Any Ethics in Business?

Whispering in the Wind (WITW 91) September 30, 2015

Ethics and good, responsible ethical behavior in the business world has turned particularly sour in the last while and should be exposed for what it is.

Volkswagen 

Martin Winterkorn, CEO of Germany’s Volkswagen Group resigned a few weeks ago when it was revealed that people in the company conspired to defraud the public and governments by adding illegal engineered devices to their diesel products and were able to report lower nitrogen oxide emissions than what actually existed.  While the conspiracy rests solely within Volkswagen’s senior management organization, it will cost the company big time in terms of lost reputation, many billions of dollars in fines and lawsuits and jail time for those held responsible.  The Volkswagen scandal is clearly a wake-up call for national governments around the world and their need for better oversight and regulation of so called globalized companies – where some globalized companies appear to have lost respect for national laws and the most basic ethical standards are considered irrelevant in the pursuit of market share and profit.  Volkswagen is ranked by Forbes Magazine to be the world’s 8^th largest firm in terms of sales revenue and is the second largest automaker.     

KPMG

KPMG LLP is one of the world’s largest accounting – audit – tax advisory service firms and has in recent years suffered for promoting illegal tax shelter fraud schemes in the United States.  In 2007 the firm admitted to criminal wrong doing by creating tax shelters for wealthy US citizens to avoid billions of dollars in United States taxes.  Through a “deferred prosecution agreement” KPMG LLP paid a fine of US$456 million.  KPMG Canada is also embroiled in its own tax avoidance scheme.  Canada’s revenue agency is investigating a KPMG tax avoidance scheme that the government deems to be “grossly negligent” and a “sham”.   In early 2013 a federal court judge ordered KPMG to turn over a list of Canadian millionaires who (through KPMG) invested fortunes in an Isle of Man tax shelter scheme that the Canada Revenue Agency (CRA) is calling a “sham”.  According to court documents: a family in British Columbia gave $26 million to an arm’s length company (structured by KPMG) on the Isle of Man and the family in turn was “gifted” back the original investment without incurring any taxes in Canada – no question in my mind, the Canada Revenue Agency is seeking the names of other KPMG clients who might have taken advantage of the Isle of Man scheme – the Federal Court agrees.  KPMG has called the court order a “fishing expedition” while at the same time appears to be negotiating with the Canada Revenue Agency on a settlement similar to the “deferred prosecution agreement” in the United States.  As to whether the scheming and actions of KPMG Canada was ethical by Canadian standards and laws is a good question, I doubt Canadians will ever be told or know?

Martin Shkreli

Until recently Martin Shkreli was a little known entrepreneur who knew how to make a lot of money in the stock market.  Today Mr. Shkreli has been labeled America’s “icon of greed” and by some, “America’s most hated man”.  Mr. Shkreli is the man who took a drug that he purchased the rights to and increased the price of the drug 4,000 percent.  Mr. Shkreli then in an interview, called his action “altruistic” – altruism meaning behavior that shows a desire to help other people and a lack of selfishness.  Later Mr. Shkreli has had second thoughts about his business model and said he would be reducing the price of his patented drug but would not disclose the reduced price.  If there is a benefit to Mr. Shkreli’s outrageous actions, it might prompt governments to take action and regulate pricing in the pharmaceutical industry.            

Alexion Pharmaceuticals

United States based Alexion Pharmaceuticals has recently taken Canadian authorities to court for the government’s attempt to lower the price of Soliris, a drug produced by Alexion to treat very rare blood disorders.  Soliris has been labeled the world’s most expensive drug.  Alexion Pharmaceuticals has been very vague on justifying the high cost of the drug and some researchers claim that 80 to 90 percent of the development costs for drugs like Soliris are actually born by universities and other publically research groups.  Kelly Crowe of the CBC News organization has concluded:  “. . . Alexion sets the price of Soliris at a half a million dollars a year because that’s what it thinks the market will bear, based on the fact that the drug works and patients have no other treatment options. . . .The business model depends on public health-care systems and private insurance companies reimbursing the million-dollar drug bills.”  It is worthy to note that Alexion’s sole product is the Soliris drug and in just 8 years generated $6 billion in revenue.  Alexion is one of the fastest growing drug companies in the world with a business model that lacks a code of ethics that is normally attached to those in the healthcare industry.  My perspective, actions like Alexion could be a major factor that threatens a reasonable healthcare system in Canada and elsewhere.    

Harper's Campaign - Turniing Sour

Whispering in the Wind (WITW 90) September 23, 2015

Canadians are in the middle of a lengthy federal election campaign with the three major party leaders blanketing the country making questionable promises and covering up their short comings with deception and political gobbledygook.  Public opinion polls are suggesting Stephen Harper’s Conservatives, Thomas Mulcair’s NDP and Justin Trudeau’s Liberals are in a dead heat when it comes to public support – each garnering about 30 percent approval from the Canadians surveyed.  Regarding the remaining four weeks of the campaign, I think it is fair to assume that Canadians will be exposed to the same stuff:  more rhetoric, more promises and a lot more fear mongering.  Canadians can expect a free-for-all in political shenanigans and double talk, all aimed at winning the hearts and minds of the voting public on October 19.  For this week’s Whispering in the Wind column, I want to pay some attention to two specific issues that have grabbed the news headlines in the last few weeks and how these issues might/will resonate with the electorate come Election Day.

The Canadian Economy

Last week’s leader’s election debate on the Canadian economy between Harper, Mulcair and Trudeau was assessed by many political observers to be a two hour “dud” when measured against historical election debates.  In my view, Mr. Harper’s contributions to the debate were defensive and out of character.  He said:  “I’ve never said things were great …I’ve said we are living in a very challenging environment … Where would you rather live?”  Mr. Mulcair’s contribution was articulate in his criticism of both Mr. Harper and Mr. Trudeau and his highlight remark came when he criticised the prime minister’s reliance on the oil industry as the country’s engine of growth.  Mr. Mulcair opined to the television audience:  “Mr. Harper put all his eggs in one basket and he dropped the basket.”  Mr. Trudeau appeared in command of presentations and very aggressive in his critical remarks of both Mr. Harper and Mr. Mulcair.  Specifically directed at Mr. Harper, Mr. Trudeau asked Canadians if they were better off since Mr. Harper became prime minister in 2006.  My assessment, Justin Trudeau won the debate, largely a result of his aggressive and loud presentations.  And from that performance he demonstrated that he was/is a capable contender.  As to whether the debate addressed the needs and interests of the general public, the debate failed big time.  From my perspective the Canadian public are anxious about the economy and their specific role in it.  The Canadian public want to hear from their political leaders about plans to make their lives and the lives of their families more stable and more secure.  The party and the leader that can address this central issue will likely win the election on October 19.

The Refugee Crisis in Europe

The catastrophic refugee situation in Europe was not ignored in last Thursday’s electoral leadership debate on the economy.  The question asked by the debate’s moderator dealt with the role of immigration in the Canadian economy and that immediately lead to more piercing question:  What should Canada’s role be in addressing the humanitarian, refugee crises in Europe?   Mr. Harper’s response was stark, exaggerated and disingenuous to the issue.  He said:  “What these guys [Mulcair and Trudeau] would have done in the last two weeks is having us throwing open our borders and literally having hundreds of thousands of people coming without any security check or documentation.”  Not only was Mr. Harper’s outburst untruthful when it comes to the positions voiced by Mulcair and Trudeau, it was also uncalled for if one looks at history of Canada – unless Mr. Harper’s dramatics were as a simple ploy to shore up his base in the Conservative party.  Since the debate the Conservatives have promised to speed up the process, but the total figure of 10,000 refugees remains as is.  To what degree Mr. Harper’s positions and outbursts are going to have on the election is an open question, but in my view, Mr. Harper shot himself in the foot – big time and it polarized the electorate in many ways. My bias is toward the suggestion made by Justin Trudeau two weeks ago when he suggested that the Conservative, New Democrat, Liberal leaders meet to set reasonable targets and implement an expeditious strategy – otherwise it’s going to be a 75 / 25 split at the polls and that’s not good news in the Harper camp.