Why "doing good" can help Big Pharma to "do well" and may just solve the problem of access to medicines for the 1/3 of the world's most vulnerable people - a reputation leadership perspective.
By 2012 the tangible book or net asset value of companies in the S&P500 accounted for only around 49% of market capitalisation; 55% in the FTSE100 (Cole, 2013). The shortfall accounts for intangibles or what Cole (2013) calls the"reputation dividend". Yet, there are two sides to this "dividend" coin - the Risks (Bad Reputation) and the Opportunity (Good Reputation).
Big Pharma has long been plagued by salacious media headlines of bribery and corruption, tax evasion, drug recalls, the mis-marketing of drugs, allegations of a lack of transparency in clinical trials and inequalities in providing access to medicines to communities that need it most.
There is no question that despite the recurring scandals, while dividend returns are currently being maintained, the Pharmaceutical sector is no longer as lucrative as it once was for long-term investors. The "patent cliff", competition from generics and increasing legal and regulatory fines continue to hamper profitability.
But, Citizens’ around the world also hold drug companies to account on their willingness to provide access to medicine to the world’s poorest people.
Wim Leereveld, Founder and CEO of the Access to Medicine Foundation is one such citizen.
Wim was inspired to set up the Access to Medicines index to support the 2 Billion people OR 1/3 of the world’s population who have NO access to medicine to protect themselves against diseases such as tuberculosis, malaria and AIDS.
In 2004, Wim established the Access to Medicine Index in Amsterdam, with a core focus on the role of the world's leading pharmaceutical companies in delivering access to medicine in low- and middle-income countries. Nowrated in the top 3 Sustainability Indexes in the world, the Access to Medicine Index's role is provide the insight into industry leading practices and build a basis for comparison between peers so that companies can push themselves further.
Having worked in the industry for more than 15 years, Wim knew that they were willing to act, but they would need to receive credit for their efforts and help. In his view the Pharmaceutical industry is not the problem; they are part of the solution. Primarily because they have the know-how to create potentially life saving drugs. That’s why he saw the Index as an opportunity to help them to perform better.
So what happens when a company "does good for the benefit of society" and further reduces the companies economic performance on that blockbuster in a market where demand clearly exceeds supply? It seems they could "do better".
It is widely understood that Companies build competitive advantages and increase their market value through building their reputation (Fombrun/Van Riel, 1998).
Shapiro (1983) found that a company with a good reputation, may enjoy a price premium given its perceived trustworthiness and credibility of its promises are likely to induce customers to pay a higher price for its product or services. An Italian study determined that financial performance, vision and leadership, financial disclosure and corporate governance provides a high correlation with the overall disposition of securities analysts towards a company or its emotional appeal (Ravassi and Mazzalo, 2007).
Randstad (2013) also looked at the importance of company reputation in attracting new employees. Nearly all of those polled (96%) report it would be important for their new company to have a good reputation among its employees, while nearly as many (86%) say it is important to have a good reputation in their community.
Crisis managers have also long believed in the value of a favourable, pre-crisis reputation. Coombs (2012) suggests that prior reputation/halo works as a shield that deflects the potential reputation damage from a crisis and/or the prior reputation/halo might encourage stakeholders to give the organisation the benefit of the doubt or leniency in the crisis, reducing their crisis responsibility.
There are many benefits indeed to a positive reputation.
However, according to Edelman (2014), the developed markets are among those with lower levels of trust in the pharmaceutical industry i.e. in markets with the greatest access to innovations coming from the pharmaceutical industry and with the greatest access to the medicines themselves, the trust in the industry is lowest.
In fact, in 2012 the pharmaceutical industry lost trust in 12 of 25 markets studied and gained trust in only three: Australia, Canada and the United States. These trends signalled danger for an industry whose growth is increasingly dependent on market access in developing economies. By 2014, trust in the pharmaceutical industry has tanked. With a global trust level among the general public of only 58 percent, the pharmaceutical industry is ranked 8th out of Edelman's 15 studied industries.
This disadvantage underscores the need for pharmaceutical companies to engage publics from a position of shared values, especially given that 84 percent of respondents also believe that business can pursue its self-interest while doing good work for society.
Taking leadership on sustainable access to medicines and transforming the patent issue and drug price debates in a context of transparency and innovation,provides an opportunity for Big Pharma to engage with Country leaders and build trust in markets where future growth opportunities and market access demands are greatest.
Transparency, leadership and innovation are all key to tackling diseases of the developing world.
For Big Pharma to "do well", it appears they may just have to start "doing good".
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Managing Partner and Founder of RL Expert. Adjunct Faculty Member at Singapore Management University's Lee Kong Chian School of Business, her expertise is centred on Reputation, Risk Issues and Crisis Management and Content Strategy.
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