John Braithwaite on Corporate Crime in the Pharmaceutical Industry

Thirty years ago, John Braithwaite came out with his classic book Corporate Crime in the Pharmaceutical Industry (Routledge, 1984).

At the time, Braithwaite was telling journalists that the pharmaceutical industry had turned the corner and the bad days of corporate crime in the industry were in the past.

Now, Braithwaite is convinced that things have gotten much worse. Braithwaite, along with Graham Dukes and James Moloney, are now out with Pharmaceuticals, Corporate Crime and Public Health (Edward Elgar, 2014).

“I may have been wrong in the 1980s,” Braithwaite told Corporate Crime Reporter in an interview last week. “I suspect things were improving in the 1980s. But I’m absolutely convinced that they have since gotten worse. In the sense that my work had left an error sitting out there, this work corrects that error. And that’s very important to do in our scholarly work. That’s an important objective for me as one of the co-authors.”

“I hope we have laid out a more sophisticated way of thinking about the policy possibilities than I was able to muster in 1984. And a lot has happened since 1984.”

“We now have a lot of evidence about how university research has been corrupted. Corrupted may be too strong a word. But it may not be too strong a word.”

“As we report in our book, the percentage of U.S. biomedical research funded by industry has risen from 32 percent in 1980 to 62 percent in 2000. It used to be that fundamental biomedical research in the United States was funded primarily by government — and probably more so in Europe or Australia. And that situation has fundamentally changed.”

“And why does that matter? As Ben Goldacre has shown, industry funded trials of pharmaceuticals are about four times as likely to report positive results as independent studies.”

“If you have an independent university researcher testing the safety and efficacy of a biomedical innovation, it’s one quarter as likely to be positive about the effectiveness of the product than if it is funded by the company. We always suspected that that was the case, but as a result of this more recent work by Ben Goldacre and others, we now know the magnitude of that corporate capture of evaluation research.”

“We also have documented how they twist the results so that people are consuming a lot of drugs that are not good for them, because they are following misleading research.”

“As young scholars starting out, they are confronted with a great career opportunity with a major pharmaceutical company which will give you a lot of money for research, but it’s in the contract that if the company doesn’t like what you want to publish, you don’t have a right to publish it. This has been a great corruption of freedom of science in our universities.”

“There are a number of other factors making things worse in the pharmaceutical industry,” Braithwaite said. “First is their own innovation model. It is corrupt and always had been. But innovations kept coming for a long time. But now we’ve had a few decades with a very low level of innovation in terms of inventing much that is genuinely new. And the companies are trying to keep their profits up by breaking the rules.”

“But associated with that is the corporate power internal to the corporation that is in the hands of people who come from a marketing background, which is very often a spin background, a manipulation of truth background. It’s the marketing executives rather than the medical personnel who have become the more dominant players internal to the corporation. The more ethical side of the pharmaceutical industry is still there. And we discuss in the book how it is still there, but it is being dominated by the marketing people. The marketing people are in charge.”

How would Braithwaite reverse the surge of corporate crime in the pharmaceutical industry?

In part he would privatize law enforcement. He would do this by applying the qui tam provisions of the False Claims Act to all forms of corporate crime, not just fraud against the government.
Braithwaite has been big fan of giving financial incentives to whistleblowers.

“The False Claims Act is limited to fraud against the government,” Braithwaite said. “But you could have the same sort of empowerment of whistleblowers who come forward with an environmental crime, which involves no fraud against the government, or an occupational health and safety crime, which involves no fraud against the government.”

“They should be able to likewise get a big percentage of the penalty. We would like to see the reform apply to all corporate crime.”

“Much of the corporate crime in the pharmaceutical industry that we document does not involve fraud against the government. It involves abuse of workers, consumers, environmental offenses among others. Often there is fraud against other governments or the payment of bribes to health ministers and hospital administrators. And of course, those things are not covered under the False Claims Act.”

“All of the other whistleblower reforms that we used to advocate didn’t make much difference because it was still a career ending move to be a whistleblower. But at least for corporations with deep pockets and deep financial crimes, under the False Claims Act, whistleblowers’ ability to get a percentage of the penalty was a key change in solving what has always been the biggest problem with corporate crime enforcement — namely, not having enough insider knowledge from within the corporation to make the conviction stick.”

Braithwaite has always been a believer in corporate criminal law enforcement. But at the tip of a regulatory pyramid.

“The main hope is in the ethical cultures of corporations,” Braithwaite said. “The criminal law has a big role to play in constituting that ethical culture.”

“But the idea of the regulatory pyramid is that you want most compliance with the law to be driven by internal compliance systems. But internal compliance systems won’t work if there are no consequences for not taking internal compliance systems and corporate ethical cultures seriously.”

“You need that escalation up the pyramid. The deterrence penalties become greater and greater as you move up the pyramid. And at the tip of the pyramid, you have corporate capital punishment. You take the organization over and have the government run it, or there is a forced sale of the corporation to an ethical management team.”

“I’m a great believer in not only criminal punishment, but corporate capital punishment as well,” Braithwaite said.

Braithwaite would also require employees to report serious breaches to the top of the organization.

“What Christopher Stone found in his book, Where the Law Ends, was that corporations structure communications to prevent the taint of knowledge from getting to the CEO’s office,” Braithwaite says. “What your superior will do is say — thank you very much for reporting that. That’s very good. And then sit on the information and insure it goes no higher up and control the damage from the report of that ethical or legal breach.”

“My superior can come back to me and say — we have investigated what you reported, John, but we found that your information is wrong and here is why it is wrong.”

“But if you don’t do that, if you don’t come back to me at all and tell me what you found, then I have an obligation to report that directly to the board’s audit committee. And the board’s audit committee has an obligation to keep the CEO and the board informed of any serious breach of the company’s ethical and legal obligation.”

“If my superior doesn’t report, then the superior should be culpable and criminally responsible under a law reform that mandates a free route to the top. And the law would say that if your supervisor has not acted on the breach you have reported, then you are in breach if you don’t go around your supervisor and report it straight up to the board’s audit committee.”

“If you have a law like that, very few people would be so silly as to not report to the board’s audit committee. Once the CEO is tainted with knowledge, it is generally better for the CEO to fix the problem than to risk his or her career. Those kinds of reforms will be helpful too. “

“The reforms in the pharmaceutical industry have not gone that far. They generally don’t take it right up to the CEO’s office.”

[For the complete q/a transcript of the Interview with John Braithwaite, see 28 Corporate Crime Reporter 29(12), July 21, 2014, print edition only.]

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