He promptly hiked the price 5,455% from $13.50 a pill to $750.
He has since resigned from his job and been arrested on civil and criminal securities fraud charges.
Despite the widespread media coverage and disapproval, not much attention has been given to who sold him the drug in the first place and why?
Daraprim belonged to the more established Impax Laboratories, which decided it wasn’t pofitable enough. Rather than raise the price and risk attracting seriously adverse headlines, Impax in effect, delegated a revised pricing decision to Shkreli.
Impax’s decision is a typical example of ethical fading.Its executives apparently did not see their action as having an ethical dimension. Instead, they saw it as strategic, simply a good financial business decision.
The previous decades are littered with similar examples. In 2007 for instance, Merk sold off two cancer drugs to Ovation, a smaller pharma company. Like Shkreli’s Turing, Ovation promptly pushed the price into the stratosphere.
Merk managers too were blind to the ethical implications of their decision. Why did Merk not raise the price itself? Presumably because the company preferred headlines such as “Merk sells two drugs to Ovation” rather than “Merk increases cancer drug prices by 1000%.”
Yet both the Impax and Merk leaders were probably good people doing wrong. By focusing solely on the short-term financial gains they lost sight of the wider ethical considerations. It reveals vividly how ethical fading can take it toll.
What is ethical fading?
It’s a psychological process and even been seen as part of a new study of Behavioural ethics. It involves good people acting unethically, having blind spots about what they are doing, and simply not seeing issues as having an ethical dimension.
Forget codes, rules, regulations, in house watch dogs, leadership exhortations and fancy IT monitoring systems. You simply cannot inoculate against ethical fading. It’s notoriously hard to detect, and frequently stems from unconscious drives.
Yet this seldom acknowledged phenomenon builds the road to hell–where prison may beckon, mega fines keep coming, and corporate reputations are damaged or even destroyed.
Some individuals who’ve travelled along this deadly route and lived to tell the tale, now profitably lecture on how and why they allowed ethical fading into their lives. Their revealing and highly personal stories tend to be dramatic, memorable and salutary.
Most bitterly regret what they did, and admit they paid a heavy personal price for making the wrong choice. Yet for all their efforts at warning others of their transgressions and what they’ve learned from it, ethical fading keeps happening.
So how does this form of corporate virus show itself? What really causes it, and for those leading on compliance, giving legal advice or promoting an ethical culture, how do you outsmart this devious and dangerous foe?
Just about anyone can succumb to the deadly virus of ethical fading, not just business executives. For example, is George Osborne UK’s Chancellor suffering from a dose of ethical fading with his widely opposed recent plans for large scale benefit cuts? These would particularly hurt those with disabilities. In his apparent obsession with saving money, he seems to have lost sight the proposed cuts have an important ethical dimension.
The man in charge of the ministry dealing with pensions and benefits Ian Duncan Smith resigned, denouncing the £4bn planned cuts as “indefensible”.
He also complained of pressure to “salami slice” welfare, saying the latest cuts were a “compromise too far” in a Budget that benefits higher earning taxpayers.
Noble though IDS tried to look, he is vulnerable to the accusation:
First Know Your enemy
Ethical fading occurs when the ethical standards of a business erode. Because it’s a psychological process, it’s notoriously hard to detect. Like many life threatening diseases, the warning signs at first may be almost imperceptible.
The danger stems from people fooling themselves. For example, because they’ve something to gain they overlook a transgression, bend a rule to help a colleague, or overlook information that might hurt a client and so on.
Typically a manager will overlook unethical behaviour when the results seem good, and appear to help either themselves or the company. It’s not so much turning a blind eye as allowing personal biases to distort judgement.
What starts small, may gradually morph into something far more sinister. Few people actually set out to be unethical, yet find themselves enmeshed in the sticky tentacles of doing something wrong and somehow believing it’s alright.
To tackle ethical fading, leaders need to be armed in various ways, not just relying on others to check what’s going on, out of sight:
That we may deceive ourselves seems at first rather far fetched. Yet it happens. For example those who fiddle their claims for expense often manage to persuade themselves that since everyone else is on the make, it’s alright for them to do it too.
This is a sort of internal con game, in which the ethical aspects of a decision fade into the background–the moral implications lose focus.
Several psychological factors lie behind this sort of behaviour where employees can pursue their own interests while believing wrongly they’re still being ethical—keeping their moral principles intact:
Use of misleading language in which euphemisms are disguised stories we tell ourselves about our unethical actions.
Actions are renamed, decisions are re-labelled, justifications are rebranded. For example leaders feel better saying they’re “letting people go” rather than firing them, or “right sizing” rather than laying people off
The slippery slope experience when small steps ultimately add up to seriously unethical practices.
A company may pollute a river once or twice until this becomes routine and even seen as acceptable behaviour—the ethical dimension having faded into invisibility. Or a company may count sales made as shipped before the the final deals are worked out, until this transforms into distorted sales reports and eventually full-blown deception and fraud.
Misunderstanding causal relationships Decision makers convince themselves they are directing others’ behaviour in a particular direction, only to find it results in something entirely different and unethical is happening.
A famous example is the Sears Auto Centre Scandal. Managers came to believe they were just changing the payment system to engineers with no ethical issue on the horizon. In practice incentives introduced actually promoted unethical behaviour in which the engineers deceived customers into accepting unnecessary and costly auto repairs.
Whether Self deception is really at the core of ethical fading, has yet to be fully proven. But it’s definitely an important sign to look out for:
“Muting the forces behind ethical fading will take much more time than some of the solutions that have been previously offered but the effort will be well spent, producing long-lasting and more permanent results.” 1
1] A Tenbrunsel and D Mesick, Ethical Fading: The Role of Self-Deception in Unethical Behaviour, Social Justice Research Vol 17 June 2004
© Andrew Leigh