1 Introduction: an industry case study of corporate crime
The majority of people who work in the pharmaceutical industry subscribe to high standards of integrity and do everything in their power to stay within the constraints of the law. In the course of this research, I met pharmaceutical executives who impressed me with the sincerity of their commitment to the public welfare much more than many of the industry’s critics in politics, regulatory agencies, the public interest movement, and academia.
Valerie Braithwaite accompanied me to many pharmaceutical companies, forever constraining me from driving on the wrong side of the road. One day, as we drove back to New York, she said: ‘But these people are so nice, John. Do you think they really are corrupt? ‘ My initial response was: “You’ve spent the day being shown around and taken to lunch by the company’s public relations staff. They’re paid to be nice. Some people in these companies get paid a lot of money because they’re good at being ruthless bastards, and others get big money to entertain people like you because they’re good at being nice.’ But really that was an inadequate answer. Irrespective of what they’re paid to be. most ofthem in fact are principled people.
There are three types of principled people in the pharmaceutical industry. First, there are those who directly participate in company activities which do public harm, but who sincerely believe the company propaganda which tells them that they are contributing to the improvement of community health. Second, there are people who perceive the company to be engaging in certain socially harmful practices and fight tooth and nail within the organisation to stop those practices. Third, there are people who have no direct contact with socially harmful corporate practices. The job they do within the organisation produces social benefits, and they do that job with integrity and dedication. Most of the principled people in pharmaceutical companies are in this last category. Consider, for example , the quality control manager who is exacting in ensuring that no drug leaves the plant which is impure or outside specifications . It might be that the drug itself causes more harm than good because of side-effects or abuse; but the quality control manager does the job of ensuring that at least it is not adulterated.
In hastening to point out that not all pharmaceutical executives are nice guys, I am reminded of one gentleman who had a sign, ‘Go for the jugular ‘, on the wall behind his desk. Another respondent, arguably one of the most powerful half-dozen men in the Australian pharmaceutical industry, excused his own ruthlessness with: in business you can come up against a dirty stinking bunch of crooks. Then you have to behave like a crook yourself, otherwise you get done like a dinner.”
Nevertheless, most corporate crimes in the pharmaceutical industry cannot be explained by the perverse personalities of their perpetrators. One must question the proclivity in an individualistic culture to locate the source of evil deeds in evil people. Instead we should “pay attention to the factors that lead ordinary men to do extraordinary things’ (Opton. 1971: 51). Rather than think of corporate actors as individual personalities, they should be viewed as actors who assume certain roles. The requirements of these roles are defined by the organisation, not by the actor’s personality. Understanding how ‘ordinary men are led to do extraordinary things’ can begin with role-playing experiments.
Armstrog (1977) asked almost two thousand management students from ten countries to play the roles of board members of a transnatioal pharmaceutical company. The decision facing the board was a real-life situation which had confronted the Upjohn company:’ should it remove from the market a drug which had been found to endanger human life? Seventy-nine per cent of the management student boards of directors not only refused to withdraw the dangerous drug, but also undertook legal or political manoeuvres to forestall efforts of the government to ban it.* This was the same action as the Upjohn board itself took, an action which 97 per cent ofa sample of 71 respondents classified as ‘socially irresponsible’ (Armstrong, 1977: 197). Using delaying tactics to keep a dangerous but profitable drug on the market is something that ordinary people appear willing to do when asked to play the role of industry decision-makers. Hence, when people die as a result of the kinds of socially irresponsible manoeuvres of the Upjohn board in this case, to suggest that it happened because the Upjohn board is made up of evil men does little to advance explanation of the phenomenon.
The unquestionable artificiality of laboratory role-playing experiments may nevertheless share some of the very artificiality which is the stuff from which immoral corporate decisions are made:
[T]he usual restraints on antisocial behavior operate through a self-image: I can’t see myself doing that’ In an institutional setting, however, that isn’t being done by me but through me as an actor, a role player in an unreal ‘game’ that everyone is ‘playing’ (Stone. 1975: 235).
People in groups behave in ways that would be inconceivable for any of them as individuals. Groupthink (Janis, 1971) and what Arendt (1965) referred to as ‘rule by nobody’ are important in corporate decision-making which results in human suffering. Bandura (1973: 213) explained the basic psychology of ‘rule by nobody’.
[One] bureaucratic practice for relieving self-condemnation for aggression is to rely on group decision-making, so that no single individual feels responsible for what is eventually done. Indeed, social organisations go to great lengths to devise sophisticated mechanisms for obscuring responsibility for decisions that affect others adversely. . . . Through division of labor, division of decision-making, and collective action, people can be contributors to cruel practices and bloodshed without feeling personally responsible or self-contemptuous for their part in it.
There are a large number of psychological studies demonstrating that members of a group will risk more as group members than they will as individuals (Stoner. 1968; Wallach et al.. 1964; Bern et al.. 1965; Wallach and Kogan. 1965; Burnstein and Vinokur. 1973; Cartwright, 1973; Muhleman et al.. 1976; Shaw. 1976). Psychologists call this tendency for cautious individuals to support more hazardous group decisions the ‘group risky shift phenomenon’.3 The phenomenon is far from ubiquitous, however. When cautious choices are more socially desirable, group pressures can actually produce a cautious shift (Madaras and Bern. 1968; Fraser et al..
Another variable which distinguishes individual from corporate decision-making is the distance in space and time between the hazardous decision-maker and the victim of the decision. When a New York board meeting decides to continue marketing a dangerous drug in a Third World country, the victims could hardly be more remote from the killers. Milgram’s (1965) experiments showed that people were more willing to administer electric shocks when they were less likely to see or be seen by the victim of the shock. Another experiment in a somewhat more naturalistic setting (Turner et al.. 1975) found that victim visibility inhibited aggression.
While extrapolation from the research of psychologists to the real world of transnational corporations is problematic in the extreme, such work lays a foundation for understanding how it is possible for decent people to do indecent deeds. Without offering explanations of predictive value, the psychological literature at least succeeds in rendering seemingly implausible events plausible.
This book documents abominable harm which group decisionmaking in the pharmaceutical industry has caused on many occasions. The ‘collective evil’ of many pharmaceutical companies is manifest even though so many ‘nice people’ work for them. Hoechst and Bayer, the largest and third largest companies in world pharmaceutical sales respectively, and both among the world’s largest thirty corporations , are descended from Germany’s I.G. Farben company. I.G. Farben ranks with the Standard Oil Trust as one of the two greatest cartels in world history. After the Second World War, the Allies broke up I.G. into effectively three companies:
Hoechst , BASF and Bayer.4 Twelve top I.G. Farben executives were sentenced to terms of imprisonment for slavery and mistreatment offences at the Nuremberg war crimes trials. I.G. built and operated a massive chemical plant at Auschwitz with slave labour: the I.G. facilities at Auschwitz were so enormous that they used more electricity than the entire city of Berlin. Approximately 300,000 concentration-camp workers passed through I.G. Auschwitz. At least 25,000 of them were worked to death (Borkin, 1978: 127). Others died in I . G . ‘ s drug testing program. The following passage in a letter from the company to the camp at Auschwitz demonstrates the attitude of I.G. Farben to the subjects of its drug testing:
In contemplation of experiments with a new soporific drug, we would appreciate your procuring for us a number ofwomen. . . . We received your answer but consider the price of 200 marks a woman excessive. We propose to pay not more than 170 marks a head. If agreeable , we will take possession of the women. We
need approximately 150. . . . Received the order of 150 women. Despite their emaciated condition, they were found satisfactory. We shall keep you posted on developments concerning this experiment. . . . The tests were made. All subjects died. We shall contact you shortly on the subject of a new load (Glover. 1977: 58).
Borkin (1978) has documented in horrifying detail how today’s leaders in the international pharmaceutical industry brutalised its slave labour force in their quest to build an industrial empire to match Hitler’s political empire. 3 After the war, the Allies insisted that none of the convicted war criminals be appointed to the boards of the new I.G. companies. Once Allied control loosened, however, Hoechst in June 1955 appointed Friedrich Jaehne, one of the twelve war criminals sentenced to imprisonment at Nuremberg, to its supervisory board. In September of that year he was elected Chairman. Bayer appointed Fitz ter Meer, sentenced to seven years at Nuremberg, as Chairman of its board in 1956.
Later it will be seen how another of the top five companies, Switzerland’s Hoffman-La Roche, built upon massive profits it made between the two world wars from sales of heroin and morphine to the underworld. It will also be demonstrated how five of America’ s largest pharmaceutical companies laid the foundations for their industrial empires by international price-fixing arrangements throughout the 1950s which kept the new ‘wonder drugs ‘ , the broad spectrum antibiotics, beyond the financial reach of most of the world’s population. Contemporary observers of pharmaceutical corporations offer little solace that the industry’s present is much less sordid than its recent past. Clinard et al.’s (1979: 104) comprehensive study of corporate crime in American business found pharmaceutical companies to have more than three times as many serious or moderately serious law violations per firm as other companies in the study. Indeed, it will be argued that the pharmaceutical industry has a worse record of international bribery and corruption than any other industry (Chapter 3), a history of fraud in the safety testing of drugs (Chapter 4) , and a disturbing record of criminal negligence in the unsafe manufacture of drugs (Chapter 5).
This book is not directed at how to change people in order to prevent such crime, but at transformations to institutional arrangements and the law as crime-reduction strategies. The unfortunate reality with white-collar crime is that courts, and sometimes the public, tend to excuse it because the individuals involved are sincere and eloquent in justifying their behaviour. They are often excused because they are paragons of success, pillars of respectability who may be prominent in charity work or the church. While such reactions deserve condemnation because of their class bias, questions of individual blameworthiness will not loom large here until the concluding chapter of the book. The focus will be on the structural preconditions for the crime rather than on the criminal.
Following Sutherland (1949), I take the view that to exclude civil violations from a consideration of white-collar crime is an arbitrary obfuscation because for many of the types of illegal activities discussed in this book provision exists in law for both civil and criminal prosecution of the same conduct.” Moreover, while some of the practices discussed are civil matters in some parts of t he world, they are criminal in others. In general, the civil-criminal distinction is a doubtful one (Frieberg, 1981). Thus, corporate crime is defined here as conduct of a corporation, or of employees acting on behalf of a corporation, which is proscribed and punishable by law. The conduct could be punishable by imprisonment, probation, fine, revocation of licence, community service order, internal discipline order or other court-imposed penalties discussed in this book.
Types of conduct which are subject only to damages awards without any additional punishment (e.g. fine, punitive damages) are not within the definition of corporate crime adopted here. Most of the corporate crimes discussed in this book were not punished by law even though they were punishable.
If one measures the seriousness of crime according to public indignation against the offence in the community at large, then this book is about serious crime. This view is confirmed by a crossnational study of attitudes to the seriousness of crime among 1,909 respondents from eight countries (Scott and Al-Thakeb, 1977). A drug company executive allowing his company to market a drug “knowing that it may produce harmful side-effects for most individuals’ was rated in the United States as committing a crime more serious than all of the FBI index offences except murder and rape. That is, marketing a drug with harmful side-effects was judged to be a crime deserving longer terms of imprisonment than robbery, aggravated assault, burglary, larceny and automobile theft. The finding is surprising because marketing a drug with dangerous side-effects is not even an offence unless the product is actually banned or there has been criminal negligence.
Also interesting was the finding that US respondents were relatively less punitive toward this conduct than respondents from all of the remaining seven countries. The US was the only country in which marketing a drug with harmful side-effects was judged as deserving less punishment than rape. In Sweden, even murder was judged as deserving less punishment than selling a drug with harmful side-effects. On average, US respondents favoured over five years’ imprisonment for drug company executives who perpetrated this ‘offence’. For those who support a ‘just deserts’ model of criminal sentencing, and 1 am not one of them, there is reason to favour a lot of drug-company executives being put behind bars.
This book is an industry case study of corporate crime which attempts to understand the mechanics of the range of types of corporate crime common in one industry sector. Such a study was calculated as the sort most likely to advance our understanding of corporate crime as a social phenomenon. Social science passes through what might be roughly classified as four stages after a problem seriously grabs the attention of scholars for the first time. At first, scholarship is limited to armchair conceptualising of and theorising about the phenomenon. Then empirical work begins: first with qualitative case studies; then with statistical studies (which themselves see refinement through descriptive to correlational to causal analyses); and finally, rigorous experimental studies are attempted in which key variables are strictly controlled.
It hardly needs to be argued that we are not yet ready for experimental studies as we could not begin to guess which would be the key variables to control. Most observers would agree, however, that theorising about corporate crime cannot advance much further until it becomes better informed by empirical work. The question is whether researchers should be jumping ahead to statistical studies of corporate crime or if research resources should be concentrated in qualitative case studies. My view is that statistical studies are perhaps as premature today as they were when Sutherland (1949) undertook the first statistical study of corporate crime. Without aqualitative understanding of the contours of corporate crimes and how they unfold, we cannot begin to comprehend what lies behind the quantitative descriptions. Moreover, the liberal use of quotes from pharmaceutical executives throughout the text will attempt to illuminate the social construction of the phenomenon by the actors themselves .
An industry-wide case study of corporate crime has been chosen in preference to a more detailed study of a particular offence or a particular company partly because the latter are more vulnerable to withdrawal of co-operation by vital informants. More importantly , at this stage of the intellectual development of the field, a faltering attempt to paint a broader canvas is justified so that the work might have relevance to the important conceptual groundwork being laid by jurists working from their armchairs. Having completed the study, I am more convinced than ever that a superior understanding of a particular crime in a particular firm is gained when the researcher has a grasp of how the industry works as a whole.
The present work is international in scope. Meaningful research on transnational corporations is difficult within one set of national boundaries. Disproportionate emphasis will be placed on data from the United States, which, in addition to being the largest manufacturer of pharmaceutical products, is the domicile for half of the world’s top fifty pharmaceutical corporations. Principal sources of data were interviews with informants, both within the industry and outside it, and public documents (transcripts of evidence at trials, company documents lodged with regulatory agencies, transcripts of government investigations of the industry). In the United States, 1 had the pleasure of wading through some 100,000 pages of Congressional oversight hearings. These were goldmines of information. Particularly valuable were the Kennedy Subcommittee transcripts. I am indebted to Senator Kennedy’s staff for allowing me full access to the Senate Judiciary Committee files during my month in Washington. Scouring these files, in combination with the interviews, enabled me to piece together the organisational decisionmaking processes lying behind some of the abuses revealed in the Senate hearings.
The original strategy for interviews with executives was to meet with people at the level of chief executive officer or second in command of Australian subsidiaries of American transnationals, and then to interview in the United States the headquarters executives to whom the Australians answered. One research goal was to explore the diffusion of accountability for law violations between headquarters and subsidiaries in transnational corporations . In the end, however, I took interviews where I could get them. In some cases, the headquarters interviews were done first, and subsidiary interviews later. A total of 131 interviews were conducted – 75 in the United States, 15 in Australia, 10 in Mexico, 9 in Guatemala and 2 in the United Kingdom. Almost half of these interviews were with executives at the level of chief executive officer of a subsidiary or a more senior person at headquarters.
Researchers tend to overestimate the difficulties of getting interviews with top executives about corporate crime. One of the significant informants in this study was the president of a major transnational who enjoyed an annual remuneration from the company of over US$700,000. Most interviews were longer than an hour in duration, but 13 lasted for less than thirty minutes. Table 1.1 lists the locations of the formal interviews with executives.
In addition to these formal interviews, attempts were made to ask executives questions after they had given evidence before the Ralph Enquiry into the pharmaceutical industry held in Australia during 1978. These fleeting question and answer sessions provided no information of value. Much more valuable were the interviews with informants who had left the industry, officers in the Pharmaceutical Manufacturers Associations [PMAs] in each country visited (except Guatamala) , public interest activists, and officers in regulatory agencies in the United States, Australia and the United Kingdom. These supplementary interviews to generate leads from other sources were almost equal in number to the formal industry interviews. Nevertheless, the industry interviews were the more important source of information. An appendix sets out the strategies which were used in soliciting and conducting these interviews. None of the informants is identified by name.
With corporate crime research, it is wrong to assume that all one must do is get senior executives to ‘come clean’. The full story must be pieced together and cross-checked from multiple sources. No executive, no matter how senior, knows anything like the full story of illegal behaviour in the pharmaceutical industry. Executives often make it their business not to know about certain things going on below them in the organisation. Often it is part of the job of lower-level executives to ensure that their superiors are not tainted with knowledge of illegal conduct. Moreover, senior executives have neither the time nor much incentive to snoop around trying to find out about criminal behaviour within other companies. Hence, this book seeks to inform not only the general public but also pharmaceutical executives.