Pharma CEOs can’t serve two masters

SUMMARY: CEO’s who works strictly for shareholders are doing themselves, their employee and patients a huge disservice. As Mr. Mercks said a long time ago “if we take care of patients the profits will follow”.

In the 1950s and 1960s, the stakeholder was king. CEOs saw their role as one of balancing the interests of the various groups that touched their companies—customers, employees, suppliers, shareholders, and the community at large. For most of the past four decades, Corporate America has preached the gospel of “shareholder value” — a creed that insists the sole obligation of every firm is to maximize returns for its investors.

Opinions on deregulation, finance, time horizons, and the wisdom of corporate leaders are all shifting, and the logic for putting the creation of shareholder wealth ahead of the creation of stakeholder value is rightfully under fire, especially in an industry that records record profits.

There are literally scores of recent studies showing the gains in profitability and productivity that companies have made—not by putting investors’ interests first but by implementing high-commitment work practices. These include investing in training, decentralizing decision making, and having pay be contingent on organizational, not just individual, performance. Other sources show the benefits companies reap from customer loyalty and high levels of customer satisfaction.

In August CEOs, representing many household name businesses, issued a “Statement on the Purpose of a Corporation.” In it, they vowed a “commitment to all of our stakeholders,” which includes “investing in our employees,” through fair pay, important benefits, and training, as well as “dignity and respect.” But what about patients?

Right now almost all pharma CEO’s are compensated by the results in the balance sheet. Wall Street punishes pharma companies whose new drugs face setbacks in development and even a promise of a blockbuster is not enough for bankers who want to know “what’s next”.

Pharma marketing people are the highest paid in any industry but if you are working in this industry because of the salary alone you’re one of the problems not a solution. The high salaries is one reason why so many recycled employees move from one company to another. I recently learned that a high ranking pharma executive, who was fired for insider trading and filing false expense reports, was hired by a biotech startup. The executive at J&J responsible for one of the biggest fines in history was promoted to President of the company. This is unacceptable.

Shareholders are always going to have their say but when CEO’s try to please them all the time patients lose. That has to change.

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