fine in theory but that they can't really be applied in practice. To try to do so is to be nostalgic. They say that to promote virtue is to be old fashioned, to hark back to ideas only useful in a different era. They ask us to be 'realistic' and to embrace the 'modern' way of doing things.

This plea is often nothing more than an ill disguised call to allow for the survival of the fittest. Perhaps such people are right. Perhaps a dog-eat-dog world will be the most efficient. And perhaps efficiency is the only value that we need to embrace in the search for a worthwhile life. Or perhaps efficiency is only one of a number of important values that we must learn to juggle across an unpredictable landscape.

Those of us who are serious about the need to make ethical considerations an explicit concern in our daily lives must face up to this challenge. After all, what if our critics in the market place are right? What if the prime (and exclusive) aim in life really is to maximise our satisfaction of wants (and not just needs)? What if the liberty of the individual (important as it is) transcends all other considerations? What if it is through competition alone that we find the ultimate expression of our humanity?

Most people have a fairly good feel for what it means to live in a ‘society’. But what about an ‘enterprise association’? John Casey has tried to describe the latter:

We might imagine a city founded purely as a trading post. The laws of the city will reflect its original purpose, and have to be understood in relation to this purpose. Contracts will be vigorously enforced however unreasonable or unjust, because it is of the highest importance to retain the confidence of those with whom the city trades. Indeed, the notion of a contract being 'unjust' will have no meaning. All education will be subordinated to the need to produce an ‘enterprise culture’, and no subject will be studied as an end in itself. The rulers of the city will regard themselves essentially as the managers of the enterprise. Their tasks will be to maximise wealth and promote trade.

Is this so very far away from what we now experience? Some may say that this is an accurate and even attractive picture of the type of world in which we live. But does such a view of our relationships miss something of vital importance? For example, do we exist simply to "facilitate the exchange of commodities" or is there something more? Is there, for example, a need to value friendships, to realise that other people can make a claim on us? Is living in a society only possible when we recognise that each person is bound to others within a network of formal and informal relationships?

The challenge facing us today is to make a choice about which alternative we want. Do we want a society of citizens in which something like the virtues of justice and benevolence make sense? Or do we want the enterprise association in which each of us is little more than a purveyor or consumer of commodities? The latter consigns us to a place where the exercise of virtue will seem an unattainable luxury, where no person can afford to display moral courage.

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Conclusion

So to conclude. I return to the questions lying at the heart of this address; namely - how are we to determine the worth of placing ethics at the forefront of our concerns? How then might I answer without sounding glib? What might I say to those whose daily experience confronts them with the need to justify (as much to themselves as to anyone else) each decision to do what is right and good? My answer must surely be to acknowledge again that there are no easy answers; to acknowledge that the costs associated with living an ethical life are real and often substantial.

But I must also answer that questions about the ethical life take us well beyond issues able to be determined by a kind of cost / benefit analysis. This is because it is in the ethical dimension of our existence that we encounter the truth about our unique potential as persons. The choices we make present us with an opportunity to cast off the shroud of necessity woven about the threads of our animal nature and transcend the mundane. In short, we are free to choose the right and the good.

There is a kind of natural heroism displayed by those who choose to live a good life. We recognise their courage because we know how easy it would be to do otherwise. Courage of this type can be displayed in every forum of human endeavour - no less in the world of commerce!

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