Management Paper on Stakeholder Responsibilities in Consumer Protection

Stakeholder Responsibilities in Consumer Protection

Part A

Question 1

According to Lawrence& Weber (2014), diversity refers to how important characteristics of humans vary thus helping to distinguish one individual from another. Types of workplace diversity include immigrants, women, elderly persons, different ethnicities and races, and millennials in a work environment (Lawrence & Weber, 2014). Unauthorized immigrant status is usually accompanied by variation in important human characteristics. Some of the variations are in the form of unauthorized residence and unauthorized working status. These variations imply that being an unauthorized immigrant is a form of workplace diversity.

There are similarities and differences between the mentioned types of workplace diversity and being an unauthorized immigrant. One of the similarities is that they all represent variations in key human characteristics among the workforce. Regarding the dissimilarities, unauthorized immigration violates the laws of the country hosting the immigrant, whereas other workplace diversity types are legitimate. In most cases, unauthorized immigrants have to offer illegal payments to authorities in the country they intend to leave and those in the nations to which they intend to relocate. The illegal payments often lead to legal complications for both the home and host countries of the immigrants. Another major disparity is that unauthorized immigration is unethical, whereas other types of workplace diversity are not. Illegal immigration mutually leads one to secure a job through: he or she is likely to lie about his or her immigration status. The outcome is of a person illegally taking the job of an honest and law-abiding citizen. When companies such as Chipotle Mexican Grill Restaurants hire unauthorized immigrants, the demonstrate how unethical they are in their practices.

Question 2

When an organization hires unauthorized immigrants, it does so with a focus on reducing the payroll expense thus recording increased profitability in the long run. In the short term, the decrease in costs and increase in profit could benefit management executives, creditors, and stockholders who usually benefit from an organization financially (Boswell& Straubhaar, 2004). Additionally, the lowered remuneration expense could prompt an organization to offer discounted prices of products and services. In this regard, customers stand to benefit, especially if product and service quality remains uncompromised.

Some stakeholders can also be hurt by an organization’s decision to hire unauthorized immigrants. Both domestic and legal immigrant workers are usually hurt by such decisions as they are likely to lose jobs to illegal immigrants who are lowly paid. If domestic and legal immigrant workers survive the loss of jobs, they are unlikely to secure promotions or pay rise, and their bargaining power with the employer reduces significantly. The adverse consequences of domestic and legal immigrant workers can extend to local communities and local governments as well. For example, the loss of jobs by these workers would translate to less expenditure, thus reducing the tax base of the local governments and even the federal one. Other stakeholders who could be harmed are the law-abiding competitors of the organization that decides to hire unauthorized immigrants. The companies that follow the law may be unable to reduce payroll expenses as they can only hire individuals with legal residence and working status, who demand the legal wages. As such, they are forced to sell their products and services at a higher price than those of corporations that hire illegal immigrants, which could result in the law-abiding firms to lose customers to those who do not.

Nevertheless, it should be noted that employing illegal immigrants is harmful to organizations that hire them in the long term. For example, if such hiring is discovered by the authorities, the guilty parties may be subjected to severe punishments.

Part B

Section 1

Corporate social responsibility is when a corporation is held accountable for its practices that have an impact on people, communities, and the environment. An organization’s management is tasked with ensuring that every stakeholder, particularly those in need or at risk, benefits in one way or another from an organization’s actions or practices (Lawrence & Weber, 2014, p.49). Based on the definition, it is clear that Merck did not bother to act in a manner that can be considered socially responsible when it developed and tested Vioxx. The firm failed to ensure that its customers, particularly those in need and at risk, profited from its actions and practices. Besides, Merck did not take the actions that would have helped to prevent its customers from harm or ensure that those who could have been harmed by the product did not purchase it.

During the early stages of the development of Vioxx, Merck’s product at the center of controversy, its shortcomings were discovered. One of Merck’s scientists noted that Vioxx had adverse effects on users, given its side effects on the heart and blood vessels. The discovery was followed by a study on the medicine’s side effects that confirmed to Merck’s research director and other key decision-makers at the organization about its significant risks to human health. Notwithstanding the discovery and realization of Vioxx’s adverse effects, Merck’s management was reluctant to disclose the side-effects to the public. Besides, the management did not take any action to improve the medicine to avert the discovered side effects on patients. Even after the Food and Drug Administration (FDA) raised questions about the drug and went ahead to request for the addition of a necessary warning to its label, Merck’s management hardly cooperated. In fact, the managers of the company wanted to delay the addition of the warning to Vioxx’s label to prevent the product’s sales from plummeting. As a result, several vulnerable consumers were exposed to life-threatening complications related to heart and blood vessels.

One of the characteristics of good corporate governance and corporate social responsibility is transparency. A high level of transparency by an organization reveals how ethical the entity is and its values (Clarke, 2017). The failure of an enterprise to disclose adequate information to the public when needed could translate to it concealing selected unethical actions (Salvioni, Gennari, & Astori, 2015). During Merck’s development of Vioxx, there was no sign of transparency on the organization’s part. The lack of openness points to inappropriate corporate governance and the lack of social responsibility. The fact that the managers allowed the sale of a product that they knew was likely to cause deaths points to their greed and lack of consideration for morality.

Section 2

Lawrence & Weber (2014) argue that organizations and businesses have a social responsibility to safeguard the wellbeing of consumers while offering the products and services that meet their needs. Social responsibility also entails selling goods and services for the right prices (Leisinger, 2005). Thus, one of the standards of social responsibility, when it comes to organizational or business relations with customers, is offering safe and quality products and services at a reasonable price. Unfortunately, Merck did not take the standard into consideration and went ahead to act in a socially irresponsible manner regarding its relations with customers and shareholders.

Merck’s social irresponsibility with regard to its relations with customers is evident in its decision to push Vioxx into the market. The corporation also went ahead to advertise the product cognizant of the safety issues and concerns revolving around it. According to the case, Merck sold its product the exorbitant prices of around $3 for every pill. The price was higher than that of other anti-inflammatory drugs in the market, such as aspirin and Advil, which were sold for pennies per pill. The unreasonable pricing for Merck’s product was in violation of basic social responsibility requirements for organizations.

Merck did not act in a socially responsible manner in its relations with customers and shareholders as it used lies and tricks to cover up its actions. After the intervention of the FDA, the firm was required to warn customers of the effects of the product on its label. However, it continued to market its product directly to customers without revealing its side effects, particularly on human health. It lied to customers and tricked them into buying the product, notwithstanding it being dangerous, falsely labeled, and overpriced.

Section 3

Corporations and businesses have a responsibility to ensure their customers’ protection. This objective can be achieved through truthful advertising and disclosing information about the safety and health issues surrounding various products (Droppert & Bennett, 2015). In its advertisement of Vioxx, Merck did not disclose the product’s side effects on consumers. Rather, it made numerous attempts to delay the requested addition of warnings to the label of the product. The situation was worsened by Merck’s decision to spend millions of dollars in direct-to-consumer advertising of the product. In the process of directly marketing the product to patients, Merck hardly mentioned its adverse effects on health. Such a move can be considered a form of false advertising, which highlights how the organization acted in a manner that cannot be deemed to be socially responsible.

Social irresponsibility on the part of Merck is evident from its use of direct-to-consumer advertising of its product. Direct-to-consumer advertising refers to a marketing and advertising strategy used by pharmaceutical companies to market their products directly to consumers, thus bypassing the health professionals (Gellad & Lyles, 2007). The biggest challenge with this form of advertising is the information asymmetry witnessed between pharmaceutical companies and consumers. Usually, health professionals are aware of medicinal compositions and their effects on human health. Therefore, they are hardly coerced or duped into buying pharmaceutical products through commercial advertisements. On the other hand, many patients do not understand the benefits and harms caused by various medicines. Thus, they could be vulnerable to being tricked by direct-to-consumer advertisements into believing that the advertised medicines are the best solutions for their health problems. Merck’s decision to use direct-to-consumer advertising for Vioxx can be deemed unacceptable and should be condemned. The decision did not take into account the side effects of Vioxx on consumers with the focus on taking advantage of consumers’ lack of knowledge of the product’s flaws.

In addition to using direct-to-consumer marketing strategy, Merck promoted and marketed its product to doctors using unethical strategies. Some of the marketing and promotion activities used by the organization to market its products to health professionals included giving doctors benefits in the form of gifts, holding education events attended by doctors that were primarily used to promote the product, as well as giving direct financial support to health professionals who recommended the product to patients. These promotion activities are both unethical and socially irresponsible. Through these activities, health professionals’ interest shifted from what was best for patients to personal economic benefits. According to Lawrence & Weber (2014), Merck spent around $422 million in 2003 alone in marketing Vioxx to health professionals and facilities. Normally, health professionals have the trust of patients and are expected to act in the interest of patients. However, the influence of pharmaceutical giants such as Merck has resulted in these professionals becoming more interested in personal economic benefits at the expense of consumers’ wellbeing.

Section 4

A major role of government policymakers and regulators in the economic and social system is the promotion of social welfare and economic growth while protecting vulnerable participants in the process. In the pharmaceutical industry and market, consumers are the most vulnerable. It is astonishing that the susceptible consumers of which pharmaceutical companies take advantage are patients with serious health problems (Esteban, 2008). Merck set aside dollars in millions with the aim of influencing high-level politicians and policymakers to come up with legislations lobbying for their course. The practice itself was immoral. It is the responsibility of pharmaceutical companies such as Merck to help vulnerable patients by addressing their health needs and concerns. Doing the opposite is a way of weakening the commitment to promoting a good welfare system and protecting consumers (Almici, 2015). The weakening of the commitment is unethical and socially irresponsible on the part of pharmaceutical companies such as Merck.

The case also reveals that Merck might have been involved in influencing the FDA to support it in its delay to warn consumers about the side effects of Vioxx. The FDA was also coerced into preventing scientists from exposing the medicine’s side effects on patients. It is the duty of responsible business entities to act in a manner that protects the interests of every stakeholder. By influencing the FDA, Merck acted in a socially irresponsible manner. In the process, it hardly focused on protecting the interests of consumers, who are considered key stakeholders. When the FDA showed concern about the side effects of Vioxx in 2002, Merck already knew about the dangers of the products but was unwilling to cooperate with the FDA to solve the problem. The company tried its best to thwart the FDA’s efforts of giving stakeholders information about the product by pushing for a warning to consumers on the product’s label. Merck cooperated with the FDA in the wording of the warning, which helped in the maximization of its economic interests while delaying the warning label.

Section 5

By deciding to recall Vioxx from the market, Merck acted in a manner that demonstrates corporate social responsibility. First, the decision was beneficial to the company’s stakeholders, such as customers and their families in the long run. Other stakeholders that were in line for the decision’s benefits were shareholders and the general public. The customers also gained from the organization’s new decision as Vioxx’s life-threatening effects were no longer going to be a problem after the recall. Second, Merck’s voluntary recall of Vioxx signaled the company’s move towards putting the interests and benefits of the company ahead of its own selfish economic interests. Corporate social responsibility is evident when there is a focus on economic, social, and environmental interests or concerns(Cheah, Chan, & Chieng,2007, p. 428). Thus, the decision by Merck’s top leadership to recall the product from the market signaled its acceptance of losses in millions to stop the suffering of its stakeholders, particularly customers. For many companies, such a decision is not easy considering the fact that Merck had been largely embroiled in controversy with regard to keeping its product in the market.

Third, the decision to recall Vioxx from the market was an act of corporate social responsibility as the company chose an economically unfavorable path for the first time while focusing on the needs of customers. The organization’s management was advised by experts to choose a better and more moderate way of addressing the concerns that surrounded Vioxx. It was suggested that the corporation put a warning on the label of the product that would make customers aware of its side effects. Although this approach would have shown some level of ethics and social responsibility on the part of Merck, the organization made the tough decision to find a long-lasting solution to the issue at hand. Recalling Vioxx from the market can be deemed a much more socially responsible way of addressing the issue as compared to that of including a warning on the product’s label. The tough decision showed the commitment of Merck’s management and served as the turning point for the company with regard to acting in a socially responsible manner.




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