ESG Viewpoint – Breaking Bad: Business ethics in the pharmaceutical sector

    by Yo Takatsuki, Director, Governance and Sustainable Investment, BMO GAM

    Sector: Pharmaceuticals

    Issue: Business Conduct

    Engagement since: 2008

    Goal: Comprehensive overhauling of policies and management systems to mitigate risk of employee misconduct and regulatory breaches as well as reforming corporate culture.

    • Regulatory violations resulting from corrupt employee conduct has emerged as a key concern in the pharmaceutical industry alongside product quality and safety
    • Ever increasing fines and settlements, alongside the cost of remedial actions, undermine profitability and harms companies’ societal license to operate
    • BMO has engaged extensively on this issue and seen improvements in management programmes and systems; but true reform of corporate culture is only just starting

    Business ethics breaches have emerged as the most material ESG concern for investors in the pharmaceutical and broader healthcare sector, and has been the key focus of our engagement with the sector in recent years. The industry has been repeatedly become embroiled in allegations with regards to marketing and sales related fraud and other lapses in compliance. Companies have been hampered by substantial risks and mounting costs associated with the prosecution by authorities. We estimate that $50 billion have been paid out by leading pharmaceutical companies in the past decade in conduct related regulatory, settlements fines and costs.

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    Picture from Pixabay

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