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An Industry in Crisis: Fixing Pharma's Damaged Reputation
Decision Resources, Inc, April 2006, Pages: 24
Reputation is the ultimate business asset. The sustainability and profitability of all businesses depend on their reputation--the trust of all of their stakeholders. Reputation matters; it implies that the company behaves in the best interests of its stakeholders, whom it serves and upon whom it depends for success. Currently, however, the reputation and integrity of the once-iconic pharma industry are under serious attack. From the end of the 1990s, pharma companies have suffered a continuous stream of shocks to the body corporate, which have steadily, but surely, eroded the pharma industry’s once impeccable set of economic, social, political, and technological credentials. And the pharma industry is paying a steep price for its poor reputation. The deterioration in the industry’s reputation is reflected by public distrust and an increasingly hostile regulatory and customer environment. In this report we examine the influence of reputation on the performance of the pharmaceutical industry. We will provide a detailed discussion of how changes in business culture and practice precipitated the reputation crisis, and we examine the types of principles and plans that companies can adopt as they strive to rehabilitate their reputations. We conclude with a discussion of how this industry needs bold CEOs who understand the fundamental principle that the only way to behave profitably is to behave properly.
Business Implications
Business Implications Reputation is the most important asset a company possesses. Failure to maintain a good reputation has severe consequences, including public distrust and harsher regulatory and consumer environments. The current reputation crisis in the pharma industry is partly self-inflicted and partly a result of a change in the perceptions and expectations of various stakeholders. As the pharma industry has matured, its stakeholders have become more sophisticated with greater expectations. Stakeholders now expect that pharma companies not only produce high-quality medicines but also address social needs, not just make money. Although the pharma industry has markedly improved its profitability and its size, it has failed to satisfy its critics. Perhaps the most reputation-damaging of activities was fully embracing the free-market economic policies of the 1980s and 1990s, which defined success purely as making money. This attitude is too simplistic for today’s world, where stakeholders expect new, affordable, and safe drugs from an industry that has a social conscience and behaves with integrity. Building reputation requires courage, conviction, and a passionate belief that reputation is vitally important. The CEO plays the major role in setting a clear, top-down agenda that builds and enhances reputation. This strategy requires a proactive approach, where maintaining a good reputation is built into the company’s decision-making rubric. Reputations can be managed and repaired. Reputation-building is more a science than an art form and is best managed by the CEO, not by lawyers or public relations firms. The CEO must create a culture of compliance with tools and rewards to encourage reputation-building activities. CEOs who commit the time and effort to prioritize reputation will find that good behavior is profitable behavior. Stakeholders reward companies that behave well and penalize those that do not. Good behavior pays.
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