To stay with Rollert’s metaphor, many people in America were drowning in pills. As a stunning Pulitzer Prize-winning exposé by Eric Eyre in the Charleston Gazette-Mail revealed, in 2007 and 2008 drug distributors shipped almost 9 million hydrocodone pills to one pharmacy in the town of Kermit, West Virginia, population 392. “In six years, drug wholesalers showered the state with 780 million hydrocodone and oxycodone pills, while 1,728 West Virginians fatally overdosed on those two painkillers,” Eyre wrote. McKesson contributed to the flood. Data that Eyre obtained from sales records sent to the state’s attorney general by the Drug Enforcement Agency (DEA) showed that in 2007 alone McKesson sent 3,289,900 doses of hydrocodone into Mingo County, West Virginia, whose population in 2007 was 26,679. That was about 124 pills for every man, woman, and child in the county.
Distribution of opioids is supposed to be tightly regulated by the DEA, and companies are required to take steps to ensure that the pills are not diverted for illicit use or sale. But in 2007, the government charged McKesson with failing to report suspect opioid orders from some of its customers. In 2008, the company paid a $13.25 million penalty for its failures and entered into a memorandum of understanding with the government. It promised to develop a controlled-substance monitoring program, or CSMP, and to report any suspicious orders.
According to the government, McKesson did not keep its word. The Department of Justice charged that the company “failed to follow the procedures and policies set forth in the McKesson CSMP to detect and disclose suspicious orders of controlled substances”; it did not conduct due diligence of customers, did not keep adequate records, and did not follow requirements for reporting suspicious orders, the DOJ alleged. McKesson did acknowledge that “it did not identify or report to DEA certain orders placed by certain pharmacies which should have been detected by McKesson as suspicious.” Meanwhile, the company’s CEO and board chairman, John Hammergren, realized $692 million over the past nine years, thanks partly to the run-up in the company’s stock as its business thrived.
In January, McKesson paid a $150 million penalty and agreed to suspend distribution from some of its centers. In a statement, McKesson says that it acceded to the financial penalty “rather than engage in time consuming, contentious and expensive litigation.” Instead, it “chose to … devote our resources and focus towards expanding and enhancing our CSMP and sharing the details of our enhancements with the government, and brainstorming potential solutions for this nationwide epidemic that has many causes.” A company representative told me that McKesson has been working on diversion prevention for many years, that its role is merely to supply drugs to doctors, pharmacists, and hospitals, and that there was a misunderstanding within the industry’s supply chain—the links being drug makers, distributors, prescribing doctors and pharmacists—of how to define a suspicious order.
Cardinal Health, AmerisourceBergen, and others have also been forced to pay penalties. All three of the big distributors have been, and are being, sued by a variety of jurisdictions, including cities and states.
As it happened, the Teamsters owned stock in distributors of opioids, including McKesson, and the union was concerned with the $150 million penalty and the reputational damage to the company. The Teamsters also had heard from union members who’d been personally touched by the addiction epidemic, and figured they had a way to hold McKesson responsible. The union mounted its campaign against the compensation plan and on another issue, to separate the jobs of CEO and board chair. (That one failed, though the company subsequently announced it would split the jobs anyway, but only after Hammergren leaves.) Many reformers have tried to correlate good governance with improved returns, Pryce-Jones, of the Teamsters, says, “but I look at it another way. Jobs, society, communities suffer from bad governance. Boards were asleep at the wheel in this opioid crisis. Poor governance has collateral costs to many segments of society.”
Indeed, many economists, researchers, executives, and activists have over the years explored alternative frameworks for corporate decision-making. A paper released last month by the Booth School of Business suggests one way to weave human ethics into companies. In the paper, titled “Companies Should Maximize Shareholder Welfare Not Market Value” Oliver Hart, a Harvard economist, and Luigi Zingales of Booth, argue that benefiting shareholders should not necessarily be just about financial gains. Shareholder value is a narrow criterion, and investors, as is true of the Teamsters, also ought to have ethical and social concerns.
But, as Hart and Zingales point out, “proposals which deal with general political, social, or economic matters” do not accord with SEC regulations and court decisions on what’s suitable for shareholder voting, citing the example of New York’s Trinity Church, which attacked Walmart’s sales of guns with high-capacity magazines. When the church tried to force a shareholder vote on board oversight of products representing a threat to public safety, the SEC and the courts allowed Walmart to keep the proposal off the table. (Months later, Walmart later banned them, and assault rifles, anyway.) “Law and regulation,” Hart and Zingales write, “have not helped to prevent the amoral drift.” So they suggest allowing shareholders to vote on some such proposals, to accept responsibility for the actions of the companies they invest in. By doing so, shareholders may reveal that they’re willing to sacrifice a little profit in the name of their own, and society’s, greater welfare.
Article Appeared @https://www.theatlantic.com/business/archive/2017/09/opioid-crisis-responsibility-profits/538938/