In the first two segments on this myth, we looked at saints and devils. We also looked at new monitors for determining, which companies are on the up and up. One of the devils we probed was Career Education Corp. (CECO) . Their share price has moved up after they topped fourth quarter projections. However, as The Motley Fool points out, “Both new-student and overall enrollment declined 16%.” So, don’t be fooled by their touting a “turnaround.” They are headed for a turn down.
Another recent event opens questions about the fire that created the smoke. In a seeming burst of ethical righteousness – have you noticed that ethics is on a downward slide these days? — GlaxoSmithKline (GSK) announced that it will no longer pay doctors to promote new products. Arranging for doctors to hawk pharmaceutical products is the kind of ethical issue that gets under people’s skin. People get angry when they hear that doctors help to sell medications. And when they find out that doctors get paid for this, it bothers them even more.
Bold Move or Clever Play?
This appears to be a bold move by the British pharmaceutical company. Standing alone against the giants takes courage. Will this lead Johnson & Johnson (JNJ) and Pfizer (PFE) to screw their courage to the sticking place? Let’s see if the Myth Buster can blow away some of the smoke and find the fire.
GlaxoSmithKline's aggressive stance comes amid charges of bribery in China, where they are said to have doled out $500 million to travel agencies in a scheme to boost drug sales. Instead of correcting the error, they chose to abandon the whole idea that doctors should be paid to advance medications.
But, think about what this would mean. Assume that doctors will not advance the qualities of new pharmaceutical products without being paid. Who else should promote new medications? Salespeople? Advertisers? Actors? And if doctors do the promoting without being paid, wouldn’t that mean that their efforts would be limited to academic journals and therefore only seen by a handful of colleagues?
Doctors may elevate products, but they also tell other doctors about breakthroughs and powerful new medicines. Of course, doctors are also the ones most likely to prescribe new compounds that get results.
So, what would happen if doctors stopped promulgating to doctors? According to a study published by Essential Medicines and Health Products Information Portal, A World Health Organization resource, 92% of the Canadian doctors surveyed reported that sales representatives had product promotion as their major goal, and 80% felt they over-emphasized the medicines' effectiveness. In a separate study, 47% of doctors felt that they were not able to obtain an unbiased assessment of a newly introduced drug. The physicians surveyed felt that most drug information was too commercial and therefore biased. So that brings us back to doctors describing the features and uses of pharmaceutical products – at least to other medical professionals. Doesn’t that make more sense than salespeople? No wonder the other pharmaceutical giants are not changing plans.
The smoke we have been discussing may rise from long smoldering ashes. Many companies suffer from built up ill feeling from the public. The Huffington Post reported a survey by Harris Interactive that identified companies with the worst reputations. Goldman Sachs (GS) , a bullseye for those who do not like Wall Street, came in ninth. Arch competitors J.P. Morgan Chase (JPM) came in third, Citigroup (C) eighth and Bank of America (BAC) sixth. Maybe the Occupy Wall Street group grabbed the ballots. At least, it is clear that messing around with people’s money is dangerous to one’s reputation.
First on the list of companies with bad reputations was Comcast (CMCSA) , which should serve as a warning: Do not interfere with people’s entertainment either.
We should not take these lists too seriously. The U.S. Chamber Institute for Legal Reform would probably agree. They give awards too – for the Top Ten Most Ridiculous Lawsuits of the year. Last year’s top prize went to a group of Idaho inmates who sued eight beer makers for causing their lives of crime. They didn’t win their case, only the Top Ten Prize.
It appears that this old saying, “Where There’s Smoke There’s Fire,” retains plenty of power. We have looked at a range of organizations. Many are truly ethical and are recognized for their excellence. Some seek ethical recognition in part to compete effectively. A few try to hide their woes. Others reveal considerable transparency – trumpeting a turnaround in the midst of a downward slide! Or, exposing doctors who promote pharmaceuticals – a long standing practice that is not about to be overturned. The next article will examine another myth.
Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.