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.