AIDS and Corporate Responsibility

by Krishna on January 8, 2007

Corporate social responsibility dictates that business has an obligation to society beyond what is required by the law and the direct interests of the company. Under that doctrine, one could say that pharmaceutical companies have a responsibility to do something about the global AIDS epidemic. Some strategies are to distribute drugs for free or at low-cost to benefit people in poor countries who cannot afford to buy them.

The primary argument for doing this is there is no market for the companies in these areas. By continuing to ask for the same price, the companies are condemning millions of people to death every single day and at the same time, not selling much. This is a far worse and immediate problem than any of the front page news one sees about terrorism or war in Iraq. The society of multinational corporations (MNCs) is the whole world and all the citizens of the world.

In the long run too, companies stand to benefit. The resources of many African countries are consumed and drained by this fight. They have nothing left to invest in infrastructure, development or growth. If the African people are helped in this process, they can grow and open themselves up for investment and markets, which will benefit those companies.

Practically, there are several hurdles. One very important obstacle (that many people tend to ignore) is the whole problem of the delivery mechanism. In other words, how do you ensure that the drugs actually go to the people who need them at the inexpensive cost or for free? Remember that the drugs by themselves are very costly. Any bandit who gets hold of them can smuggle them back into a richer country and make millions in the gray market. And of course, the poor nation itself may have a black market in such drugs unless supply of the drugs is equal to the demand. (Think of Canada, where the drugs are being sold at a lower cost and people are trying to import them back to the United States.)

The pharmaceutical company needs physical resources to transport the drugs safely to various parts of the poor countries. This needs security and trustable people. It needs infrastructure in terms of clean syringes, cold storage and AIDS tests themselves to ensure that only the right persons are getting the drugs. This is not only costly, but requires a level of support on the ground which is lacking in many countries. In fact, without this, only a miniscule amount of the aid will actually reach the deserving persons.

The other problem is the fact that the pharmaceutical companies are operating in a capitalist society. I don’t subscribe to the notion that a company’s sole motivation should be profit (a little too laissez faire for my taste). Nevertheless consider what happens when a company’s profits are eroded by huge levels of social acts. The company’s stock price goes down, investors start fleeing for higher-return companies, employees don’t get the pay raise they expect to and also start leaving. Without great employees, R&D suffers and the company goes into a downward spiral.

Instead of placing the responsibility on individual companies, I would advocate that Western and Asian governments place an equal surtax against ALL companies for the purpose of sending aid to Africa or other affected areas. Alternatively, it could also be a percentage of the overall tax revenue (this places the burden on all taxpayers instead of businesses). A coalition of governments pool the money, buy the drugs and establish a secure channel of distribution. Pharmaceutical companies can sell at discounted costs considering the volume of drugs bought.

When governments take over much of the distribution aspects, now pharmaceutical companies can, in addition to the volume sales, can contribute a %age of drugs at reduced or zero cost. This won’t solve the entire profit issue, but it will not be as big a hit on the bottom line.

One thing we tend to ignore is that companies today do pay a lot of taxes which are used for all sorts of stuff, including highways, museums, wars, etc. The problem in Africa can be solved to a great extent with a small percentage of that money and with focus and effort by different governments and organizations. It is time to get the priorities straightened out.

Final notes: I had the good fortune of viewing (on TV) a meeting organized by CNN to discuss the AIDS epidemic. Bill Clinton and Hank McKinnell (then-Pfizer CEO) were part of that discussion (http://www.cnn.com/2006/HEALTH/conditions/05/01/access.clinton.aids/index.html). This is one of the biggest crises in the globe today and a lot of MNCs and NGOs are working hard to alleviate the situation.

Links to follow:

http://www.redcampaign.org/
http://www.one.org/

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