Mike Balduino speaks as Roy Vagelos looks on.
On August 25, business leaders representing the pharmaceutical and paper industries discussed the tradeoffs between profitability and social responsibility for an audience of 500 incoming MBA students. One of three orientation sessions devoted to ethical issues, the event was part of the School’s new ethics curriculum, The Individual, Business and Society: Choices, Tradeoffs and Conflicts.
Noting that issues of corporate social responsibility have dominated headlines in the past couple of years, moderator Geoffrey Heal, the Paul Garrett Professor of Public Policy and Business Responsibility, posed the question: Is acting in a socially responsible manner contrary to profits and the bottom line?
Mike Balduino, president of Shorewood Packaging and senior vice president of International Paper (IP), explained that sustainable forestry is part of IP’s operating model. "Our overall goal is to keep forests healthy," he said. "We see that as being integral to our economic success. We see it as a fundamental part of defining our brand image and who we are, and it’s part of the cost of doing business."
Professor Geoffrey Heal, in foreground, moderates.
While maintaining a long-term supply of healthy trees is clearly in IP’s self-interest, other environmental issues, such as recycling, present more complicated choices. IP is under pressure from environmental groups to make more products from recyclable materials, but many of its customers are unwilling to accept the higher costs and lower quality of recycled products.Roy Vagelos, former CEO of Merck, described a scenario in which socially responsible behavior was costly in the short-term, but ultimately beneficial to the company. In the 1980s, Merck scientists discovered that Ivermectin, a drug the company had developed for treating worms in animals, was extremely effective at eliminating the parasite that causes river blindness, a disease that afflicted millions of people in sub-Saharan Africa.
After Merck announced that it would donate the drug to anyone in the world who needed it, the company received hundreds of letters from stockholders and employees expressing support for the initiative. "For a decade at least, Merck had its choice in recruiting," said Vagelos, who retired from the company in 1994. "We could get anyone. That was an incredible effect on the most important thing in our company: our intellectual capital."
Roy Vagelos discusses Merck.
In the 1990s, though, Merck’s public image plummeted as a result of its industry’s response to the AIDS crisis in the developing world. The pharmaceutical industry, which had invested billions of dollars to develop HIV treatments, argued that making those drugs available at low prices in the developing world would affect their price structure in the developed world. The major drug companies eventually started small HIV programs in key areas of Africa, but to many observers, the effort was too little, too late.
The panelists stressed that companies should not pursue social causes as a marketing gimmick. "Beware of cause marketing," Balduino said. "I think you have to do things you believe in because they’re the right things to do and because they’re socially responsible, and not solely because you think it’s a way to make money. That’s dangerous ground. There’s no evidence that cause marketing yields big results to the bottom line. It’s not an opportunity to make a quick buck."