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To Serve or Not to Serve the Shareholders; That is the Question

by Maya Suresh, UMN Law Student, MJLST Staff

Thumbnail-Maya-Suresh.jpgHikma Pharmaceutical Company recently received the 2012 Client Leadership Award of the International Finance Corporation (IFC) due to its strong commitment to the community and leadership in the Pharmaceutical Industry. The award is given to companies that display this commitment through a variety factors, including strong corporate governance. As the biggest pharmaceutical manufacturer in the Middle East, Hikma has helped the public by providing affordable and lifesaving medicines to those in need. The CEO of the IFC lauded the corporation for setting the standard for corporate social responsibility within the industry.

The importance of these actions taken by Hikma was the basis for Martin Hirsch's article, "Side Effects of Corporate Greed: Pharmaceutical Companies Need a Dose of Corporate Social Responsibility," published in Issue 9.2 in the Minnesota Journal of Law, Science & Technology. The article talks about the tension that exists between the shareholders of pharmaceutical companies and the public the companies strive to serve. The shareholder model of corporate governance focuses on maximizing shareholder profit which often results in the production of lifestyle drugs over drugs that cure life threatening diseases. Lifestyle drugs include medicines for baldness and toe fungus that are in high demand and thus, sold for large profits. However, the lifesaving drugs, that are the most needed, are the ones the pharmaceutical companies refuse to produce. These drugs are mostly in demand by those living in poorer regions of the world. However, they typically cannot afford the high price point the pharmaceutical companies set the drugs at. Thus, the drugs are not bought, even though they are desperately needed, which leads the pharmaceutical companies to stop investing money into developing and producing them.

Hirsch argues that some companies take these actions further by influencing doctors' diagnoses of patients, in an effort to increase the sales of higher revenue generating drugs. The actions of Hikma could lead consumers to believe that there is hope for the public, and that some companies are beginning to take a stand on this skewed model that has plagued the industry. However, some companies continue the practice of producing lifestyle drugs, versus lifesaving drugs.

WebMD has come under recent criticism for succumbing to that pressure when it should be serving as an objective medical resource for the public. A rigged online test for depression led test takers to believe they may be at risk for depression, when in fact they were not. This served as the perfect example of companies working to serve the BigPharma industry rather than the public. Unfortunately, as Research Associate Rallis asserts in the article, WebMD has no plans to alter its business model and as such, won't be breaking ties with the industry anytime soon.

There appears to be some hope that the tension within the industry will resolve itself as the actions by Hikma will hopefully rub off on others in the industry. However, it is also clear that there is still work to be done.