Tragedy of malicious moves in business

Business is a powerful force for positive social change if done properly, writes Pierre Heistein.

Business is a powerful force for positive social change if done properly. It creates employment, designs new products and services, and gives us the freedom to escape from subsistence living. But, unfortunately, there are still a lot of people doing it wrong.

In early September, Martin Shkreli – a 32-year-old US hedge fund manager and founder of Turing Pharmaceuticals – obtained the manufacturing licence for Daraprim and raised its price from $13.50 (R194.27) to $750 per tablet. Daraprim – the brand name for Pyrimethamine – is used in the treatment of toxoplasmosis, malaria, Aids and some cancers.

Shkreli’s business reasoning is that Daraprim was under-priced relative to its use. As he explained, to save your life from toxoplasmosis cost less than $1 000, whereas many other life-saving drugs are up to 500 times more expensive.

Shkreli claims that they will never restrict someone from obtaining the drug if they cannot afford it – providing them with a discount or giving it away for free. The burden of price increases will only be placed on medical insurance.

He also assured concerned followers that the money would be invested into making a better drug, providing a net benefit to the medical community.

The problem is that Shkreli’s business reasoning is wrong. Where the incentive to produce many specialised, life-saving drugs wouldn’t exist without exorbitant prices, Daraprim is a simple product that already works at low cost. Shkreli’s purely profit-driven turnaround shows a complete detachment – either physical or emotional – from the people who will suffer as a result. He is so trapped in the non-human side of business that he cannot engage with the impact he will cause.

While Shkreli made a lot of noise, his actions are a drop in the ocean compared with the Volkswagen (VW) scandal.

VW admitted to installing a secret code into the on-board computer of its diesel cars to deliberately change the performance of the vehicle whenever it was being tested for emissions. VW was able to meet the regulatory requirements and market its cars to environmentally conscious consumers as a greener alternative.

Meanwhile, as soon as the test was finished, the engines pumped back up to full performance and emitted between 10 to 40 times the permitted levels of nitrogen oxides (NOx). NOx react in the presence of heat and sunlight to create smog and are a key component of acid rain. They are responsible for lung diseases, are a proponent of global warming and they starve rivers and lakes of oxygen. Emission caps are strict for good reason.

Costs of the scandal

There are clear financial benefits to avoiding emission controls, but the costs of the scandal to the VW brand are likely to be far higher. In total, more than 11 million vehicles are affected, including other brands such as Audi, Skoda and Seat – also owned by VW. In the US – where the scandal was uncovered – fines for breaching emission controls may amount to more than $18 billion and European countries are investigating the extent of the scandal in their domestic markets. VW will also need to face a barrage of lawsuits from customers, distributors and environmental bodies.

Why do these malicious business decisions exist? It’s not because business only cares about profit and it’s not an inevitable consequence of the capitalist system. These damaging, profit-hungry decisions prevail because of the nature of the people behind them. With an empathy deficiency characteristic of sociopaths, they are able to make decisions without needing to connect to the consequences of their actions.

More commonly, the disconnect is practical rather than emotional. You may stand against the actions of Turing Pharmaceuticals, VW, or other companies taking advantage of society, but are you sure that the pension fund you subscribe to does not pass your money on to invest in these companies? Do you know what your spending or investment supports?

To create better businesses we need to strengthen the connection between the key decision-makers – including shareholders and consumers – and those who benefit or suffer from the consequences of their decisions. Decision-makers need to face up to what they leave behind.

* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision-Making course. Follow him on LinkedIn /in/pierreheistein.

** The views expressed here do not necessarily reflect those of Independent Media.

BUSINESS REPORT