Business Ethics: Merck - Case Study Example

? Business Ethics Case Analysis: Merck BY YOU YOUR SCHOOL INFO HERE HERE Business Ethics Case Analysis: Merck Introduction and Situational Analysis Merck & Company is being accused, under relative ethical beliefs and values, of putting profit before the health and human safety of global citizens. Merck was attempting to put more financial and labor resources into developing new drugs since the business was about to lose patent protections for two highly-profitable drugs that provided Merck with billions of dollars in profitability. Merck began to investigate the prevalence of the disease onchocerciasis, known as river blindness. This disease injects parasitic worms that are carried by black flies in Latin America, the Middle East and Africa. Symptoms of this disease include severe itching, a variety of monstrous sores that appear on the flesh, and even blindness. The main problem with this disease is that it had affected 18 million people across the world and had caused permanent blindness for over 300,000 of those afflicted by 1978. Merck recognized an opportunity to dedicate millions of dollars to researching and developing an appropriate drug to combat this growing epidemic. However, after conducting an analysis of potential revenue growth by creating a new innovative drug cure for onchocerciasis, Merck was concerned that the capital resources provided for development could not be recuperated as there would be very few buyers interested in or financially capable of purchasing the drug upon its release. Merck faced a very difficult dilemma: to create the drug and take significant financial losses for its development and distribution or to secure the health and well-being of millions of global citizens in desperate need for a cure for this problem. Businesspersons would likely support Merck if the company decided to forego development of a cure, while general citizens in society would believe that Merck was in a position to provide socially responsible behavior as a primary mission of the company. In the late 1970s, competition in the pharmaceutical market was intensifying on the heels of changing legislation that opened the doors for new market entry. The Medicare system in the United States, additionally, was interested in providing more Medicare patients with generic drugs, which maintained the long-term potential of jeopardizing further Merck profits for its name brand drugs (UNSW, n.d.). Therefore, pressure from the external market and changes to established government health care systems were applying additional concerns about the sustainability of Merck’s business model during this time period. It costs the company approximately $200 million and 12 years of research and development in order to launch a successful and approved innovative drug. In the 1970s, taking inflation into account, this dollar total was equivalent to over $704 million in today’s economy (davemanual.com, 2012). This conversion between the 1978s economy and that of today sheds light on the substantial investment that would have been required of Merck to create a cure for river blindness. Milton Friedman, a respected business theorist and economist, believed that the first duty of a corporation is to ensure profitability (Friedman, 1970). This would seem to apply significantly to the Merck case, as an investment that, in today’s economy, would represent nearly a billion dollars could cause substantial problems with ensuring business longevity. Without putting profit as the primary goal, Merck could jeopardize its future which would, in the long run, have negative consequences for global society that relies on cures and drug innovations from this pharmaceutical company. Whether Merck put profit first or the health of individuals facing river blindness symptoms was essentially a lose-lose situation for the whole of society as if Merck allowed itself to experience profit risk through this new drug development venture, the business might not survive. At the same time, companies that are in high profile positions and attract a great deal of media attention are always concerned about their public reputation. By the 1970s, there were established media resources on major television networks that reported company policies and developments that were notable for national or international society. Merck further faced considerable loss of face in the event that society attempted to chastise the firm for failing to put human health as a primary goal and selecting, instead, revenue growth. Today’s business literature emphasizes the importance of maintaining a positive image in corporate social responsibility in order to attract market interest and trust in a business and its managerial teams. Merck faced a proverbial double whammy, a form of damned if you do, and damned if you don’t situation which put the managerial teams into a very difficult social and ethical position. Stakeholder Analysis The most important stakeholder in the Merck case is the general citizen that is impacted by the parasitic worms associated with river blindness. Merck represented their best opportunity for finding a cure against the hostile disease that affected millions of people every year. This stakeholder group maintained the primary level of importance that would influence Merck’s final decision to develop an appropriate cure. The managerial team at Merck represents another critical stakeholder group in the case. Friedman (1970) further emphasizes that executives serve as representatives (agents) of the corporation and their first duty is to secure the business’ longevity and profitability. However, at the same time, executives are their own persons who can often feel provoked or otherwise encouraged to fulfill the needs of one’s own conscience (Friedman, 1970). The conflict between tangible obligations to satisfy corporate profit goals and their own framework of ethical values and principles impacts these managerial stakeholders related to social values associated with duty of care for general society. Competing pharmaceutical companies, such as Pfizer as one example, serves as another stakeholder impacted by Merck’s decision-making processes related to new drug development. If Merck invests the $200 million required for research and development for a cure for river blindness and there is no recapturing of financial capital through the effort, competition could dominate the pharmaceutical market if Merck is unable to maintain business longevity. In this case, general society becomes an impacted stakeholder group when a rather monopolized pharmaceutical market begins setting unrealistic pricing structures that make important, needed drugs unaffordable. In an oligopolistic market, such as the pharmaceutical market in which there are only a handful of major providers, it limits choice and can create price discrimination under unfair pricing models (Boyes & Melvin, 2005). This could seriously jeopardize the health of many different drug users that rely on fair pricing with opportunities for product choice in the market. Internal employees (non-managerial) that represent Merck and employees of such agencies as the World Health Organization are also important stakeholder groups. Many victims of the river blindness disease lived in regions of the country with poorly developed infrastructures. This means that there are limited (if any) hospitals, drug outlet centers, doctors or rural clinics available in the regions where the disease was highly prevalent (Velasquez, 1998). Individuals that would be responsible for distributing the drug would be facing harsh conditions in an effort to get the drug to needy global citizens. Furthermore, their own health could be jeopardized in the effort to establish an appropriate distribution system for the new cure if it were developed. Some regions in which there are high instances of river blindness face political problems as well, with instability that can impact the safety of those required to distribute the drug. Analysis Based on Ethical Theories The concept of cultural relativism can be best defined as the recognition that elements of values, principles and beliefs associated with a particular culture are not absolute from a global perspective. The ideas, ethics and morality frameworks that drive on culture’s method of judgment about appropriate behavior differ from one another. Under this premise, there is no singular method of determining right versus wrong and therefore, individuals in society should be more tolerant to differing values when they are incompatible with another culture’s established moral and ethical norms (Blackford, 2003). Citizenry stakeholders in the United States tend to emphasize human rights and securing the physical well-being of the individual as a primary cultural-ethical norm. It would be, then, common amid the majority of American society to chastise Merck for not automatically and immediately beginning research and development on the drug designed to cure river blindness. African stakeholders, as one example, in a region where government has been known to slaughter their own people in order to ensure there are adequate resources available for other citizens, might consider Merck’s decision to be a competent and logical one with little thought about the ethical implications of the decision. Even though the alleged African values might differ substantially from those of American stakeholders, cultural relativism proposes that American judgments against Merck are not justified simply because they differ from African social and moral values. When considering the dilemma legally, Merck is not required by law to provide the drug and sacrifice profitability in the process, even if they have the resources to provide better human health across the globe. Merck is only liable for the viability and safety of their drug products and are not forced to operate under social responsibility legislation demanding they invest the resources to develop the cure. As such, there is absolutely no obligation other than avoiding negative reputational damage and angering many stakeholder groups if the business decided not to develop this much-needed drug. The deontological viewpoint, as it relates to the Merck case, is a belief in honoring certain principles that are absolute for maintaining duty to others (Cody & Lynn, 1992). Honesty would represent an absolute duty of the individual with less emphasis on consequences of adhering to dutiful ethical principles. The deontologist would view Merck’s dilemma as being a matter of providing absolute duty to society with less emphasis on Merck’s profitability needs. If Merck leadership were to be transparent and absolutely forthright in their public relations that indicated the legitimate realities of their finances, competitive environments, and concerns over social chastisement, the deontologist would say Merck fulfilled its duty to honesty and not reprimand the firm’s executives. In similar accord, the deontologist would believe it was the duty of Merck to assist in improving the quality of life for global citizens and expect them to act according to this moral and ethical doctrine. This would be, of course, if Merck could feasibly ensure that this duty was fulfilled without completely sacrificing the longevity of the business by deciding to develop an unprofitable drug. The deontologist would not expect unrealistic self-sacrifice as Merck’s longevity would, in the long term, provide the firm with the resources to continue to remain devoted to health and safety duty principles. The teleological viewpoint examines consequences of an act or a decision and then examines whether the decision has achieved maximum utility for the broader social good. It is referred to as consequentialist theory, including utilitarianism, the general belief suggesting that it is the responsibility of a decision-maker to make large sacrifices to ensure the highest utility for the greater good even when the aggregate good of broader society is only moderately increased (Hooker, 2011). Utilitarianism and the teleological standpoint would review the consequences of Merck’s decision-making, assess how the decision impacts the well-being of the majority, and then determine whether the outcome was a responsible and moral decision by the company. If Merck decided to forego research and development into the river blindness cure, utilitarianists could absolutely rebuke Merck, believing it had served its own utility and denied the utility of global society in the process. The teleological approach to assessing Merck’s decision-making would examine the final consequences of the decision and then judge on the rightness of the action based solely on the outcome. For instance, if Merck decided to invest the $200 million to provide non-profitable drugs and society was spared further instances of river blindness, but Merck was no longer able to stay in business, the pragmatic (realistic) attributes of the utilitarian would believe that Merck was acting irresponsible. The concept of virtue is that a person is able to achieve a state of moral superiority or excellence. Virtues represent a constructive or optimistic trait or quality within an individual that is judged to be good as a foundational concept of principle and moral behavior. When assessing Merck’s characteristics associated with virtue, there would be many deontologists that would believe Merck maintained considerable virtue by even considering potentially jeopardizing the future of Merck to save mankind. Their concern over not being able to help others represents a moral character and code of beliefs that are conflicted by legitimate business needs. However, their willingness to potentially abandon Merck’s profit (and their own career futures in the process) illustrates an excellence in good and moral behavior. When considering the individuals that could be placing their own lives and safety at risk in order to distribute the drug to undeveloped and politically-unstable environments, the utilitarian viewpoint would judge these individuals as having considerable virtue. Clearly, the drug would need to be distributed and it would require brave and heroic individuals to carry out the administration process in a limited infrastructure environment. Utilitarian ideology would applaud these stakeholders for making self-sacrifices to adhere to the concept of duty of care for needy global citizens and support their virtues when making moral judgments. Conclusion and Recommendations Merck performed an ethically correct set of decision-making about the new drug innovation for river blindness. Valesquez (1998) indicates that Merck eventually decided to develop the drug and invest the capital and labor in its invention, deciding to give away the drug in lieu of any profitable buyer markets. Under a partnership with the World Health Organization, Merck was able to identify methods to distribute the drug. In reference to the case study lacking this concluding information, Merck was trying to balance the long-term sustainability of Merck’s future in the pharmaceutical market and also showing legitimate virtue for feeling sympathy for those suffering from river blindness. The teleological and deontological viewpoints would likely not find opportunities to chastise the company and its leadership since the dilemma illustrated that the company was attempting to fulfill obligations to duty and the maximization of utility for broader society. Only if Merck emphasized profit and seemed to abandon virtuous behavior and showing concerns for the social masses would any deontologist or teleologist be able to form a negative judgment against the firm. There are no viable recommendations for Merck in this scenario as the company satisfied its moral and ethical obligations in every detail. From an internal perspective, managers should develop proactive strategic alliance contracts with a variety of non-profit organizations and other business partners that agree to be buyers of medication so long as it meets contractual agreements. For instance, the policy for new drug development could be that when the drug is able to cure, as one example, at least five million stakeholders, there will be a buyer waiting to assist in the distribution process or purchasing agreement. By establishing proactive agreements, Merck can satisfy its image needs, ensure drugs are appropriately developed, and guarantee revenue growth. By using hedging strategies or other risk satisfying actions associated with contracts, it can also protect the promised buyer with insurance by reputable providers. References Blackford, R. (2010). Book review: Sam Harris’ the moral landscape. Journal of Evolution and Technology, 21(2), 53–62. Boyes, W., & Melvin, M. (2011). Economics (8th ed.). South-Western Cengage Learning. Cody, W.J. M., & Lynn, R. R. (1992). Honest government: An ethics guide for public service. Westport: Praeger. Davemanual.com. (2012). Inflation calculator. Retrieved April 2, 2013 from http://www.davemanuel.com/inflation-calculator.php. Friedman, M. (1970). The social responsibility of business is to increase its profits. The New York Times. Retrieved April 3, 2013 from http://www- rohan.sdsu.edu/faculty/dunnweb/rprnts.friedman.dunn.pdf. Hooker, B. (2011). Chapter 8: The demandingness objection. In T. Chappell, The problem of moral demandingness: New philosophical essays. Palgrave MacMillan. UNSW. (n.d.). Knowing too much: an ethical difficulty. Australian Graduate School of Management. Retrieved April 2, 2013 from http://www.asb.unsw.edu.au/agsm/Pages/default.aspx. Velasquez, M. (1998). Business ethics: Concepts and cases (4th ed.). Upper Saddle River: Prentice Hall. Read More