Wikileaks and Whistleblowers Cause Nightmares for General Counsel

On December 6, 2010, three pharmaceutical manufacturers agreed to pay more than $421 million to settle allegations from the U.S. Department Justice that the companies inflated prices for numerous products.  The Justice Department now has recovered more than $1.8 billion from pharmaceutical companies arising from similar unlawful drug-pricing schemes.

In the settlements, Abbott Laboratories Inc. agreed to pay $126.5 million, B. Braun Medical Inc. will pay just over $14.7 million and Roxane Laboratories Inc. agreed to pay $280 million.

The companies allegedly led the government to believe their drugs sold at higher prices than what they actually sold for.  Doctors and druggists were able to obtain the drugs at one price, be reimbursed by the government at an inflated price and pocket the difference.  This scheme then guaranteed massive profits to physicians and pharmacies that prescribed and administered products to their patients.

All three companies denied wrongdoing and said they only settled to end what each described as costly litigation with the federal government.

“The company at all times complied with laws, regulations and customary industry practices,” (Roxane Labs).

“We continue to believe that we have complied with all laws and regulations and have entered into this agreement to eliminate the uncertainty associated with continued litigation,” (Abbott Labs).

The company “complies with government laws and regulations and operates under a robust compliance program to ensure continual compliance,” (B. Braun).  As such, B. Braun “was not required to enter into a corporate integrity agreement as part of the settlement.”

Their common theme – we complied with all laws, regulations and industry practices.

That bothers me. I want to work for a company that has a reputation for being open and honest with its shareholders, employees and stakeholders.

A fundamental role of the General Counsel of any company is to stay on top of all of laws, rules and regulations to make sure their company is in compliance.

For the second time in a decade we find ourselves in the middle of another financial crisis, with investors losing trust in the financial markets and the public losing trust in Corporate America.  Millions of Americans lost their jobs and remain unemployed.

What happened in the latest financial crisis?  The short answer is that there was corruption, collusion and concealment at the very top levels of management, which made it very hard for outside directors to detect.  As a practical matter, even diligent oversight can be evaded if management deliberately sets out to do so. In other words, the integrity of the CEO and senior management is everything.

How do large corporations with far-flung operations and lots of employees ensure compliance with the letter, as well as the spirit, of the law?

One possible solution is to step back to see the forest through the trees.  The General Counsel can hire an independent third party to determine whether corporate internal compliance programs are working as intended.

Whistleblower websites could play an important role in preventing another economic crisis.

Whistleblowing of corporate fraud is a major concern of general counsel and boards of directors.  When reports of malfeasance lead to investigations by the Securities and Exchange Commission (SEC), Department of Justice (DOJ), Commodities Futures Trading Commission (CFTC), or state attorney general, the results can include high legal fees, monetary sanctions, and reputational damage.

zEthics addresses a number of shortcomings in the market place to help corporations stay in compliance with applicable laws, rules and regulations – monitoring the effectiveness of internal compliance programs to prevent fraud and corruption.  Culture benchmarks allow the General Counsel and internal compliance functions to readily identify key areas of vulnerability and seize opportunities for employees to be more engaged and productive.

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About zethics
CEO and founder of zEthics, Inc. Thirty years of experience with finance and accounting background in public private sectors.

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