The pharmaceutical sector has seen fines and significant penalties paid by known names, including Abbott, Pfizer, Johnson & Johnson, Merck and Sanofi.
Meanwhile, GlaxoSmithKline faces more allegations of poor sales practices following a $3bn settlement for promoting two drugs for unapproved use in the US. Research at Ecclesiastical estimates corporate misconduct has destroyed roughly 15 per cent of pharmaceutical revenues, while the four biggest penalties represent nearly 30 per cent revenue destruction.
In 2013 alone, the FCA handed down fines totalling £425m, which did not even include claims or compensation for ongoing provision. Although there is some evidence that the level of risk taking is lessening, long-term solutions are still proving elusive.
Corporate malfeasance has become endemic, if not systemic, representing a concentrated failure in business ethics. The sheer and rising scale of corporate misconduct represents a failure of trust and a destruction of value across many sectors. This in turn affects a business’s durability and licence to operate.
The full cost of corporate malfeasance equates to about 15 per cent of global dividends at $1.03trn in 2013, according to the Henderson Global Dividend Index. This is a figure that affects us all, not just shareholders.
Increasing the focus and importance of business ethics, matched with tougher penalties, can be an effective route to remedying behaviour. There needs to be a renewed corporate effort in terms of engagement with customers, embedding integrity through an enterprise, delivering high-quality, well-targeted products appropriate to their audience and reinventing leadership in terms of ethical culture.
Trust, integrity and treating customers fairly have to be put back at the heart of business objectives or investors and customers will walk away – as they are beginning to do among the big banks and energy companies.
Neville White is head of socially responsible investment policy and research at Ecclesiastical Investment Management
