The past few weeks have not been good for the reputation of American business. Earlier this summer the pharmaceutical company Mylan came under fire for the increase in price of the allergy-reaction injector EpiPen, from $100 for a pack of two in 2009 to $609 for the same product today. Then earlier this month the bank Wells Fargo was fined a total of $185 million by the Consumer Financial Protection Bureau and other agencies for creating over 1.5 million fraudulent checking and savings accounts and over 500,000 credit cards, using customers’ identities without their authorization. This week the CEOs of both corporations appeared before congressional hearings. These examples show the continuing relevance of Catholic teaching on the ethics of the business firm.
In May of this year, Mylan increased the price of the EpiPen to $609, the last of several price increases over the past seven years. The move sparked outrage since the EpiPen is used to treat anaphylaxis, a potentially life-threatening situation, and the price increase made it more difficult for people with allergies to afford the devices. In most cases patients do not pay the full price for the drug, assisted by both insurance and rebates issued by Mylan, but customers have nevertheless paid higher costs for a number of reasons: the rebates are unavailable to many customers, insurance companies are charging higher co-payments for the drug, the costs of insurance coverage are passed on to consumers through higher premiums, and those without insurance have little assistance in paying for the drug. Further, although Mylan has a profit margin of about $50 per pen after costs and the rebates are deducted, the medicine contained in each pen costs only about $1 to produce, meaning that the company makes a quite handsome return on their investment.
The outrage over the EpiPen comes in the wake of other controversies over the pricing of drugs, most notably the 5,000% hike in the price of Daraprim, a drug used to treat toxoplasmosis, an infection particularly dangerous to cancer and AIDS patients, by the Turing corporation headed by its then-CEO Martin Shkreli in 2015. In both the cases of the EpiPen and Daraprim, a lack of market competition is one factor contributing to the rise in prices. Turing limited access to Daraprim through a closed distribution system, making it harder for companies wanting to make a generic competitor to gain access to the drug. Mylan simply got lucky, with one of its competitors having to recall its version of the drug and another failing FDA testing. It was still the decision of both companies, however, to take advantage of these monopoly conditions to the detriment of their customers.
More recently it has also been uncovered that Mylan CEO Heather Bresch’s mother served as the chair of the National Association of State Boards of Education, an organization which pushed for public schools across the nation to stock EpiPens in case of emergencies. Although this may have ultimately been to the public’s benefit, it is also a clear conflict of interest.
Meanwhile, an investigation of Wells Fargo stemming from a lawsuit in Los Angeles filed last year revealed that employees of the bank had created over 1.5 million unauthorized bank accounts and over half a million credit card accounts, and had even transferred money from customers’ legitimate accounts into these fake accounts. These accounts generated profits by charging the customers fees, but they primarily served as a way for employees to meet unrealistic incentive goals set by the bank’s management. When the bank was fined, it fired 5,300 of its employees involved in the creation of the fraudulent accounts, about one percent of its total workforce.
Wells Fargo’s executives, however, including CEO John Stumpf, have failed to take responsibility for their own role in the scandal. The executives put in place the incentives system without establishing proper oversight over the program. They had little motivation to do so, since the inflated numbers of customer accounts increased the bank’s stock value (indeed, once the fake accounts were closed down, Wells Fargo lost its ranking as the world’s most valuable bank to JP Morgan Chase). The head of the consumer banking division where the fraud took place, Carrie Tolstedt, retired in July of this year with a nearly $125 million package.
Even more galling, an investigation by CNNMoney found that some employees who attempted to report these unethical behaviors to their superiors were instead fired in retaliation. A number of employees were even fired after reporting abuses to an ethics hotline established by the bank supposedly to prevent such retaliation against whistleblowers.
These examples show how easy it is for corporations to adopt an unhealthy business culture. Of course, the behavior of Wells Fargo was illegal, and the price of drugs could in part be reduced either through regulatory reform to generate greater competition or through the negotiation of drug prices by the federal government for those who get health insurance through the health care exchanges or Medicare. But since the problem is ultimately with the business culture, the solution cannot come only from the government.
Catholic social teaching provides a quite different model of business than that illustrated by Mylan and Wells Fargo. In his 1991 encyclical Centesimus Annus, Pope John Paul II writes:
The Church acknowledges the legitimate role of profit as an indication that a business is functioning well. When a firm makes a profit, this means that productive factors have been properly employed and corresponding human needs have been duly satisfied. But profitability is not the only indicator of a firm’s condition. . . . Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business (#35).
John Paul here recognizes the importance of profit, and he also claims that businesses make a real contribution to the common good through products or services that improve the lives of consumers. He is also clear, however, that profit is not the only indicator of a business’s success, but must be seen in a broader context of human flourishing. This notion suggests that while a company like Mylan has a right to a healthy profit for its products, its vocation as a corporation must include a commitment to the common good, which cannot be achieved by pursuing shareholder profits while leaving life-saving drugs unavailable to vulnerable consumers.
In this same passage John Paul goes on to state that ultimately a business is a community of persons, and the health of the business is dependent on the moral health of this community. This statement stands as a strong rebuke of what happened at Wells Fargo, where shareholder profits became the ultimate criterion, distorting the community of employees so that the lowest-paid employees were expected to engage in unethical, illegal behavior and then bore the brunt of the consequences while the executives reaped the benefits.
Pope Benedict XVI builds on these thoughts in his 2009 encyclical Caritas in Veritate, For example, he writes that “Charity in truth . . . requires that shape and structure be given to those types of economic initiative which, without rejecting profit, aim at a higher goal than the mere logic of the exchange of equivalents, of profit as an end in itself” (#38). He goes on to lament how the interests of shareholders so often overshadow those of the other stakeholders in a business enterprise: “the workers, the clients, the suppliers of various elements of production, the community of reference” (#40).
In a significant passage, Benedict notes the ambivalent nature of the recent emphasis put on “business ethics.” Although stating that “These processes [of incorporating ethics into business practices] are praiseworthy and deserve much support,” he goes on to warn that:
It would be advisable, however, to develop a sound criterion of discernment, since the adjective “ethical” can be abused. When the word is used generically, it can lend itself to any number of interpretations, even to the point where it includes decisions and choices contrary to justice and authentic human welfare (#45).
Although Benedict here seems to be primarily concerned with applying false ethical theories and criteria to the world of business, it is hard not to also think of Wells Fargo’s misleadingly-named ethics hotline, established as a way to maintain the moral culture of the corporation but in practice used in ways “contrary to justice and authentic human welfare.”
Benedict sums up well Catholic social teaching’s approach to business when he states that economic activity is “part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner” (#36). The ethical approach to business he describes takes into consideration the human good in all its aspects, both personal and communal. As the scandal generated by Mylan and Wells Fargo’s behavior illustrates, ethical attitudes and practices are not simply standards imposed on business from the outside, but rather are “demanded by economic logic.” In other words, good ethics is good for business.
Matthew A. Shadle is Associate Professor of Theology and Religious Studies at Marymount University in Arlington, Virginia. He has published The Origins of War: A Catholic Perspective (Georgetown, 2011). His work focuses on the development of Catholic social teaching and its intersection with both fundamental moral theology and the social sciences, with special focus on war and peace, the economy, and immigration.