Case Analysis: Organization ethic an Social responsibility

Nov 13th, 2015
Business & Finance
Price: $15 USD

Question description



Headquartered in New Jersey, Merck & Co. is one of the largest pharmaceutical

companies in the world. In 1978, Merck was about to lose patent protection on its two

best-selling prescription drugs. These medications had provided a significant part of

Merck’s $2 billion in annual sales. Because of imminent loss, Merck decided to pour

millions into research to develop new medications. During just three years in the

1970s, the company invested over $1 billion in research and was rewarded with the

discovery of four powerful medications. Profits, however, were never all that Merck

cared about. In 1950, George W. Merck, then chairman of the company his father

founded, said, “We try never to forget that medicine is for people. It is not for the

profits. The profits follow, and if we have remembered that, they have never failed to

appear. The better we have remembered that, the larger they have been.” This

philosophy was at the core of Merck & Co.’s value system.


The disease onchocerciasis, known as river blindness, is caused by parasitic worms that

live in the small black flies that breed in and about fast-moving rivers in developing

countries in the Middle East, Africa, and Latin America. When a person is bitten by a fly

(and some people are bitten thousands of times a day), the larvae of the worm can enter

the person’s body. Theworms can grow to almost two feet long and can cause grotesque

growths on an infected person. The real trouble comes, however, when theworms begin

to reproduce and release millions of microscopic baby worms into a person’s system.

The itching is so intense that some infected persons have committed suicide. As time

passes, the larvae continue to cause severe problems, including blindness.

In 1978, the World Health Organization estimated that more than 300,000 people

were blind because of the disease, and another 18 million were infected. In 1978, the

disease had no safe cure. Only two drugs could kill the parasite, but both had serious,

even fatal, side effects. The only measure being taken to combat river blindness was the

spraying of infected rivers with insecticides in the hope of killing the flies. However,

even this wasn’t effective since the flies had built up immunity to the chemicals.


Since it takes $200 million in research and 12 years to bring the average drug to

market, the decision to pursue research is a complex one. Resources are finite, so

dollars and time have to go to projects that hold the most promise in terms of making

money to ensure the company continues to exist as well as of alleviating human

suffering. This is an especially delicate issue when it comes to rare diseases, when a

drug company’s investment could probably never be recouped because the number of

people who would buy the drug is so small. The problem with developing a drug to

combat river blindness was the flip side of the “orphan” drug dilemma. There were

certainly enough people suffering from the disease to justify the research, but since it

was a disease afflicting people in some of the poorest parts of the world, those

suffering from the disease could not pay for the medication.

In 1978, Merck was testing ivermectin, a drug for animals, to see if it could effectively

kill parasites and worms. During this clinical testing, Merck discovered that the drug killed

a parasite in horses that was very similar to the worm that caused river blindness in humans.

This, therefore, was Merck’s dilemma: company scientists were encouraging the firm to

invest in further research to determine whether the drug could be adapted for safe use with

humans, but Merck knew it would likely never be a profitable product.

Source: D. Bollier, Merck & Company (Stanford, CA: The Business Enterprise Trust, 1991).

Case Questions

1. Think about the definition of stakeholders—any parties with a stake in the

organization’s actions or performance. Who are the stakeholders in this situation?

How many can you list? On what basis would you rank them in importance?

2. What are the potential costs and benefits of such an investment?

3. If a safe and effective drug could be developed, the prospect of Merck’s

recouping its investment was almost zero. Could Merck justify such an investment

to shareholders and the financial community? What criteria would be

needed to help them make such a decision?

4. If Merck decided not to conduct further research, how would it justify such a

decision to its scientists? How might the decision to develop the drug, or not to

develop the drug, affect employee loyalty?

5. How would the media treat a decision to develop the drug? Not to develop the

drug? How might either decision affect Merck’s reputation?

6. Think about the decision in terms of the CSR pyramid. Did Merck have an

ethical obligation to proceed with development of the drug? Would it matter if

the drug had only a small chance to cure river blindness? Does it depend on how

close the company was to achieving a cure, or how sure they were that they could

achieve it? Or does this decision become a question of philanthropy only?

7. How does Merck’s value system fit into this decision?

8. If you were the senior executive of Merck, what would you do?

about 600-700 words

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School: Purdue University

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