Tuesday, May 24, 2005

End self-reporting

Today’s report that Guidant withheld for years the risk that its heart defibrillator was faulty is the latest in a string of problems caused by self-reporting. I think the societal costs of allowing companies to monitor and report on their own condition – whether product, plant, or worker safety -- are too high.

Something is deeply wrong when companies have the power to choose whether to sacrifice the lives of their customers in order to maintain their profits. But this is what Guidant did when it decided not to tell doctors that its Ventak Prizm 2 Model 1861 defibrillator would fail between 0.2% and 1.5% of the time – killing the patients who happened to be on the wrong end of that game of Russian roulette. And
potentially 100,000 lawsuits allege that Merck decided that it was OK for some of its Vioxx patients to double their risk of heart attacks and strokes in order to keep raking in the product’s $2.5 billion in annual revenues.

The fundamental problem these companies face is that their executives have a powerful financial incentive to boost share price. And when the interests of other constituents – such as customers or employees – are at odds with those of shareholders; these other constituents take a back seat. More specifically, customer deaths that might result from the products are thought of as finite costs which executives weigh against the greater cost to shareholders of pulling a lucrative product off the market.

Given this decision calculus, executives withhold from the public information that might hurt a product’s sales – even if that information pertains to the death of that product’s customers.

In my view, society has two fundamental choices for addressing this problem:

  • Raise the cost to executives and shareholders of withholding such information until this cost dramatically exceeds the lost revenue from pulling the product; or
  • Shift responsibility for monitoring and reporting on product safety from the company to the government.

While it would take an especially motivated, diligent, and aggressive government agency to perform this function effectively – I believe it’s time to make that shift.


Blogger clandis said...

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2:16 PM  

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