Business Ethics and Corporate Culture

Health Care Violations May Force Forrest Labs CEO to Step Down

The Inspector General of the U.S. Department of Health and Human Services (HHS) recently sent a letter to Howard Solomon, Chief Executive Officer of Forrest Laboratories, stating that because his company had pled guilty to violating several health care laws, Solomon may personally be excluded from participating in federal health care programs, including Medicaid and Medicare. This potential exclusion ordered by HHS stems from a provision of the Health Insurance Portability and Accountability Act (HIPAA) that allows the Inspector General to exclude any officer or managing partner whose company pleads guilty to violating federal health care laws. Under the provision, the excluded party does not have to partake in, or have any knowledge of, any wrongdoing themselves. Last fall, shortly after Forrest Laboratories settled their case, HHS released guidance announcing its intention to enforce the provision. If the Inspector General moves forward with the exclusion process, Mr. Solomon could seek an appeal through HHS’s administrative process. If Solomon’s appeal was to fail, Forrest Laboratories has stated that Solomon will step down.
New York Times: The Government’s Power to Oust a C.E.O. (29 April 2011)
(Source: New York Times)

FTC Report Finds Rise in Deals to Keep Generic Drugs Away

The US Federal Trade Commission (FTC) has announced that according to a staff report there has been a 60% increase in pharmaceutical industry deals under which “the manufacturers of branded products paid potential generic rivals and generic companies agreed [sic] to defer the introduction of lower-cost medicines” for consumers. A study entitled Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions – An FTC Staff Study (January 2010) found that in recent years some brand-name companies have paid their generic competitors to settle patent allegations and to keep generic drugs away from the market, with the delay in settled cases being as long as 17 months.
FTC’s media release (3 May 2011)
(Source: FTC)

Rio Tinto Faces Heat Over Executive Pay Hike
Asia Pacific

The Herald Sun reports that Rio Tino shareholders have lodged a protest vote against its remuneration report for the second consecutive year, following concerns over the board’s decision to raise chief executive Tom Albanese’s salary by 31% to £5.5 million. Reportedly, Rio Tinto chair Jan du Plessis expressed empathy towards shareholders’ anger over salary levels but said the pay hike was to “to ensure that talent was retained”, further adding that company executives had not received salary increases for the past three years.
Herald Sun: Shareholders protest Rio Tinto chief executive Tom Albanese’s pay rise (6 May 2011)
(Source: Herald Sun)

Banks Settle Race and Colour Charges

The US Department of Justice (DoJ) has announced that Citizens Republic Bancorp (CRBC) and Citizens Bank have agreed to establish a loan production facility in an African-American neighbourhood to settle allegations that engaged in in race and colour discrimination. According to the DoJ, CRBC breached the Fair Housing Act and the Equal Credit Opportunity Act in relation to their mortgage lending practices, while Citizens Bank offered credit services to mainly white neighbourhoods “to a significantly greater extent than they have served the credit needs of majority African-American neighbourhoods”.

Additionally, the banks will :

  •  ”invest [US]$1.625 million in a partnership with the city of Detroit to aid in neighbourhood stabilization by providing existing homeowners with matching grants of up to $5,000 to fund exterior improvements”;
  • invest “[US]$1.5 million in a special financing program to increase the amount of credit the banks extend to majority African-American areas in Wayne County”; and
  • “spend [US]$500,000 for outreach to potential customers, promotion of their products and services, and consumer financial education”.

DoJ’s media release (5 May 2011)
(Source: DoJ)

Mixed Response to Proposed Whistleblower Rule

Reuters reports that companies like Google, Microsoft Corp, General Electric Co and JPMorgan Chase & Co have expressed their disapproval for the US Securities and Exchange Commission’s (SEC) proposal for rewarding whistleblowers “who provide original substantive tips leading to enforcement actions that result in sanctions exceeding [US]$1 million”, stating that this could “dissuade [whistleblowers] from reporting problems internally first”. SEC officials have said that internal reporting is not compulsory for whistleblowers, reports Reuters. The US Chamber of Commerce has reportedly called the rule a “bounty program” for “amateur sleuths in search of a big payday”. The National Whistleblowers Center advocacy group on the other hand has reportedly warned of legal action against the SEC if internal reporting is made mandatory.
Reuters: Exclusive: SEC cool to corporate demands on whistleblowers (5 May 2011)
(Source: Reuters)