Ethics of Science and Technology Assessment

Ethics of Science and Technology Assessment
Volume 31
Book Series of the Europäische Akademie zur Erforschung
von Folgen wissenschaftlich-technischer Entwicklungen
Bad Neuenahr-Ahrweiler GmbH
edited by Carl Friedrich Gethmann
G. Hanekamp (Ed.)
Business Ethics
of Innovation
123
Series Editor
Professor Dr. Dr. h.c. Carl Friedrich Gethmann
Europäische Akademie GmbH
Wilhelmstr. 56, 53474 Bad Neuenahr-Ahrweiler, Germany
Editor
Dr. Gerd Hanekamp
Wissenschaftsrat
Brohler Str. 11, 50968 Köln, Germany
Desk Editor
Friederike Wütscher
Europäische Akademie GmbH
Wilhelmstr. 56, 53474 Bad Neuenahr-Ahrweiler, Germany
ISSN 1860-4803
ISBN 978-3-540-72309-7 Springer Berlin Heidelberg New York
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The Europäische Akademie
The Europäische Akademie zur Erforschung von Folgen wissenschaftlich-technischer
Entwicklungen GmbH is concerned with the scientific study of consequences of
scientific and technological advance for the individual and social life and for the
natural environment. The Europäische Akademie intends to contribute to a ratio-
nal way of society of dealing with the consequences of scientific and technological
developments. This aim is mainly realised in the development of recommendations
for options to act, from the point of view of long-term societal acceptance. The
work of the Europäische Akademie mostly takes place in temporary interdisci-
plinary project groups, whose members are recognised scientists from European
universities. Overarching issues, e.g. from the fields of Technology Assessment or
Ethic of Science, are dealt with by the staff of the Europäische Akademie.
The Series
The series Ethics of Science and Technology Assessment (Wissenschaftsethik und
Technikfolgenbeurteilung) serves to publish the results of the work of the Eu-
ropäische Akademie. It is published by the academy’s director. Besides the final
results of the project groups the series includes volumes on general questions of
ethics of science and technology assessment as well as other monographic studies.
Preface
The Europäische Akademie zur Erforschung von Folgen wissenschaftlich-

technischer Entwicklungen Bad Neuenahr-Ahrweiler GmbH is concerned
with the scientific study of the consequences of scientific and technological
advance for individual and societal life and for the natural environment. The
main focus is the examination of mid- and long-term processes that are espe-
cially influenced by natural- and engineering sciences and the medical disci-
plines. As an independent scientific institution, the Europäische Akademie
pursues a dialogue with politics and society.
The work of the Europäische Akademie is mainly conducted by tempo-
rary interdisciplinary project teams that develop recommendations for a
long-term reliable science and technology policy. Above that, the Europäi-
sche Akademie organises international conferences on timely issues that are
connected to its research programme.
The present volume takes an applied ethics perspective on a group of
phenomena that are related to the concept of innovation. The Europäische
Akademie has already devoted some of her work to research in this field and
is pursuing this effort. Hopefully the endeavour started with the conference
Business Ethics of Innovation documented in this volume will help to appro-
priately assess innovations not only academically but also and consecutively
in those contexts where actors have to base their decisions on pertinent
reflections.
Bad Neuenahr-Ahrweiler, December 2006 Carl Friedrich Gethmann

Foreword
Presently consequences of research in the sciences and in the arts as well as

those of technological advances are reflected in several fields of academic
activity: Technology assessment, history of science, applied ethics, many
fields of the social sciences to name only a few. Between these interdiscipli-
nary endeavours only few linkages exist.
An example is the research on innovations. Bio-medical innovations are
discussed in technology assessment, bioethics, business ethics, economics
and business administration. For innovations in the IT sector bioethics
needs to be replaced by activities concerned with access to knowledge and
digital technology.
With the 2005 fall conference that took place 11–13 September 2005 at
Engers Castle, Neuwied, the Europäische Akademie GmbH intended to
develop a scheme for the integration of the disciplines involved in these
fields. Since business ethics is the practical discipline concerned with eco-
nomic activity it was chosen to be the point of departure. The results are
encouraging and are documented in this volume.
I would like to thank the staff of the Europäische Akademie GmbH for
their support, notably Sevim Kiliç and Margret Pauels for their organisa-
tional ingenuity as well as Friederike Wütscher, who prepared this volume
with charming vigour. The academy’s director Carl Friedrich Gethmann I
thank for his support to realise the conference and this volume.
Further acknowledgements go to the Land Rheinland-Pfalz, the German
Aerospace Center (DLR) and the Schering AG for their generous grants.
Bad Neuenahr-Ahrweiler and Gerd Hanekamp

Cologne, December 2006
List of Authors
Crane, Andrew, Professor of Policy and holds the George R. Gardiner Chair
in Business Ethics at the Schulich School of Business, York University,
Toronto. He is interested in various aspects of business ethics, including the
role of morality in marketing and consumption; the contribution of evolu-
tionary narratives to environmental management; the implementation of
fair trade policies; and the contribution of Foucauldian thought to business
ethics. Recent work appeared in “Academy of Management Review”, “Journal
of Business Research”, “Organization Studies”, “Journal of Business Ethics”
and “Business Ethics Quarterly”. He holds a BSc from Warwick University
and a PhD in Business Studies from Nottingham University. Previously, he
was a Professor of Business Ethics and Director of the MBA in CSR at Not-
tingham University Business School, UK.
E-mail: acrane@schulich.yorku.ca
Eaton, Margaret L., Pharm.D., J.D. Lecturer in Management, Graduate

School of Business, Stanford University (Faculty Affiliate: Center for Social
Innovation). Past positions: Stanford Center for Biomedical Ethics, Stanford
University Office of the General Counsel, and Lecturer, Stanford University
School of Medicine. Studied law at University of California at San Francisco.
Studied pharmaceutics at Union University and Duquesne University and
served as Associate Professor, University of Minnesota School of Pharmacy.
E-mail: maggie@ronandmaggie.com
Hanekamp, Gerd, Dr. phil. Dipl.-Chem., studied chemistry at Heidelberg and

Marburg and at the École Nationale de Chimie in Lille; 1996 Doctorate in
philosophy at the University of Marburg; from 1996–2003 junior/senior sci-
entist, from 2003–2005 deputy director, Europäische Akademie Bad Neue-
nahr-Ahrweiler GmbH, presently on leave for a position at the Office of the
Science Council; fields of research: applied ethics, philosophy of science, the-
ory of the social sciences, technology assessment.
E-mail: hanekamp@wissenschaftsrat.de
Matten, Dirk, Professor of Policy, holds the Hewlett-Packard Chair in Cor-

porate Social Responsibility at the Schulich School of Business, York Univer-
sity, Toronto. He is interested in political and international aspects of ethics
and CSR, recent work appeared in “Academy of Management Review”, “Jour-
XII List of Authors
nal of Management Studies”, “Organization Studies”, “Journal of Business

Ethics” and “Business Ethics Quarterly”. His first degree in business is from
the University of Essen (Dipl.-Kfm.) and his PhD and Habilitation from
Heinrich-Heine-University Düsseldorf. In 2004–2006 he was Professor of
Business Ethics and Director of the Centre for Research into Sustainability at
Royal Holloway, University of London, UK.
E-mail: dmatten@schulich.yorku.ca
Moon, Jeremy, BA, PhD, Professor of Corporate Social Responsibility and

Director of the International Centre for Corporate Social Responsibility
(ICCSR) at Nottingham University Business School. His previous appoint-
ments include Chair of the Political Science Department at the University of
Western Australia. He held a number of visiting positions at universities
around the globe, including Princeton, McGill, and Cambridge, and was a
Jean Monnet Research Fellow at the European University Institute in Flo-
rence. He holds a BA and a PhD in Political Science from Exeter University.
Jeremy has published widely in the areas of Government and CSR; CSR in
Europe; CSR and Globalisation and Conceptualising and Theorising CSR.
E-mail: jeremy.moon@nottingham.ac.uk
Nüttgens, Markus, Professor Dr., studied Business Administration at the

University of Saarland 1984–1989 (Dipl.Kfm.) and 1995 (Dr. rer. oek.).
1989–2001 Scientific Assistant at Institute of Information Systems (IWi),
2001–2003 Deputy Professor of Information Systems at the University Trier,
since 2004 Full Professor of Information Systems at the University Ham-
burg. Main interests: Information Systems Management, Information- and
Business Process Management, Business Standard Software, Open Source/
Access, IT-Entrepreneurship.
E-mail: markus.nuettgens@wiso.uni-hamburg.de
Seiter, Andreas, Dr. med., studied medicine at Friedrich-Alexander-

Universität in Erlangen, Germany 1974–1980; intern in aneasthesiology and
internal medicine at Gunzenhausen hospital 1982–84; 1984–2003 various
management positions in medical operations, marketing and external rela-
tions at Sandoz AG in Germany and Switzerland, later merged with Ciba to
Novartis AG; 2004–2006 Pharmaceutical Fellow at the World Bank; since
May 2006 Senior Health Specialist, Pharmaceuticals, The World Bank.
E-mail: aseiter@worldbank.org
Selgelid, Michael J., received a BSEng in Biomedical Engineering at Duke

University and an MA and PhD in Philosophy at the University of Califor-
nia, San Diego. His doctoral dissertation examined ethical issues associated
with eugenics. He previously worked as a Postdoctoral Research Fellow and
Lecturer, respectively, in the Division of Bioethics and Philosophy Depart-
List of Authors XIII
ment at the University of the Witwatersrand in Johannesburg, South Africa;

and as Sesquicentenary Lecturer in Bioethics in the Unit for History and
Philosophy of Science and the Centre for Values, Ethics and the Law in Med-
icine (VELIM) at the University of Sydney. He is currently a Senior Research
Fellow at the Centre for Applied Philosophy and Public Ethics (CAPPE) and
the Menzies Centre for Health Policy at The Australian National University
in Canberra. His research over the past five years has focused on the history
of and ethical issues associated with infectious disease. He recently com-
pleted co-editing a book titled “Ethics and Infectious Disease” (Blackwell,
2006).
Steinmann, Horst, Professor em. Dr. Dres. h.c., studied Business Administra-
tion at the Universität Göttingen 1954–1959 (Dipl.-Kfm.) and at the Institut
Européen d’Administration des Affaires (INSEAD), Fontainebleau, 1964/65
(MBA). 1962 Dr. rer. nat. and 1967 Habilitation (TU Clausthal). 1968–1970
Full Professor of Operations Research at the FU Berlin; 1970–1999 Full Pro-
fessor of Business Administration and General Management at the Univer-
sität Erlangen-Nürnberg. Doctor honoris causa Universität Bern (1996) and
University Robert Schuman Strassbourg (1999). Founder of the German
Business Ethics Network (1993). Main interests: General Management, Busi-
ness Ethics, Corporate Governance, Philosophy of Science.
E-mail: horst.steinmann@wiso.uni- erlangen.de
Table of Contents
Preface
Foreword
List of Authors
Business Ethics of Innovation. An Introduction

Gerd Hanekamp................................................................................................ 1
Corporate Ethics and Globalization. Global Rules and Private Actors

Horst Steinmann .............................................................................................. 7
Research Priorities, Profits, and Public Goods:

The Case of Drug Resistant Disease
Michael J. Selgelid .......................................................................................... 27
Ethical Issues Associated with Pharmaceutical Innovation

Margaret L. Eaton .......................................................................................... 39
Corporate Responsibility for Innovation – A Citizenship Framework

Dirk Matten, Andy Crane and Jeremy Moon.................................................. 63
Access to Medicines and the Innovation Dilemma –

Can Pharmaceutical Multinationals be Good Corporate Citizens?
Andreas Seiter ................................................................................................ 89
IT Innovations & Open Source: A Question of Business Ethics or

Business Model?
Markus Nüttgens .......................................................................................... 101
Business Ethics of Innovation. An Introduction
Gerd Hanekamp
Innovations are said to be the key drivers of economic development. They

are the root for competitive advantages that allow firms to take the lead in
particular markets (Albach 1994, Freeman and Soete 1997). Seen as the
establishment of new products – that correspond to new means for spe-
cific ends – on markets they are a genuine object of economic and busi-
ness research (Brockhoff 1999). In a widened view they are social phe-
nomena that every now and then substantially change aspects of everyday
life. The development of antibiotic medications as well as the introduc-
tion of personal computing are of this kind. Nanotechnologically facili-
tated drug delivery, converging technologies and pervasive computing
might be contemporary candidates. These innovations are a societal chal-
lenge and as such are meanwhile attributed a considerable share of atten-
tion in policy-making.
The changing structures of political decision-making described as
governance (Benz 2004) as well as rising awareness of consumers in
terms of the impact new products may have are a challenge for actors in
the business field. Firms are involved in governance processes. They are
expected to contribute to the development of the framework they act in.
Furthermore, firms are supposed to not only provide new means for spe-
cific ends but to contribute to the orientational task of specifying new
ends and reflecting upon the consequences that are connected to their
attainment. They have to think about the availability of their products
especially if the cure from a fatal disease or social inclusion with respect
to a new technology depend on them. This orientational task is a critical
endeavor in the Kantian sense and deserves further attention as a philo-
sophical project.
A ‘Business Ethics of Innovation’ is situated at the intersection between
various fields of applied ethics, political philosophy, social philosophy,
technology assessment, economics, business administration and sociology.
Objectives
Business ethics of innovation explores the philosophical aspects and impli-
cations of innovations from the perspective of the firm (Hanekamp 2005).
This endeavor most likely will have consequences for this perspective. It will
2 Gerd Hanekamp
result in a critical assessment of how firms act with respect to innovations.

Particularly the results will offer routes to an integration of this critical
reflection on innovations and their development in the decision making
process of the firm itself.
A business ethics of innovation is driven by two heuristic schemes. One
describes the perspectives on and the influences of innovations as well as the
social entities that are involved. The other describes aspects of decision-
making and conflict solving. These models have to be enriched and modified
as the relevant bodies of knowledge are considered and integrated.
There are different perspectives on innovations that can be illustrated as
follows:
invention
availability market
Innovation
inclusion/exclusion knowledge/capability
old solution new solution
The usual assessment of innovations in business is connected with the

key words invention, market, old and new solution. With the latter two the
terminology of Joseph Schumpeter (1942) is taken up. Pragmatically these
refer to a particular relation of means to ends. A new solution can corre-
spond to a new means for established ends or to means to reach new ends.
The consideration of other aspects such as the availability of the new solu-
tion, the inclusion or exclusion from its use or the relationship to knowledge
and capabilities is not part of standard procedures in spite of pertinent dis-
cussions in the literature.
Innovations are of interest not only for firms but likewise and partly for
different reasons for the state, for society, for different communities and the
economy. The dimension of aspects is thus supplemented by a dimension of
actors:
Business Ethics of Innovation. An Introduction 3
state
community society
invention
availability market
Innovation
inclusion/exclusion knowledge/capability
old solution new solution
business economy
In the case of HIV/AIDS medication e.g. there are the states where the
pharmaceutical firms producing the medication are operating, the developing
world states that are most intensely affected, there are different communities
in these states possibly having a particular view on the disease, there are the
firms themselves, and there are the respective societies and economies as more
abstract entities that are affected and have an influence on the situation. All
these can view innovations in terms of the aspects listed above. For a business
actor it can be essential to consider them comprehensively in order to ade-
quately address the corresponding interests or problems in their decisions.
For a particular problem the two dimensions can be systematically pre-
sented in a simple two-dimensional matrix (see below). The cells of the
business state economy society community

Market
new solution
old solution
invention
knowledge/ capabilities
exlusion/ inclusion
availability
4 Gerd Hanekamp
matrix traditionally corresponding to the core interest of firms are marked

in grey. It is an objective of a business ethics of innovation to widen this per-
spective in the two dimensions of the above matrix and to integrate it into a
specific approach to business ethics (arrows in the matrix above).
For the business actor the vertical extension means additional aspects to
consider, the horizontal extension means other perspectives that are consid-
ered for the decision or conflict at stake.
The decision or conflict that needs to be taken or resolved can be system-
atized in a step-wise procedure. Such a procedure can be developed starting
with the following heuristic scheme (Hanekamp 2004, 2006):
0. “View of affairs”: Which view of the world, human beings and oneself is
presupposed?
1. Stake, conflict, objectives: What is it about?
2. Urgency:In which time frame does the matter have to be settled?
3. Stakeholder: Who is concerned? Who has to be involved?
4. Rules and presuppositions: Which rules are relevant, which presupposi-
tions are affected?
5. Availability: Which types of changes are possible or acceptable respec-
tively? Which part of the framework is available for change? Which types
of changes is one entitled to make?
6. Functionality: Which performance of organizations and institutions are
concerned and possibly altered?
7. Legitimacy: Which basis of legitimacy can the relevant institutions rely
on?
8. Balance and Decision
The ‘view of affairs’ is underlying the whole scheme and refers to the
philosophical discussion of an anthropological foundation of ethics. The
‘view of affairs’ can change, e.g. within the discussion of availabilities in step
5. A balanced decision always includes a critical attitude towards these views,
whether it be to confirm or to revise.
The scheme is supposed to structure the handling of decisions and con-
flicts reconstructively. Steps 4, 5, 6 and 7 underline the importance of a
detailed presuppositional analysis. Furthermore, with step 7 the importance
of institutions is stressed – that is not given proper consideration in many
approaches of ethical reflection.
Step 8 laconically makes reference to many traits of the discussions in
ethics and social philosophy. Importantly, the view of affairs will come into
play here. Of course, an ethical approach cannot free the decision maker
from deciding, by e.g. following a calculus-type decision scheme. Ethics can
only structure decision-making and conflict-solving and point out presup-
positions and what follows from them.
In order to implement the above procedure within a business ethics of
innovation the interface between philosophy and business in terms of the
Business Ethics of Innovation. An Introduction 5
widened view on innovations has to be developed. In a first step the manage-

ment, especially the organizational literature has to be assessed. This assess-
ment will be useful for the analysis of how business is dealing with innova-
tions and their different aspects as well as for the refinement of the proce-
dure in terms of its expediency for the business environment. It will thus be
of major importance for the organizational implementation of the above
procedure in the business process. The availability of a straight forward
organizational structure is key for the successful establishment of the proce-
dure. Social and political philosophy as well as the available work on gover-
nance has to complement this endeavor. The widened view on innovation
thus has its counterpart in the view on management and organization.
The need for this kind of normative approach to business administration,
especially for organization has been recognized (Margolis and Walsh 2003).
The agenda put forward there is not thoroughly philosophical. The analyti-
cal starting point, however, is shared and can be applied analogously in other
areas: In business administration research the tension of economic and non-
economic objectives is generally tried to be resolved by either empirically or
theoretically reconciling them by proving that the non-economic objectives
are instrumental for the achievement of the economic ones.
This compares to an analytic predominance of economic thinking and
prevents researchers from exploring the full scope of options and method-
ologically leads to problems of the ‘self-fulfilling-prophecy’-type. A business
ethics of innovation can be a cure for this shortcoming. Its widened perspec-
tive, however, means a considerable widening of research fields involved.
6 Gerd Hanekamp
References and further reading

Albach H (ed) (1994) Culture and Technical Innovation. A cross-cultural analysis
and policy recommendations. Berlin
Beauchamp TL, Childress JF (2001) Principles of Biomedical Ethics. New York
Beauchamp TL, Bowie NE (2004) Ethical Theory and Business. Prentice Hall, Upper
Saddle River
Benz A (ed) (2004) Governance – Regieren in komplexen Regelsystemen. VS, Wies-
baden
Brockhoff K (1999) Forschung und Entwicklung. München
Chadwick RF (ed.) (2002) Applied Ethics. Critical Concepts in Philosophy, 6 Bde.
London
Crane A, Matten D (2004) Business Ethics. Oxford
De George RT (2003) The Ethics of Information Technology and Business. Oxford
De George RT (2005) Business Ethics. Upper Saddle River
Eaton ML (2004) Ethics and the Business of Bioscience. Stanford
Farmer P (1999) Infections and Inequalities. The Modern Plagues. Berkeley
Freeman C, Soete L (1997) The Economics of Industrial Innovation. Cambridge
Goodin RE (1982) Political Theory and Public Policy. Chicago
Goodin RE (2005) Reflective Democracy. Oxford
Günther K (1988) Der Sinn für Angemessenheit. Anwendungsdiskurse in Moral und
Recht. Frankfurt a.M.
Hanekamp G (2004) Kulturalistische Unternehmensethik. Begründung und Anwen-
dung. In: Friesen H, Berr K (Hrsg) Angewandte Ethik im Spannungsfeld von
Begründung und Anwendung. Frankfurt a.M.
Hanekamp G (2005) Business Ethics of Innovation. Poiesis & Praxis 3:310–314, DOI
10.1007/s10202-005-0001-4
Hanekamp G (2006) Kulturalistische Unternehmensethik. Ein Stufenschema für
Entscheidungen und Konfliktlösungen. In: Beschorner T, Schmitt M,
Unternehmerische Verantwortung in Zeiten kulturellen Wandels. Hampp
Löhr A (2002) Macht und betriebswirtschaftliche Organisationstheorie. Rekon-
struktion und Neuorientierung. Habilitationsschrift, Wirtschafts- und Sozialwis-
senschaftliche Fakultät der Friedrich-Alexander-Universität Erlangen-Nürnberg
Meyer-Krahmer F, Lange S (ed) (1999) Geisteswissenschaften und Innovationen.
Heidelberg
Ortmann G (2004) Als ob. Fiktionen und Organisationen. VS, Wiesbaden
Schumpeter JA (1942) Capitalism, Socialism and Democracy. New York
Steinmann H (2004) Begründungsprobleme einer Unternehmensethik – insbeson-
dere das „Anfangsproblem“. Die Unternehmung 02/2004
Velasquez MG (2002) Business Ethics. Concepts and Cases. Prentice Hall, Upper
Saddle River
Corporate Ethics and Globalization –
Global Rules and Private Actors
Horst Steinmann
1 Introduction
The fundamental defect of global society today is not that the reach of corpora-
tions is too big, but that our ability to govern is too small. We face governance gaps
and governance failures on a monumental scale. Our core challenge, therefore, is to
stimulate social and political processes that will help bridge the gaps and reduce the
failures. The dynamic interplay between business, civil society, and the public sec-
tor constitutes an essential platform from which to mount the campaign.
It was John Ruggie from Harvard Law School, appointed by Kofi Annan as
“Special Representative on the issue of human rights and transnational cor-
porations”, who made this statement on the occasion of the Carl Bertels-
mann Prize International Symposium in 2002 (Ruggie 2002:2). As a profes-
sor of “International Affairs” Ruggie supported the UN-Secretary in devel-
oping and introducing the “Global Compact”. The Global Compact is an
attempt to involve corporations and other institutions in a world-wide pro-
gram to respect and support – within their sphere of influence – 10 funda-
mental principles, concerning human rights, social standards (labor and
working conditions), the environment and freedom from corruption.
It is this political context of global governance and the involvement of
multinational corporations in processes of creating new political and social
institutions which form the actual background of this paper. What I would
like to elaborate on a bit is the role which corporate ethics could and indeed
should play in this context (see also Steinmann 2003). This is a highly con-
troversial topic in the discipline of management theory because what is at
stake here is nothing less than the rationale, the “raison d’être”, of the private
corporation in capitalist market economies of the future. But the topic is
also highly controversial in and between other academic disciplines, like eco-
nomics, politics, and here especially the “Theory of International Relations”,
moreover: sociology, philosophy, political philosophy, international law, and
so forth.
In view of this state of affairs and in line with central philosophical ideas
of the German philosophical school of “Methodolocigal Constructivism”
(Lorenzen 1987, Janich 2001) I regard it to be an important task of manage-
ment theory (as the first and immediate addressee of business practice) to
8 Horst Steinmann
take on, where necessary, an interactive role as a kind of mediator and trans-
lator between problems of business practice and other academic disciplines
able to contribute to the solution of the problem at hand (Steinmann and
Scherer 2002); and this with the objective to come, first of all, to a common
understanding of the empirical situation within which to act and, secondly,
working on adequate normative orientations for change. In order to fulfill
this role management theory has to grasp and to conceptualize, on the level
of language, the respective problems of business practice; and this in such a
way that the basic notions required for tackling these problems can be
picked up by other disciplines for further (interdisciplinary) research.
It is from this methodological perspective that we have proposed, within
the national context, a notion of corporate ethics (Steinmann and Löhr
1994). I shall present this notion very briefly (2). Its core idea is that man-
agers of private corporations should be held responsible and accountable not
only for making sufficient profits but for contributing, at the same time,
directly to the public interest by peacefully solving those conflicts with its
stakeholders which arise out of corporate strategy. The notion of “strategy-
centered peaceful conflict resolution” is at the heart of my concept of corpo-
rate ethics, and this not merely as a laudable activity (as is the case e.g. with
philanthropic corporate givings), but as a moral duty which is not at the dis-
creation of management.
I want to show that this concept is so general that it can be applied to the
global political context mentioned by Ruggie (3). To do this I shall sketch
what Kofie Annan in his millenium address (Annan 2000) has called “Global
Public Policy Networks” as a representative example of what is actually going
on in practice. I maintain that what these networks offer could be under-
stood as a manifestation of corporate ethics.
What follows, then, are some remarks on a number of urgent questions
for future research of different disciplines needed to develop a theory of the
firm which can cope with the problems of corporate governance in a global-
ized world (4). What I am not going to do is to outline such a theory; its time
is still to come. I shall, instead, mention at the end some basic ideas which
may have the potential to improve the actual situtation (5).
2 A Notion of Corporate Ethics

(1) Let me start with a quote from an article which appeared in the presti-
gious “Economist”, January 22, 2005 issue, entitled “The good company”
(Crook 2005). This article has aroused wide critical discussions and com-
ments within the field of business ethics.
According to the author Clive Crook it is a pity that the movement of cor-
porate social responsibility (CSR) has won the battle of ideas. Let me just
remind you that this idea has gained great political support by the European
Union, as an important basis for the sustainable economic development of
Corporate Ethics and Globalization – Global Rules and Private Actors 9
Europe; “CSR-Europe” is an organization which has got quite a lot of money

from the EU to further clarify and develop the idea, but has had no great
impact on the practical situation as yet. Crook rightly criticizes the muddled
thinking on CSR which means a range of fairly different things to the union
of concerned executives. He blames “good corporate citizens” for virtually
having surrendered to the belief that capitalism is wicked. He highlights that
the contribution of profit to the public good is misunderstood by the pro-
tagonists of the idea. And he asks for an ethics of business which puts two,
and only two, constraints on the proper business goal of maximizing owner
value, namely (1) respect for property rights and (2) distributive justice in
the sense of pay linked to performance and promotion on merits.
I share the view of the author that the actual discussion about corporate
social responsibility, corporate citizenship, corporate ethics and similar
labels is still quite confusing because clear notions are lacking (Matten and
Crane 2005, Scherer and Baumann 2004). I do believe, however, that the
rather conservative idea of “business ethics” put forward by Crook fails to
meet the relevant practical normative requirements of todays corporate
management.
(2) My understanding of corporate ethics starts with the simple insight that,
for a society of free and equal individuals, good governance, in order to suc-
cessfully coordinate human actions as the focal point of the argument,
requires to reconcile individual freedom with the unity of society. In our con-
text of corporate governance this would demand that corporate ethics should
directly link the raison d’être of the private corporation to the public interest
as follows:
– Drawing on the work of Paul Lorenzen (1987:233) I propose to look at
the end to make peace more stable in and between nations (or societies) as
a reasonable general expression of what is usually called the “public inter-
est” or “common good”. Peaceful resolution of conflicts should be
regarded as the central value and normative basis of corporate ethics; and,
secondly,
– that corporations should contribute to the public interest directly by
peacefully solving those conflicts with corporate stakeholders which fol-
low or might follow from their profit oriented corporate strategies. In
other words: corporate ethics is about the means by which corporations
try to make profits. Are these means acceptable from a moral point of
view? Think of money laundering, corruption and violation of broadly
accepted social or environmental standards as only three examples of
moral scandals well known from reports in the media.
(3) These two ideas underlying my concept of corporate ethics may help to
improve the factual legitimation of corporate governance. But before I elab-
orate a bit more on it let me just point out that corporate ethics might also
contribute to corporate legitimacy on a more formal (legal) basis, namely by
10 Horst Steinmann
integrating it into (national) company law, as part of director’s duties and

liabilities. To mention this point just here seems to be important in view of
the legitimatory problems which originate within the global context and
which, as will be seen below, suffer, quite opposite to the national case, from
the lack of a world-wide law giver to establish the necessary legitimacy link
between the economic and the political system.
My vision is here that the licence to operate a private company and to
make profits should not be understood as being granted by law uncondi-
tionally. Instead, entrepreneurial freedom should be understood – and this
is in line with the so called concession theory (Parker 2002:3) – as being
granted under the legal proviso or constraint that corporations take over,
within the context of their strategic operations, a limited (stratgey-cen-
tered) responsibility for making societal peace more stable. Referring again
to a proposal of Lorenzen (1989:53) one could speak here of the “simple
profit principle” (“einfaches Gewinnprinzip”) as the decisive characteristic
of the corporation in a republic, as opposed to the purely economic princi-
ple of unlimited profit maximization valid under the doctrine of economic
liberalism where state and society are considered to be strictly separated.
This vision looks at company law as the proper place where the formal link
is established between private economic activities and the public interest
and where legitimacy is transferred from the political to the economic sys-
tem. I recognize that to make this vision concrete on the level of law might
carry with it severe problems yet to be resolved; but it would, nevertheless,
contribute heavily to strengthen the legitimatory basis of corporate gover-
nance1.
(4) From this republican perspective corporate ethics is to be understood as
a self-regulation device which is intended to support the (national) law as the
primary peacemaking institution in and between democratic societies, and
this in three ways:
1. by complying with the law. An outstanding case is here the well-known
“legality principle” of the Bosch company; part of this principle is the
important clause that complying to the rules of law must not be made an
object of economic calculations by managers and employees;
2. by complementing national law in cases where legal provisions for peace-
ful conflict resolution are not or not yet in existence as is often the case in
globalized business. Corporate codes of conduct to fight sweatshop con-
ditions in the sportswear industry worldwide by well-known companies,
like Nike or PUMA, are good examples here;
1
It is in this sense that the Senate und the House of Representatives of Minnesota/
USA dealt with a proposal to intgrate the public interest into company law by
„imposing liability on a corporation and its board for damages caused to the pub-
lic interest.“ See www.revisor.leg.state.min.us/bin/bldbill.php?bill=S1529.0 &s...
3. by critizising (or even opposing) existing law in order to bring about

and support initiatives for reform where necessary to link the public
interest in a better way to the behaviour of corporations. Some compa-
nies in South Africa during the Apartheid regime can serve as an exam-
ple here.
(5) Time does not permit a detailed elaboration of this concept of corporate
ethics, its many presuppositions and consequences. I restrict myself to a few
comments:
1. There is, of course, first of all the question of what it does mean to solve
conflicts “peacefully”. The definition of “peace” must be such that it links
individual freedom with the unity of society in order to efficiently coordinate
human actions (as the focal point of my analysis). Following Lorenzen
again we can define handling of a conflict as “peaceful” when the actors
involved try to come to a general and at the same time free consensus via rea-
soning and argument. This points to corporate ethics as discourse ethics and
marks the distinction between ethics and the use of power in its manyfold
forms. The important philosophical problem arising here is, of course, how
the word “peace” is to be introduced.2 I have decided not to follow (any
more) Apel‘s Trancendental Pragmatism (Apel 1973) here, but to start the
argument before any distinction is made on the semantic level between
“real” and “ideal” speech situations (see also Habermas 2005b:347). This
implies that in a society there must exist already, and this as the outcome of
a long-standing, broadly accepted and deeply rooted experience to coordi-
nate actions successfully, a pragmatic understanding or “know how” about
what the words “reasonable”, “argumentation” or “peaceful” mean. Thus, it
is on the pragmatic level and from the participator‘s perspective as the first-
person normative point of view (as opposed to the semantic level and
observer‘s perspective as the third-person descriptive point of view) that we
should reconstruct and introduce the notion of peace. This is, at least, what
Friedrich Kambartel (1989) proposed about how to introduce the word
“reason” (see Hanekamp 2001:58, for a critical review). Kersting (2002:279)
followed Kambartel when he introduced the term “pragmatic justification”
and analyzed its pragmatic and grammatical presuppositions. The gram-
matical presupposition (which is of special importance at this point) holds
that for the process of justification nothing else is available to the parties
besides the well-known grammar of their rationality, in which the patterns
for their mutual understanding and unfolding of the world are integrated.
This grammar is, according to Kersting, part of the culture in which we
grew up: we are born into a world which is formed by a net of notions and
procedures of justification. The important consequence is, of course, that
2
Following the strict methodological view of Janich (2001:152) it would be, as the
first step, necessary to introduce the adjective “peaceful” by predicating the spe-
cific ation and then move on to the noun “peace” as a reflexive term.
12 Horst Steinmann
embarking on this philosophical position makes the entire concept of cor-

porate ethics culture-bound. And one can easily imagine that this approach
has, in turn, severe consequences for multinational companies regarding
their policy for handling intercultural conflicts. I shall come back to this
important point at the end of my paper.
2. Corporate ethics does not replace the market. The opposite is true: corpo-
rate ethics is based on the market as an institution for the coordination of
economic actions. In market economies plans and actions are not coordi-
nated via the intentions of individual actors (by way of argumentation)
but via the monetary consequences of their (profit-oriented) actions eval-
uated through the price-system. I think there is convincing historical evi-
dence (as opposed to mere analytical model building as is the case e.g. in
welfare economics) for the superior efficiency of market coordination (as
compared to centrally planned economies) to assure productivity, welfare
and progress. Market societies are, therefore, comparatively less prone to
conflicts of interests and insofar better suited for making peace more sta-
ble. This argument refers to the (empirical) indirect link between eco-
nomic rationality and the public interest meant by Crook above, as
opposed to the direct link of corporate actions to the public interest which
is set up by corporate ethics. In any case, I strongly hold that changing the
economic system is not on the agenda as long as it is not convincingly
demonstrated that there is a more efficient alternative to the market. Let
me add that this does not imply the methodological principle that mar-
kets precede politics; quite the opposite. The market is to be regarded as
being embedded in a system of rules set by politics and law; it cannot cre-
ate its own normative basis.
3. It follows that the enterprise should remain, at its core, what it is con-
structed for, namely a private economic actor in a decentralized competi-
tive market economy. Economic responsibility for the survival of the cor-
poration is with entrepreneurs and management; it cannot be delegated
to any other outside institution such as the state. This implies that private
corporations are called upon to make sufficient profits, as a precondition
for the survival of the enterprise in (more or less) competitive markets.
4. The critical point of our concept of corporate ethics is that this justifica-
tion of the profit principle is necessary but not sufficient. This is so
because, on the level of the economy as a whole, the profit principle can
only be justified in general, e.g. if one abstracts from the many specific side
conditions under which concrete decisions have to be made on the cor-
porate level, decisions about corporate strategy, the means for making
profits and about probable side effects and resulting conflicts of interest.
This general justification can, therefore, substantiate only the presupposi-
tion that the profit motive is right in principle (“Richtigkeitsvermu-
tung”). On top of that, what seems necessary for a complete justification is
that entrepreneurial freedom granted by law is linked to a broader concept
of corporate responsibility, a concept that transcends the pure economic

dimension. This argument in favour of corporate ethics seems to me to be
compelling; this at least under the pragmatic assumption that we strive to
make peace in and between societies more stable. Management must,
then, be kept responsible for all those cases where the peaceful resolution
of conflicts caused by corporate action is not successfully settled by law. It
is in this sense that corporate ethics forms a direct link between the public
interest and corporate strategy. Needless to say that this concept of corpo-
rate ethics depends on partners who share a culture of peaceful conflict
resolution. Famous conflicts, like the Nestlé case in the seventies (Stein-
mann and Löhr 1988), Shell’s engagement in Nigeria in the eighties or the
situation in the sports apparel industry today (Hartmann et al. 2003)
show that this cannot be taken for granted. A lengthy learning process for
all partners is usually necessary to reach the stage of peaceful conflict res-
olution. For Nike such a learning process is now well documented in an
article in the Harvard Business Review (Zadek 2004).
5. My argument so far, then, is somewhat predicated on what one may refer
to as the situational embeddedness of corporate ethics. There are many
historical constraints which must be taken into account in each specific
strategic situation in order to substantiate a pragmatic judgement about
whether or not management has lived up to its responsibilities, both eco-
nomic and ethical. Situational analysis is, therefore, an important part not
only for economic decisions but also for ethics management; one cannot
exercise either of them in the abstract. The situational analysis must cover
many aspects and requires, at the same time, sound judgements about
which of the (relevant) aspects must be accepted as given and which
could probably be influenced by the corporation, at what costs and
within what time span. Only then one can hope to get an idea about the
limits or the range (reach) of social responsibility of management in a
given situation. The important aspects of the situation include (Margolis
and Walsh 2003:293): the resources of the company, its competitive
advantages and disadvantages, the specific culture and norms governing
the industry and the country the firm is operating in, the attitude of the
critical public towards the industry or certain companies, and so forth,
and all this in a dynamic perspective. As a result of the analysis it may
turn out that, instead of the corporation, the industry association, nation-
wide or even worldwide (Hemphill 2004), or the regulatory apparatus of
the state is the proper locus for effectively handling the problem at hand.
Let me remind you of the well-known “prisoners dilemma” (as a charac-
teristic of market economies) which may prevent individual companies
from acting alone on a moral conflict, and this for the purely economic
reason of “free riding” of competitors. But even in cases where a conflict
cannot be handled on the corporate level managers are not totally
relieved from their moral responsibility. Corporate ethics requires that
14 Horst Steinmann
corporations unfold in such cases political initiatives for what is called

today “ethical displacement”, i.e. for shifting the problem on a higher
political level where a proper solution may be possible.
6. The situational embeddedness of corporate ethics gives reason to touch
on an important methodological problem, namely the relationship
between contextuality and universality. Hanekamp (2004) made the pro-
posal to reverse the traditional methodology, which is to first argue for
the universality of norms and then apply these norms in concrete histori-
cal situations. Instead of starting, as the first step, with decontextualized
norms and asking only then how far these norms must be re-contextual-
ized, Hanekamp reminds us of the alternative: How far must we go on in
the process of de-contextualization of norms to solve those tasks which
pose themselves in a given situation. The methodology of justification of
norms should proceed “bottom up” instead of “top down”. This comes
close to what Kersting (2002:279) has called the pragmatic presupposition
mentioned above. Kersting insists that there is no need to justify actions,
decisions or norms per se, so to speak as a philosophical exercise and as
an end in itself. The need for justification, he insists, arises for any field of
human action only within the context of a specific practical situation, in
the light of new problems and from the point of view of individual per-
sons. I think it is worthwile to think in more detail about Hanekamp‘s
proposal.
(6) There are, of course, many other problems which would need to be men-
tioned here. Among the most difficult one for management theory counts
the design of a management system which allows to efficiently and effec-
tively bring to bear ethical considerations on all five classical managerial
functions, that is: on planning and control, on organization and personal
and on leadership (Haas 1998; Steinmann and Olbrich 1998; Steinmann and
Scherer 2000; Leisinger 2003 for Novartis). It is only when this problem is
solved properly that corporate ethics really assumes practical relevance.
3 Corporate Ethics and Globalization

(1) Having outlined my notion of corporate ethics I now turn to some devel-
opments in the course of globalization which, in my view, could be under-
stood as manifestations of corporate ethics, or, if you like, “international”
corporate ethics. New challenges for corporations here emerge on the inter-
national or global level (Haufler 2001; Scherer 2003). Quite a few companies
have taken on these challenges in different forms and ways (KPMG 2005).
Individual companies have developed corporate ethics programs on their
own, as e.g. in the sports apparel industry, in response to long standing pub-
lic criticism. In this industry some companies set up social and environmen-
tal standards for suppliers in developing countries to address sweatshop con-
ditions. The federation of the apparel industry, national and international, is

now trying to come to a collective agreement on these topics to cope with the
free rider problem, especially of no name products. There are, moreover,
what one calls today “Public-Private-Partnerships” as a kind of institutional
arrangement between a nation state and private corporations. Such partner-
ships are manyfold, especially within the area of development aid. But what
I would like to mention explicitly are the well-known US-Sentencing Guide-
lines from 1991 as an outstanding example of how private companies can
help to support the public interest (Steinherr et al. 1998). These guidelines of
criminal law offer a substantial reduction in fines to private companies if
they have made a number of specific organizational provisions to fight crime
in their sphere of influence (Ethics Officer, Code of Ethics, Training, Sanc-
tions etc.)3. Both, companies and the state, instead of being opposing parties
in criminal court, sit here in the same boat to fight crime. And, finally, let me
mention what Kofi Annan has called “Global Public Policy Networks” as a
type of public-private-partnership which I shall elaborate on a bit later on.
(2) Up to now there is no empirical evidence how many of these new
“forms” of management actually exist. I think it is fair to say that what we
talk about here is “work in progress”, not even well understood in theoreti-
cal terms. The UN estimates that about 50 to 60 GPPNs exist. This in view
of some sixty to seventy thausand transnational companies controlling
approximately 800.000 affiliated organizations (UN Conference on Trade
and Development 2001:6; Leisinger 2004:FN 181). Nevertheless, manage-
ment theory must, I think, engage in this important practical development
as early as possible, if only for stimulating interdisciplinary research. It is for
this reason that some members of the German Business Ethics Network
cooperate now with PUMA company, and this in the third year, acting as
moderators of discourses which the company has inititated with its stake-
holders on a worldwide level, in order to anticipate, clarify and analyze con-
flicts arising out of corporate strategy with the aim to avoid or peacefully
solve them (Löhr et al. 2005). As already mentioned, Nike is engaged in sim-
ilar discourses; it has, in fact, taken the lead here after years of hard con-
frontation with NGOs (Zadek 2004).
I originally intended to talk about our experience with PUMA; but this
would deliver as yet only rather anecdotal evidence. I thought it might give
you a broader perspective if I summarized some information about Global
Public Policy Networks, to show that what is going on here may well be
understood as a manifestation of corporate ethics.
(3) Global Public Policy Networks, not to be confused with what Habermas
(2005:359) calls “Global Economic Multilaterals” (mainly World Bank,
3
The development of the Sentencing Guidelines up to the present is documented
in www.ussc.gov.
16 Horst Steinmann
World Trade Organization, World Monetary Fund) have gained the special
attention of the UN as important institutional arrangements for global gov-
ernance. Kofi Annan referred to challenges of global political governance in
his 1999-speech at the World Economic Forum in Davos and in his mille-
nium address of 2000. In both documents he raises the more and more
pressing question where in the world new loci of responsibility do emerge and
what institutions could form part of a new global political order, institutions
which are able and legitimized to solve the upcoming problems and conflicts
in a globalized economy. Here is his answer (Reinicke and Deng 2000:XVIII):
The United Nations once dealt with governments. By now we know that peace and
prosperity cannot be achieved without partnerships involving governments, inter-
national organizations, the business community, and civil society.
What Annan has in mind, inter alia, are networks of public-private part-
nerships which are able to better cope with the complexity of governance
problems on a global scale, better than formal institutions. Let me quote
again (Reinicke and Deng 2000:XVIII):
Formal institutional arrangements may often lack the scope, speed and informa-
tional capacity to keep up with the rapidly changing global agenda. Mobilizing the
skills and other resources of diverse global actors, therefore, may increasingly involve
forming loose and temporary global public policy networks that cut across national,
institutional and disciplinary lines. The United Nations is well situated to nurture
such informal “coalitions for change” across our various areas of responsibility.
Corporations as partners of “Global Public Policy Networks” sharing

responsibility with other global players for the peaceful resolution of world-
wide problems and conflicts: it is my view that this vision of the UN to
improve processes of global governance implies for corporations exactly that
kind of responsibility which corporate ethics would require of management.
A closer look at what Global Public Policy Networks do will underline
this thesis. It will reveal that corporations present themselves here not in
their capacity as strictly private actors which plan their economic calcula-
tions only, and only, towards the well-being of shareholders and manage-
ment – without any real concern for the public interest. Instead, they partic-
ipate in processes to promote the public interest in a direct way, thereby
transcending the traditional “raison d’être” of the private corporation.
(4) I restrict myself to some basic remarks about these networks; more
details are available in the report “Critical Choices, The United Nations, Net-
works, and the Future of Global Governance” by Reinicke and Deng (2000)
on which I draw heavily in what follows.
The first thing I should mention is that GPPNs are not another attempt at
top-down organization building. They are, instead, institutional innovations
which emerge bottom-up to solve concrete issues or problems identified, and
this usually on a temporary basis. Governments, international organizations,
corporations and NGOs may be partners depending on the complementar-
ity of resources needed to tackle the specific issue at hand. There are six func-
tions networks can perform, which Reinicke and Deng discuss in some
detail. Let me shortly mention three of them (Reinicke and Deng 2000:27):
1. Networks contribute to establish a global policy agenda and offer mecha-
nisms for developing a truly global public discourse in which to debate the
agenda. Transparency International (TI) is an example. The problem was
and still is here to crack the taboo around corruption, without alienating
the very people on whom it would rely to make inroads into the problem.
An important part of the strategy is to build “islands of integrity” with
corporations, public authorities of the country and TI as partners in coop-
erative anticorruption efforts. All relevant companies commit themselves
in their code of conduct to refrain from bribery and to develop appropri-
ate organizational structures for the implementation of the code. I think
this is a fairly good manifestation of corporate ethics. The “islands of
integrity” are provisions to overcome the well-known prisoners‘ dilemma.
2. Networks facilitate processes for negotiating and setting global standards.
Setting transnational rules and standards is becoming ever more important
as political and economic liberalization and technological change create
transnational social and economic spheres of activity whose governance
demands a global framework. More and more national and international
bureaucracies realize that negotiating and setting standards to address
transnational problems differ from agenda-setting in their need to involve
all the stakeholders, both because these stakeholders provide timely and
complex knowledge and because their involvement provides, according to
Reinicke and Deng, legitimacy to the process through inclusion of those
concerned. A good example is the “World Commission on Dams”
(www.dams.org) which deserves to be outlined in some detail. It was the
growing complexity and politicization of large-dam construction and its
social, economic, and environmental implications which made this,
according to Reinicke/Deng, one of the most conflict-ridden issues in the
development debate. In the late 1980s and early 1990s, a breakdown of dia-
logue among NGOs, dam builders, and international organizations such as
the World Bank, which had financed many large dam projects worldwide,
led to a stalemate. This stalemate imposed considerable costs on all stake-
holders: builders saw their income from dam construction decline; NGOs
had to spend considerable resources to sustain public campaigns against
large dams; and the World Bank, facing fierce public pressure, could no
longer support any loans in this area. Bringing representatives from all rel-
evant groups and sectors together in an independent trisectoral network was
imperative to break the stalemate and to start to build a consensus on stan-
dards for large-dam construction. The World Commission on Dams did
just this. The report published in 2000 gives evidence on the impressive
results as a fair normative basis for future economic activities in this field. It
18 Horst Steinmann
was Göran Lindahl, then president of the multinational engineering firm

ABB, who supported the whole project; he realized very early that a trisec-
toral effort could lead to greater stability and predictability in the industry’s
business environment. But the list of supporters of the initiative contains
even more names of important companies all over the world. I think par-
ticipating in this network is a clear manifestation of corporate ethics. Of
course, it is one thing to develop a code of conduct and another to imple-
ment it. Here lies a severe deficit of the World Commission on Dams. What
is necessary is that corporate ethics becomes an integral part of every-day
management; only then will companies commit themselves to actually
implement this normative framework on a permanent basis and not to just
confining to a mere exercise of window-dressing. And what we observe,
moreover, in the sports apparel industry is that NGOs are more and more
calling for independent auditors to check results.
3. Rather than bringing about a concrete result, as in these two examples, a
third function of networks turns out to be the result of the cooperative
process itself, in the sense of an important by-product, namely that GPPNs
may help closing the global participatory gap. Reinicke and Deng rightly
point out that there is no global public space in which substantive discus-
sion of transnational challenges can effectively take place and be acted
upon in an open and participatory fashion. They note that economic, cul-
tural, and social integration requires more than simply efficient techno-
cratic management. All emerging problems, be it the regulation of the
Internet, solutions to preserve the ozone layer, the control of international
money laundering, have also a political dimension. It requires inclusive and
legitimate political processes which – according to the UN – Global Public
Policy Networks can hopefully promote, because of their rather inclusive
and discursive character. A case in point is again the World Commission
on Dams network which got willy-nilly engaged in processes of determin-
ing what is or is not in the broader public interest. Within this process net-
works raise the profile of an issue to the point where addressing it is con-
sidered to be in the global public interest. So it is the process itself, not the
final product, by which public issues are raised and treated in rational dis-
courses. This suggests that participating in Global Public Policy Networks
allows for a learning process in exercising corporate ethics. But the question
remains, of course, whether this process has any legitimatory potential at
all, as presupposed by some of its protagonists.
(5) Unfortunately, there is no time to go into more details about Gobal Pub-
lic Policy Networks4 (see also Benner et al. 2002). I realize that what I have
said so far is still rather selective and far away from a convincing picture of
business reality to really support my thesis that these emerging phenomena
4
There is a serious critical discussion about the negative effects on development
countries (e.g. Zammit 2003).
are manifestations of corporate ethics. In order to draw such a picture we

would need, in fact, more empirical research about – generally speaking –
existing global business regulation and the role private corporations and
other institutions played and still play in developing and implementing such
rules (a ground breaking work is Braithwaite and Drahos 2000). Only on
such an empirical basis can we hope to fully understand the role of private
actors in setting global rules and to make proposals for improvement. To
indicate the difficulties arising here let me pick up in the last part of my
paper a few of the research questions which my discipline, in asking for help,
poses to other academic fields.
4 Open Problems and Research Questions

(1) There are, first of all, quite a few unsettled philosophical questions. The
most difficult one is the problem of what, if at all, could count as a sound
argumentative basis for (international) corporate ethics and ethics in general.
There are, as you know, quite a few philosophical schools which seem
“incommensurable” from an outside point of view. I mentioned already that
our concept of corporate ethics tries to apply fundamental concepts of
Methodological Constructivism, developed in the tradition of the former
“Erlangen School”, thereby following the linguistic and pragmatic turn in
philosophy, as opposed e.g. to Apel’s Transcendental Pragmatism. Our con-
cept is thus culture-bound as mentioned earlier already. And this raises the
question often discussed today under the heading of “relativism”: How can
one come to universal values in view of the plurality of cultures? This ques-
tion is obviously of great importance for international management: it
depends e.g. on the answer to this question how managers of international
companies should interact with foreign cultures. Personally, I do not con-
sider myself qualified to delve into the abyss of this philosophical problem.
Whereas Rorty (2005) strictly defends a relativistic position still today5, Har-
ald Wohlrapp (1998, 2000) elaborated extensively on a non-relativistic cul-
tural position. Moreover, it was Carl Friedrich Gethmann who made a valu-
able contribution here at the conference of the European Business Ethics
Network in 1996. In his paper “Reason and Cultures, Life-world as the Com-
mon Ground of Ethics” (Gethmann 1998) he holds, first, “that the philoso-
phy of Reason overlooks that it is actually and in any case only a plausible
programme with regard to certain factual structures of the life-world” (214);
and he demonstrated, secondly, that the contextualists overlook that it can be
an immanent desideratum of particular identity to rise above the limits of
the particular. Under certain conditions”, he holds, “Reason itself – at least as
a desideratum – is a cultural fact. But this fact would perish if the culture
perished.” (214). Thus, according to Gethmann, “a common basis in the life-
5
For a critical analysis of Rorty’s position see Lueken (1998:307).
20 Horst Steinmann
world is necessary for universal moral convictions to be founded. [...] A uni-

form, universal form of life is by no means the maxim which results from the
project of Reason.” (214). Without going into details I think that this pro-
vides a useful orientation for further research, e.g. in International Human
Resources Management. One consequence would be that expatriates should
be trained not to preach western values as universal truths a priori but to try
to initiate, if necessary, on the pragmatic level a learning process with mem-
bers of other cultures, in an attempt to unfold, step by step and based on the
successful outcome of common actions, a mutual understanding of what it
means to solve conflicts peacefully (Steinmann 2004).
(2) A second unsettled problem relates to the character and legitimacy of rules
developed by corporations – be it alone, on industry level, or in global net-
works, together with other private and non-private institutional actors.
Legal scholars speak here of “soft law” (Shelton 2000) and have lengthy dis-
cussions about this grey zone between legal norms and social norms,
between the societal articulation of interests and their transformation in for-
mal legal rights and norms.
Klaus Günther (2001:541) has raised crucial questions about this develop-
ment in a paper about globalization as a problem of the theory of law. He
points out, inter alia, that the plurality of law generating regimes which devel-
oped worldwide as a consequence of globalization threatens an important –
and so far generally accepted – principle of any democratic state, namely the
unity of the legal system. Günther raises disturbing questions: What about jus-
tice, about the principle of equal treatment of equal cases, thus far accepted,
at least in principle, as a precondition in a coherent system of national law?
What about the autonomy of nation citizens which alone can produce legiti-
macy within the democratic state? How is legitimate law possible if private
actors authorize themselves to self-regulate disparate arenas of social life?
Acceptable answers to these questions must obviously transcend the tra-
ditional notion of legitimacy (and accountability). Traditionally, legitimacy
arises within the political system of the nation state from the “institutional-
ization of those discursive processes of opinion- and will-formation in
which the sovereignty of the people assumes a binding character.” (Haber-
mas 1996:104). But on the global level there is, as yet, no law giver, no state
apparatus and no sovereign people. Thus, formal legitimacy cannot be trans-
ferred, as I indicated above for the national case, from the political to the
economic system by integrating corporate ethics into company law. Instead,
we have “spontaniously emerging civil society associations and movements
that map, filter, amplify, bundle and transmit private problems, needs and
values” (Habermas 1996:367), acting within the economic system, not the
political system. Can one apply the Habermasian “theory of deliberative
democracy” (1996), which was developed for the political system, directly to
the economic system to qualify such processes and their output as not only
factually but also formally legitimate? This is what Scherer and Palazzo
(2005) seem to propose in a recent paper. But in the absence of global sover-
eign and proper institutions for democratic political action on a worldwide
scale there is no source from which private rules can derive a binding legiti-
matory character. What seems to be necessary, then, is a broader notion of
legitimacy which is no longer bound to the nation state. Its centerpiece
would be the public use of reason, and this not only as a basis of the political
system but also of the economic system.
(3) Closely related to this second point is a third one, resulting from the inter-
active and discursive character of corporate ethics. If NGOs become more
and more partners of discourses with corporations, both as providers of tech-
nical knowledge and by participating in political processes intended for estab-
lishing a legitimate basis for corporate action, then NGOs must understand
and practice the new role required by corporate ethics (Löhr 2004).
NGOs get in a role-conflict. Thus far they act as a kind of countervailing
power campaigning from the outside in the public arena in order to force
management to change its strategy in such a way that it becomes more in
line with the (perceived) interests of stakeholder groups, interests which, by
the way, are often more or less regarded as legitimate per se. Now NGOs get
involved in a strategic corporate-ethics process, based on argumentation,
from which to derive good reasons for and to commit to action programmes
which regard human rights, social standards, environmental norms and so
forth as an integral part of corporate strategy. Our experience with the
PUMA company shows that it is obviously quite difficult for representatives
of different stakeholder groups to handle this role-conflict adequately, i.e.
not to fall back during discourses on a strategy of campaigning instead of
scrutinizing arguments.
Needless to say that there are other questions arising out of this factual
discursive practice with NGOs which relate directly to the fundamental
legitimacy problem mentioned above (Bendell 2005). Who selects the resp-
resentatives of NGOs? What groups are authorized to take part in corporate
strategy discourses? Who cares for the public interest? To whom are repre-
sentatives of stakeholders accountable? What about the responsibility of
management towards shareholders as laid down in many modern company
laws, especially in anglo-american company law? How must rules look like to
coherently integrate corporate ethics processes in legitimate corporate deci-
sion processes? Where do such rules come from to be legitimate? Is it enough
that they just emerge out of factual social processes? These are all disturbing
questions pertaining to problem of legitimacy and yet to be answered.
(4) Finally I would like to mention that corporate ethics is a challenge also
for the “Theory of International Relations” (Reinicke 1998, Hellmann et al.
2003, Wolf 2005). Let me remind you that traditional theory does hold here
that international relations are relations between nation states which have
22 Horst Steinmann
established already clear-cut national interests and which contract with one
another to create an international order to overcome anarchy.
This theory presupposes that nation states are sovereign in a double sense.
External sovereignty presupposes that nation states are independent of other
states in formulating and implementing national interests concerning cus-
toms, tariffs and so forth. Internal sovereignty presupposes that the acts of
giving and implementing national law should be independent of particularis-
tic goals of societal actors and interest groups in order to find what is in the
public interest in a given situation. As we know from everyday experience
globalization is a threat to both the external and the internal sovereignty.
When corporations, financial and non-financial, split up their value chain
and distribute it to different nation states they get more and more independ-
ent from the political power and the law of their specific home country; they
get even the power to influcence national law, both at home and in host coun-
tries. Moreover, when corporations get involved in global public policy net-
works and when they help, in line with corporate ethics, to develop and
implement global rules for economic action they may also undermine the
sovereignty of nation states. So, it comes as no surprise that theorists of inter-
national relations are trying now to describe and to better understand these
phenomena emerging in the process of economic globalization.
5 Final Remarks
(1) Thus, there are many academic fields for which the globalization process
is a challenge, in general and with regard to the public role which private
actors begin to take on here. What seems to be necessary is more interdisci-
plinary research aiming at an empirical theory which allows to better under-
stand the actual economic and ethical role of the corporation as a global
player; and to allow for necessary reforms to make peace within and between
societies more stable.
(2) It was Neil Fligstein from Berkeley who outlined such an empirical theory
in his recent book “The Architecture of Markets, An Economic Sociology of
Twenty-First-Century Capitalist Societies.” Let me quote at the end of my
paper a central passage from this book which highlights the role of the pri-
vate corporation as an active player in the market, as opposed to the ortho-
dox consensus in general economic equilibrium theory which conceptualises
the corporation as a passive actor reacting merely to market forces (23):
A sociological approach to market institutions makes us understand that there is
not a single set of social and political institutions that produces the most efficient
allocation of resources. The real issue for making markets is to create political and
social conditions that produce enough stability so as to allow investments. Once
these institutions are created, there are a great many ways to organize firms and
markets that are compatible with making profits. Since the whole society is
enmeshed in market making, it is logical to argue that many possible interventions
to produce a just and equitable society are in fact compatible with profit making.
Indeed, one outcome of these interventions is to strengthen the legitimacy of mar-
ket institutions.
(3) In view of such a general theory of twenty-first-century capitalism it

may, perhaps, turn out that corporate ethics in the rather narrow sense
defined here is only part of a broader concept of corporate citizenship
(Scherer and Palazzo 2005; Moon et al. 2005) discussed so enthusiastically
today in many countries. Or it may be regarded, as Utting (2005) proposed,
as part of a still broader concept which stresses the necessity to complement
peace-meal and more “collaborative” concepts of corporate self-regulation
(corporate ethics, corporate social responsibility, corporate accountability)
by all kinds of governmental and non-governmental devices of “articulated
regulation” oriented more towards “confrontation” and innovation.
What all these proposals have in common is a problem that Philipp
Selznick touched on in his book “Law, Society, and Industrial Justice” as early
as 1969 when he talked about the disentanglement of citizenship from pri-
vate law in modern times. The consequence was, according to him, that “cit-
izenship” is conceived today as a status and set of responsibilities that applies
only to individuals but not to corporations (quoted from Parker 2002:28).
But if we begin to reverse this process by intentionally bringing back corpo-
rations or – more general – private companies in the political arena we must
be careful not to broaden the notion of corporate responsibility too much. If
we treat not only the individual but also companies as “citizens” in the full
political sense of the word, then we may loose the advantages in economic wel-
fare which industrial societies have gained over the last centuries through what
we call today systems differentiation, with each system having its own code of
rationality. I hold, that the big corporation, as one of the most important and
powerful agents of the capitalist system, should remain what it is primarily
constructed for, namely a private economic actor rather than a political actor.
Of course, corporate ethics broadens this narrow economic concept of the cor-
poration towards political responsibilites. But this should be done – and this
seems to me to be important – not in an unspecified and rather unlimited way
but should be restricted to the task of peacefully handling conflicts in and
between societies, conflicts which are caused by corporate strategy: restricting
political responsibility of corporations to peacefully handling conflicting con-
sequences caused by corporate strategy should be seen as the focal point of cor-
porate ethics (Dubbink 2004:27; Drucker 1974:341).
Even in this restricted capacity corporate ethics can, in my view, help sub-
stantially in developing and upholding a culture of reason and peace world-
wide. In doing so, corporate ethics would contribute to re-producing the
only and central resource which is at the basis of any democratic and free
society, a resource on which the good functioning of markets depends but
which the market itself cannot create. This resource is the motivation of indi-
viduals to transcend mere cost-benefit calculations for enhancing private
24 Horst Steinmann
welfare and to participate, instead, in ethico-political processes to foster the

public interest (Habermas 2005a:II). Big and powerful multinational corpo-
rations acting solely in the name of profit and of shareholder-value will, in
the long run, contribute substantially to destroy this motivational resource
and, thereby, cut the ground from under their own feet; this process is what
Habermas coined the “colonialization of the life-world” through the eco-
nomic system. Thus, corporate ethics seems to me to be, in the long run, in
the best interest of private corporations and should be regarded as part of
good management in a globalizing world.
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Research Priorities, Profits, and Public Goods:
The Case of Drug Resistant Disease1
Michael J. Selgelid
Overview
In this paper I argue that drug resistance is an important ethical issue in
virtue of (1) the severe – and potentially catastrophic – consequences of
drug resistance, (2) the fact that drug resistance largely results from the way
that medicines (and research resources) are distributed, and (3) the fact that
drug resistance is a clear example of a public goods problem. Recognition
that freedom from infectious disease in general and drug resistant disease in
particular are public goods provides additional reasons to those traditionally
appealed to by bioethicists for treating health care as something special when
making policy decisions about its distribution. The fact that freedom from
infectious disease should be recognized as a public good, that is, provides
additional (i.e. utilitarian and self-interested) reasons to standard egalitarian
and human rights reasons for removing antibiotic distribution and develop-
ment from free market mechanisms. While the problem of drug resistance
largely results from lack of access to existing antimicrobial medications and
while a primary solution to the problem of drug resistance would be the
development of new vaccines and medicines, the problem of drug resistance
intersects with debate over intellectual property rights in pharmaceuticals.
What does all this mean for business ethics? I argue that recently proposed
incentive schemes alternative to the standard patent regime reveal that con-
flict between corporate profit promotion, on the one hand, and corporate
respect of standard humanitarian ethical duties, on the other, is not in fact
inevitable. Implementation of “pull programs” such as those recently pro-
posed by Thomas Pogge and Michael Kremer et al. would better allow indus-
try to meet humanitarian obligations and serve the world’s most important
medical needs without (necessarily) sacrificing profits. I conclude that phar-
maceutical corporations have an ethical obligation to provide the political
support necessary to put such programs into place.
1
Much of this material was initially presented at the 7th World Congress of the
International Association of Bioethics (IAB), Sydney, Australia, November 2004,
and published in an article titled ‘Ethics and Drug Resistance’ in Bioethics – the
journal of the International Association of Bioethics, published by Blackwell.
28 Michael Selgelid
Background
Though infectious diseases raise some of the most important ethical issues
in the context of medicine, they have historically been neglected by med-
ical ethics disciplines in comparison with topics such as abortion, euthana-
sia, assisted reproduction, genetics, cloning, stem cell research, and so on.
The topic of infectious disease is one of the most important topics for
bioethics because (1) the historical and likely future consequences of infec-
tious diseases are almost unrivalled, (2) infectious diseases raise difficult
ethical/philosophical questions of their own, and (3) the topic of infec-
tious disease is intertwined with the topic of justice. I have elsewhere
argued this case and attempted to explain why bioethics has not paid more
attention to the topic of infectious disease in general (Selgelid 2005). In
this paper I examine drug resistance as a specific example of a neglected
ethical issue arising in the context of infectious disease and explain why the
problem of drug resistance intersects with and lends importance to exist-
ing debates over intellectual property rights (in pharmaceuticals) and
business ethics.
The development of antibiotics was one of the great successes of modern
medicine. Penicillin was discovered by Alexander Fleming in 1928. When a
method for its mass production was later developed by Howard Florey, in
1944, it was immediately hailed as a “miracle cure” and “wonder drug”. Addi-
tional antibiotic and vaccine developments, in conjunction with improved
sanitation and hygiene, revolutionised medicine, providing unprecedented
success in the fight against infectious disease. These developments were so
promising that it became common to believe that infectious disease would
soon be defeated through medical progress. In 1967, for example, U.S. Sur-
geon General William Stewart famously declared that it was time to “close
the book on infectious diseases” and shift medical attention and research
resources to chronic diseases (Garrett 1994:33). Western medicine since
shifted focus to things like heart disease and cancer. The medical industry is
also increasingly busy with “blockbuster” treatments for allergies and
depression – and lifestyle drugs for things like baldness and impotence. In
the meanwhile, almost no new classes of antibiotics have been developed
since the 1960s. This is largely because there is little market incentive for
industry to develop antimicrobial medications.
Consequences
With the emergence and spread of drug resistant pathogens, however, exist-
ing antibiotics are losing their power to fight off infections. Though not a
new phenomenon, the problem of drug resistance is increasingly being rec-
ognized as a serious, growing threat to global public health. The magnitude
of the threat is revealed by the fact that the World Health Organization
Research Priorities, Profits, and Public Goods: The Case of Drug Resistant Disease 29
(WHO) currently considers “antimicrobial resistance to be one of the top

three issues in global public health” (Knobler et al. 2003:20). The WHO’s
“Report on Infectious Diseases 2000 – Overcoming Antimicrobial Resist-
ance” claims that
Drug resistance is the most telling sign that we have failed to take the threat of
infectious diseases seriously. It suggests that we have mishandled our precious arse-
nal of disease-fighting drugs, both by overusing them in developed nations and,
paradoxically, both misusing and underusing them in developing nations. In all
cases, half-hearted use of powerful antibiotics now will eventually result in less
effective drugs later ... [O]nce life-saving medicines are increasingly having as little
effect as a sugar pill. Microbial resistance to treatment could bring the world back
to a pre-antibiotic age ... The potential of drug resistance to catapult us all back
into a world of premature death and chronic illness is all too real (WHO 2000).
The worry that drug resistant disease might have such severe conse-
quences is by no means unique to the WHO. The concern that drug resist-
ance may realistically “plunge humanity back into the conditions that existed
in the pre-antibiotic age”, for example, has also been raised by numerous
other reputable organisations such as the U.S. Congress Office of Technology
Assessment (U.S. Congress 1995).
The potential consequences of drug resistance should reveal that drug
resistance – assuming that something can be done to alleviate the problem –
is a matter of ethical urgency. The return to a “pre-antibiotic era” would be
catastrophic. In the meanwhile the costs of treating drug resistant infections
are already enormous – and estimated to be $7 billion per year in the United
States alone (Smith and Coast 2003:76).
Dynamics and Distribution

Understanding of the dynamics behind drug resistance, however, reveals
that worst case scenarios are not inevitable. Because resistance results from
the way that drugs are distributed, the issue is a matter of distributive jus-
tice. In addition to being a product of bacterial biology, the problem of drug
resistance is a social, political, and economic phenomenon. The emergence
and spread of antibiotic bacteria is driven by antibiotic usage, because
antibiotics themselves select for resistant strains of disease. When a person
takes with antibiotics, the antibiotics kill bacteria that are susceptible, thus
allowing resistant strains to flourish in the absence of microbial competi-
tors. The emergence and spread of drug resistant (disease-causing) bacteria
in human populations is therefore a function of the extent of human con-
sumption of antibiotics. As indicated in the WHO quotation above, drug
resistance ironically results from both the over-consumption of antibiotics
(usually by the rich) on the one hand, and the under-consumption of
antibiotics (usually by the poor, and especially in developing countries), on
the other.
30 Michael Selgelid
Over-prescription
Part of the problem is thus the widespread overuse of antibiotics. In coun-
tries such as the US and Canada, for example, it is estimated that antibiotics
are overprescribed by 50% (WHO 2000). “Antibiotics are often prescribed
for viral infections, for which they have no value, and for self-limited infec-
tions that would have cleared up whether or not an antibiotic had been pre-
scribed” (U.S. Congress 1995:11). In the United States 40% of primary care
physicians prescribe antibiotics when patients present with sore throats and
ear aches without first seeking laboratory confirmation that this is indicated.
This kind of overprescription is largely due to the time required for diagnos-
tic confirmation (ibid.:13). It is also partly due to patient demand for imme-
diate treatment and physicians’ fear of litigation. Patient demand and physi-
cian prescription are increasingly also influenced by aggressive marketing of
the pharmaceutical industry (Smith et al. 2004:12).
Another cause of drug resistance is patients’ failure often fail to complete
prescribed treatment regimens. While this itself promotes resistance, matters
are made worse when leftover pills are saved and then used for “self-medica-
tion” later (Levy 1992). The fact that antibiotics are poorly understood by
the lay public comes into play both in the case of self-medication and when
patients demand inappropriate prescriptions from willing physicians.
Farming Practice
Given that drug resistance increases with antibiotic use, it is disturbing that
vast amounts of antibiotics are used in agriculture and aquaculture for pro-
phylaxis, treatment, and growth promotion. 50% (by weight) of antibiotics
are used for such purposes. Of particular concern is the common practice of
adding “subtherapeutic” levels of antibiotics to the food of healthy animals
in order to promote their growth. In the United States, “the amount of this
subtherapeutic usage is four or five times greater [by weight] than the
amount used for treatment of animal diseases” (ibid.:137). Long-term, low
level exposure like this creates especially favorable circumstances for the pro-
motion of drug resistant bacteria (ibid.). While the threat to human health
from such a practice is difficult to estimate and study, the worries are that
resulting resistant bacteria in animals will be passed on to humans – or that
resistant genes in animal bacteria will jump to bacteria which inhabit human
hosts. A growing body of evidence indicates that the dangers are real (WHO
2001). While feeding animals with subtherapeutic doses of antimicrobials
used for humans has been banned in Europe and Canada, regulations are
lacking in the US and elsewhere. The issue, unsurprisingly, has been highly
politicized.
Under-consumption
As indicated above, the failure to complete a proper course of antibiotic
treatment is one of the things that promotes the emergence of drug resist-
ant pathogens. If treatment is prematurely terminated, then disease-caus-
ing mutant bacteria, which would have been killed off if treatment had
been completed, survive and become more strongly established in the
absence of microbial competitors. Treatment with the very same drugs will
then be less effective. This is one reason why physicians emphasize the
importance of completing our treatments by taking all the pills provided.
And this is why “noncompliant patients” are so often blamed for the prob-
lem of drug resistance.
The failure to complete a full course of treatment, however, is not always
the fault of the patient. “Noncompliance”, according to Paul Farmer, is usu-
ally a matter of ability rather than agency: “Throughout the world, those
least likely to comply are those least able to comply” (Farmer 1999:255;
2003). As stated before, the poor are most likely to get sick, and least likely
to afford medical care when they do. They are also least able to complete
medical treatment once they start it. Poor people in developing countries
often simply cannot afford to complete treatment – especially given the
high drug prices set by pharmaceutical companies. In addition to drug
costs, difficulty affording time off work and the cost of (often difficult)
transportation to (often faraway) clinics pose barriers to the completion of
antibiotic therapy. Sometimes, according to Farmer, it is simply a matter of
not having enough money to rent a donkey (Farmer 2003).
Additional barriers to access are posed by infrastructural constraints of
medical systems in poor countries where drug stockouts are frequent. This is
well illustrated by the prison situation in the former Soviet Union. Increased
crime and incarceration came with the collapse of the Soviet Union. “Almost
1 percent of the population of Russia is imprisoned, a higher percentage
than any other nation in the world” (Reichman and Tanne 2002:90). Of the
300,000 prisoners released every year, 10% have active tuberculosis and
more than 80% “have been infected with latent TB”. Each of the latter has a
10% chance of developing active TB later in life (ibid.:53). Of prisoners (and
those being released) with active TB, about a third have multi-drug-
resistant TB (ibid.:90). These astounding rates of tuberculosis infection and
multi-drug resistance reflect the fact that under-funded prisons are unable
to maintain a steady supply of the full range of drugs needed for the long-
term treatment of TB. The sporadic partial treatment that inevitably results
selects directly for multi-drug resistance. Those released are unlikely to
receive much better care from the wider health care system, and so the health
of their families and communities is subsequently threatened, as is global
public health in general. Tuberculosis is spread in the air. Both in this case
and others it must be remembered that (1) infectious diseases (drug-resis-
32 Michael Selgelid
tant or otherwise) have no respect for national boundaries and (2) their
spread is facilitated by increased international travel and trade.
While ordinary tuberculosis can be treated with a six month course of
treatment costing $10, drug-resistant tuberculosis treatment takes two years
and costs 100 times as much – and “[e]ven then a cure is not guaranteed.” It
is thus widely acknowledged that new TB drug development is needed, as
there are now “300,000 new cases per year of MDR-TB worldwide.” In the
meanwhile it is unfortunate that, according to the WHO, there has been “a
40 year standstill in TB drug development” (WHO 2004).
Solutions
Numerous measures for curtailing the problem of drug resistance have been
recommended. Increased education of health providers and the public, con-
trol of prescription practices, improvement of infection control in hospitals,
and reduction of antibiotic use in farming, for example, are important parts
of the solution. Given that under-consumption of drugs by the poor is a
driver of resistance, improved access to medications through price reduction
or social provision is also needed. Things like increased (global) surveillance
and impact assessment (so the extent of the problem can be better tracked –
and appreciated) and improvements in diagnostic technology are also essen-
tial.
Of paramount importance, in any case, is the development of new drugs
and vaccines. New antibiotics are needed because the power of our existing
supply has increasingly declined, while there has been a dearth of new drug
development for decades. Vaccines are important because they prevent
infection and the need for antibiotics to begin with.
The topic of drug resistance thus directly relates to the business ethics of
innovation. What ethical responsibility does the pharmaceutical industry
have to further invest in research and development of much-needed new
antibiotics and vaccines? That the profit motive has been insufficient to
motivate this kind of innovation is revealed by the current status quo.
Almost no new classes of antibiotics, recall, have been developed since the
1960s, and no new TB drugs have been developed for 40 years. The failure of
the medical industry to further invest in antimicrobial development is
symptomatic of a more general phenomenon known as the 10/90 divide in
medical research: less than 10% of medical research resources focus on 90%
of the global burden of disease, and more than 90% of medical research
resources focus on 10% of the global burden of disease. These numbers sim-
ply reflect the uncontroversial fact that medical industry research largely
aims at promotion of profits rather than addressing the world’s most impor-
tant medical needs – and that the medicines that are most profitable for
industry to develop do not necessarily coincide with those that are most
needed from the standpoint of global public health.
Public Goods
The fact that free-market mechanisms have failed to provide solutions to the
problem of drug resistance is in many ways unsurprising. The phenomenon
of drug resistance reveals that freedom from infectious disease is a public
good; and the ability of free markets to provide such goods is notoriously
dubious. That drug resistance is a problem of public goods is illustrated by
the above discussion of the dynamics behind the emergence and spread of
drug resistant disease. When one individual develops a drug resistant strain
of disease because of her over- or under-consumption of drugs, this more
difficult or more expensive strain of disease poses threats to other individu-
als who may subsequently be infected. This is thus a prototypical case of neg-
ative externalities – or harms to third parties – that are a hallmark of public
goods.
The usual moral justification of free markets holds that they promote
both (negative) liberty and utility. It is claimed that they promote (negative)
liberty because outcomes are the result of individuals’ free choices about
what kinds of transactions to enter into. And it is claimed that they promote
utility because they are pareto efficient.2 A pareto efficient outcome is one
where it would be impossible to make any one person better off without
making another worse off. It can be theoretically proven that pareto efficient
outcomes would result under ideal conditions – i.e. if the parties were
rational and in possession of full information, if there were no transaction
costs, and so on. Because transaction costs include externalities, however,
there is no good theoretical reason to expect free markets to be pareto effi-
cient in contexts involving public goods. The status quo (e.g., as discussed
two paragraphs back), in the meanwhile, seems to show that there is no good
empirical reason to think that the pharmaceutical market is efficient or util-
ity-maximizing broadly speaking.
The fact that freedom from infectious disease is a public good provides
additional reasons to the egalitarian and human rights reasons traditionally
appealed to by bioethicists for treating health care as something special when
making policy decisions about its distribution. Norman Daniels (1995) and
others are right to argue that there are egalitarian and human rights reasons
to remove health care from free market mechanisms. The fact that freedom
from infectious disease is a public good, however, shows that there are
straightforward economic efficiency/utilitarian reasons for doing so as well.
This does not mean that health care provision should be removed from mar-
ket mechanisms entirely; but, as with other public goods, some kind of gov-
2
Insofar as it is plausible to think that utility-maximizing outcomes might some-
times requiring making at least someone worst off, the common idea that pareto
efficiency is a good proxy for utility is dubious. For the purpose of this paper,
however, it is safe to leave aside this legitimate objection to the common rationale
offered in favour of free markets.
34 Michael Selgelid
ernmental intervention in the market is needed. Below I argue that govern-

ments should intervene by implementing and funding alternatives to the
current regime of intellectual property right protection – and that the phar-
maceutical industry should provide political support for this kind of inter-
vention.
Intellectual Property Rights

It is at this stage that the discussion of drug resistance intersects with the
issue of intellectual property rights. The problem of drug resistance is partly
caused by poor people’s lack of access to existing drugs; and the seriousness
of the problem of drug resistance is exacerbated by the fact that new drugs
(to fight diseases resistant to existing drugs) are not being made available by
the pharmaceutical industry. Issues of access and availability, in the mean-
while, have been central to debates about patents in pharmaceuticals. Critics
argue that patents make drugs too expensive for poor people to access them
and that patents have failed to do one of the main things they are supposed
to do – i.e., provide incentives for drug companies to pursue innovation of
desperately needed new antimicrobial drugs and vaccines.
The extent to which developing world populations’ lack of access to AIDS
drugs and other essential medications is due to the high drug prices enabled by
patent protection has been questioned by two recent studies of Amir Attaran
(and his colleague Gillespie-White in the earlier of the two studies) (Attaran
and Gillespie-White 2001:1886–1892; Attaran 2004:155–166). Most AIDS
drugs, for example, are apparently not patented in most African countries; and
in most African countries only very few AIDS drugs are patented. Because
deadlines for patent applications have passed, this situation is not likely to
change as TRIPS comes into full force. Meanwhile, according to Attaran and
Gillespie-White, access to AIDS medication in African counties is low across
the board; it is not the case that populations of countries where fewer AIDS
medications are patented enjoy greater access to antiretroviral treatment.
The low frequency of patents on AIDS drugs in Africa furthermore holds true
for essential medications more generally according to Attaran’s second study:
in sixty-five low- and middle-income countries, where four billion people live,
patenting is rare for [the] 319 products on the World Health Organization’s Model
List of Essential Medicines. Only seventeen essential medicines are patentable,
although usually not actually patented, so that overall patent incidence is low (1.4
per cent) ... I find that patents for essential medicines are uncommon in poor
counties and [that patents] cannot explain why access to those medications is often
lacking (Attaran 2004:155).
Holding that poverty rather than patents is the main barrier of access to
essential medications, Attaran concludes that activists should shift their
energies towards problems of poverty alleviation rather than objecting so
much to intellectual property right protection.
Both of these studies are open to serious criticism which is beyond the
scope of this paper. Even if it were true that patents do not pose serious barri-
ers of access to existing medications, however, it would be wrong to conclude
that activists concerned with health in developing countries should therefore
shift attention away from intellectual property rights in pharmaceuticals (Sel-
gelid and Sepers 2006). The availability problem is an additional reason to be
concerned about patents. The fact that patents have failed to promote ade-
quate innovation is revealed by the general dearth of antimicrobial and vac-
cine development and the phenomenon of the 10/90 divide discussed above.
Patents may spur innovation in medications likely to yield the greatest
profits, but these are generally not those which are most needed from the
standpoint of global public health – especially as those in need are usually
poor people in developing countries. The irony here is that patents are them-
selves supposed to solve a public goods problem. Knowledge – in this case
knowledge about how to cure disease – is a prototypical example of a public
good, and patents are supposed to promote its growth by providing an
incentive that would otherwise be lacking because of the free-rider problem.
Without patents, the argument goes, innovating firms would lack incentive
to engage in R&D because others would be able to free-ride on their discov-
ery investment (by making copycat products). In the context of pharmaceu-
ticals, however, even with patents the lack of sufficient incentive remains.
Alternatives to the current patent regime are apparently needed if the hope is
that the drugs which are most needed will both be made available via phar-
maceutical industry innovation and be made accessible to the poor.
Alternative Incentive Schemes

Alternatives to the current patent regime have recently been proposed by
Michael Kremer and Rachel Glennerster, and Thomas Pogge. In both cases
the proposal is that wealthy governments and donor organizations should
make up-front guarantees to innovating companies that they will be
rewarded for developing the pharmaceuticals that are most important from
the standpoint of global health. Kremer and Glennerster’s “pull program”
involves advance purchase commitments: a public announcement/offering
is made that x doses of a needed new drug (or vaccine) meeting specified cri-
teria will be bought from the innovating firm at price y under the stipulation
that the firm will then sell additional doses at reduced price z (Kremer and
Glennerster 2004). Because a market for the needed new drug (or vaccine)
would thus be guaranteed in advance, an otherwise lacking incentive to fully
develop it would be put into place; and so the problem of availability would
be solved as long as the purchase commitment is sufficiently attractive to
begin with. The requirement regarding price reduction would, furthermore,
promote affordability of the new drug and thus address the problem of
access.
36 Michael Selgelid
On Pogge’s related proposal (which can also be considered a “pull pro-

gram”) an alternative to the standard patent scheme should be implemented
whereby innovating firms would be financially rewarded as a function of the
extent to which their innovations lead to reduction in the global disease burden
(Pogge 2005). (This new program would be an addition to, rather than a
replacement of, the existing patent regime. Because firms would be given the
choice to register their products under the scheme of their choice, they need not
worry that the new scheme would reduce the profitability of lifestyle drugs and
so on under the current patent regime, which would continue to exist in paral-
lel to the new scheme.) As in Kremer’s proposal, an otherwise lacking incentive
to direct R&D to innovation of medications which are most important from
the standpoint of global health would thereby be put into place. Because phar-
maceutical companies would be financially rewarded in relation to the impact
their drugs have on global morbidity and mortality, they would furthermore be
motivated to make the relevant new drugs as affordable and widely accessible as
possible – perhaps even offering them for free. Pogge’s scheme, again like Kre-
mer’s, thus explicitly aims to solve both access and availability problems.
A virtue of both of these proposals is the fact that they are practically realis-
tic to the extent that they play on the profit motive and standard market mech-
anisms rather than demanding that corporations become primarily motivated
by altruism/good will and rather than demanding a more radical overhaul of
the pharmaceutical industry and pharmaceutical economic system. The insight
of both proposals lies in finding ways to align corporate profitability with the
provision of products most important from the standpoint of global health.
This is a good start, but to get off the ground such proposals would
require political will and a large influx of funding from wealthy governments
(which would need to commit to the financial rewarding of innovating com-
panies on either scheme). How might this political support and funding be
achieved? While pharmaceutical industry (lobbying) support of such pro-
posals might be instrumental in bringing them into fruition, the fact that
industry itself would stand to gain from their implementation is one reason
to hope that industry support can be won. Though Kremer and Glennerster
deny that industry is likely to spend much political clout in support of pro-
posals like theirs, Pogge is more optimistic. If pull programs really would
increase the profitability of pharmaceutical companies and also restore their
(now tarnished) good image as those concerned with the improvement of
human health, then why shouldn’t they offer political backing?
Business Ethics
Business ethics is, of course, concerned with questions about what busi-
nesses and those working in business should do. If Pogge is correct, then cor-
porations should support the implementation of alternative incentive
schemes like his at least partly because implementation of such schemes
would open up new markets and provide additional avenues for profit mak-
ing without interfering with existing ways of making profits in pharmaceuti-
cals. If his economic arguments are technically sound, then there are
straightforward self-interested reasons for taking action.
But there is more to it than that. Implementation of such schemes, assuming
they are in fact realistic, would promote the greater good of humankind as well.
It is often said that business executives are faced with conflicting duties: fiduci-
ary duties to share-holders to maximize profits, on the one hand, are supposed
to conflict with their more general duties as human beings to promote the good
of humankind, on the other (Friedman 1970). One might argue that one
should never take on roles involving duties that conflict with one’s prior duties
as a human being. If the role of business executive would involve duties that
conflict with the prior duties of human beings in general, that is, then no
human being should take on the role of business executive to begin with. And if
share-holders have the duties of human beings to promote the good of
humankind, then they should not require/expect the companies they own or
the executives who work for such companies to do things that would compro-
mise the good of humankind. To make a long story short, if profit maximizing
endeavors preclude fulfilling our prior duties as human beings to promote the
good of humankind, then neither share holders nor business executives should
commit themselves to profit maximizing ventures to begin with.
A promising feature of the pull programs of Kremer/Glennerster and
Pogge is that if they would actually work then the conflict (between duties to
promote profits and to promote the good of humankind) so often assumed in
debates in business ethics can be avoided to begin with. If these programs
would in fact work, then making profits would go hand-in-hand with pro-
moting the good of humankind. Above I argued that human beings should
not take on roles that conflict with the prior general duties of human beings.
Whether or not that argument succeeds, my final conclusion is that busi-
nesses and/or the individuals who comprise them have compelling moral rea-
sons to support proposals like those of Kremer/Glennerster and Pogge. The
usual excuse for corporations not directing their actions toward the promo-
tion of the good of humankind is the idea that doing so would conflict with
another (arguably primary) goal of corporations – i.e. to maximize profits. If
the proposals of Kremer/Glennerster or Pogge would actually work, however,
then that excuse falls away. We might not expect corporations to sacrifice
their profitability, competitiveness, and ability to survive in order to serve
humanitarian ends – but we should, ethically- and realistically-speaking,
expect them to promote humanitarian ends insofar as this is compatible with
profit-maximization. Assuming that the alternative innovation incentive
schemes such as those we have been discussing actually would enable phar-
maceutical corporations (and the individuals which comprise them) to both
promote humanitarian ends and maximize profits, we should expect phar-
maceutical corporations to provide political support for such schemes.
38 Michael Selgelid
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Ethical Issues Associated with Pharmaceutical Innovation
Margaret L. Eaton
Introduction
Corporate managers responsible for the research, development, and marketing
of pharmaceutical products inevitably encounter challenging ethical issues.
One main reason is that, to reach the market, drugs must be studied in animals
and humans, activities that have historically been plagued with ethical dilem-
mas about weighing the benefits and risks to subjects and the goal of advanc-
ing medical science and, in the case of human research, issues of free and
informed consent. The second main reason that ethics has special relevance to
the pharmaceutical industry is related to the intrinsic nature of drug products.
Drugs become intensely personal when they make the difference between life
and death, health and disability. The more grave the illness, the more patients
care about them. Drug products are also unavoidably unsafe – no drug can be
taken without some risk of harm. The diseases that have produced the need for
drug therapy also make patients more vulnerable than other consumers. Fair-
ness issues are generated by pharmaceutical products since they are often
costly and therefore create access disparities. The vital importance of these
products ensures that company research, development, and marketing will be
closely scrutinized by governments, physicians, patients, and the press. Such
scrutiny means that any lapse in corporate ethical conduct is increasingly
detected and engenders a loss of public trust in the industry.
Given the propensity with which this industry encounters ethical issues, it
is important to understand their genesis and to understand some of the his-
tory that can provide lessons for the future. This chapter will serve these
goals by identifying ethically relevant activities of the pharmaceutical indus-
try and presenting examples of how these activities have impacted compa-
nies. Awareness of where the ethical pitfalls lie can end a common practice of
addressing these issues only in times of emergency and can allow managers
to anticipate potential problems and address them proactively.
Ethical Issues Confronting Companies in the Early 21st Century

1 Conflicts of Interest with Academia
Frequently, pharmaceutical companies seek the research expertise of aca-
demics to conduct the studies that lead to product approval. Universities
welcome these research contracts since they offset ever dwindling public
research support, generate publications for faculty, and create training
experiences for students. Despite the mutual benefits, however, conflicts of
40 Margaret L. Eaton
interest are common in this setting since the two entities engaged in this
activity are very different one from the other. Companies do not want com-
petitors to learn of their early drug research activity and often seek to keep
this information confidential. Confidentiality is also important to protect
intellectual property and trade secrets. The company sponsor also needs to
design the research to achieve a commercial goal. In contrast, academics
operate under conditions of openness and free discussion, and faculties are
accustomed to the freedom to research any matter regardless of its short
term practical application. Universities also pride themselves as sources of
objective knowledge and some faculty members suspect that corporate
funding influences their research focus or scientific judgment about a par-
ticular technology. Too much corporate research support, it is argued, can
undermine the credibility of faculty members and the public trust in the
university. In addition, academics have other campus obligations – teach-
ing, governance – that can be compromised if a faculty member spends too
much time on corporate sponsored projects. Sometimes, also, industry
sponsored research can be too mundane to advance science and learning. As
a consequence, even though faculty may agree to conduct corporate
research, universities often refuse to abide by corporate requests to main-
tain confidentiality, delay publication, or alter other basic academic prac-
tices (Witt 1994; Bodenheimer 2000).
Health policy researcher David Blumenthal and colleagues at Harvard Uni-
versity study these conflicts of interest and commitment and have demon-
strated that a certain level of industry sponsored academic research is benefi-
cial to both parties (Blumenthal et al. 1996a; Blumenthal et al. 1996b). Beyond
a certain point, however, the risks seem to outweigh the benefits. When aca-
demic researchers obtain more than two-thirds of their research funding from
commercial sources, they tend to be less open, lose academic credibility, and
become less productive academic citizens. Other problems include intellectual
property disputes, disagreements about study design integrity and data inter-
pretation, and conflicts over company-mandated publication delays. A certain
amount of delay to submit patent applications is usually tolerated but not
when delay is to preserve competitive advantages such as by restricting the dis-
semination of unfavorable data. On the other side of the deal, companies can
be unhappy with university researchers when, for instance, they assign the
work to junior faculty or students, cause delays, breach confidentiality, fail to
follow the study protocol, and commit research misconduct.
An example of a research collaboration that created these kinds of con-
flict occurred when Sandoz collaborated with academic physicians to study
the cardiac effects of one of its blood pressure drugs compared to another
common drug. Some of the faculty researchers alleged that Sandoz had
wielded undue influence in controlling how the research results were
reported. For this reason, these faculty researchers made public their refusal
to have their names included as authors on the publication (Applegate
Ethical Issues Associated with Pharmaceutical Innovation 41
1996). At other times, the complaint is about the magnitude of corporate

research funding. Research collaborations such as those between Sandoz and
the Scripps Research Institute in 1992 and Novartis and University of Cali-
fornia at Berkeley in 1998 were so large that protestors alleged that compa-
nies were taking over and subverting the missions of premier American bio-
medical research and academic institutions. In the Scripps case, National
Institutes of Health objections and congressional investigations forced a
drastic reduction in scope (Rose 1994). Faculty objections at Berkeley
delayed the Novartis deal for over six months. (Rodarmor 1998). Another
well known case involved the company Immune Response which sued
researchers at Harvard University and UCSF over publication of data on the
company’s anti-HIV drug Remune (Niiler 2000). The academic researchers
found a lack of effectiveness. Corporate scientists analyzed the data differ-
ently, found a clinical benefit, and withheld data from the academic
researchers in an attempt to prevent their publication of negative study
results. When the academics eventually published their data, the company
sued claiming damages of $7 to $10 million.
Problems like this led many universities to adopt conflict of interest and
conflict of commitment policies. These policies often prevent faculty from
committing too much time to corporate sponsored work, dictate the permis-
sible financial ties to industry, require control over study design, mandate
disclosures of corporate funding sources, and prevent certain controls over
and delays in publishing.1 Becoming aware of the sources of potential con-
flict between independent scientists and corporations and dealing with them
proactively is often the best means to avoid conflict in this endeavor (Moses
et al. 2002). Several resources can assist the researcher in this regard, includ-
ing the reports and policies of the American Association of Medical Col-
leges,2 the National Health and Medical Research Council of Australia,3 and
guidelines generated by the International Committee of Medical Journal
Editors.4 Careful attention to the avoidance and management of these con-
flicts serve the goal of generating mutually constructive and medically bene-
ficial research collaborations.
2 Biased Study Design and Data Interpretation
A related ethical question relates to a concern that corporate research proto-
col designs are manipulated or the data interpreted to achieve a result favor-
able to the commercialization of a drug (Bodenheimer 2000). This is an ethi-
cal issue faced by both academic researchers and those employed by industry.
1
See, for example, Stanford University Faculty Policy on Conflict of Commitment
and Interest. Available from URL: http://www.stanford.edu/dept/DoR/rph/
4-1.html.
2
Available from URL: http://www.aamc.org/members/coitf/start.htm.
3
Available from URL: http://www.nhmrc.gov.au/research/general/nhmrcavc.htm.
4
Available from URL: http://www.icmje.org/index.html.
The dilemma arises because companies need to design trials to meet their
marketing needs. For instance, if the company plans to market a drug for a
severe form of a particular disease, the studies will exclude animal and human
subjects with mild disease. Whether such a study design is considered biased
hinges on intent which is often revealed by the manner in which the company
interprets and markets the data. Using the data, for instance, to claim that the
drug is useful in the disease per se is obviously misleading. The study may also
be considered irresponsible if the company knows or strongly suspects that
the drug is ineffective or toxic in mild disease and that unsuspecting physi-
cians will tend to do what they always do – use the drug in all forms of the dis-
ease. The company may respond to this situation with a range of actions:
– claim that it is someone else’s responsibility to produce study data on how
the drug behaves when used “off label”5, in this case, for patients with the
mild form of the disease;
– state in the labeling that the drug is useful in severe forms of disease;
– state that no data exists on how the drug behaves in mild disease;
– disclose the suspicion that the drug is not useful or safe in the wider spec-
trum of diseased patients;
– act on the suspicion and conduct studies to show how the drug behaves
when prescribed in the real world, in this case, for patients with the mild
form of the disease.
Disagreements are increasingly common about whether drug study
designs intentionally enhance efficacy outcomes or conceal side effects.
Merck experienced criticism of this nature after it withdrew its anti-inflam-
matory drug Vioxx® in 2004, a drug that was selling $2.5 billion per year.
After five years on the market, the drug was shown to enhance the risk for
heart attacks and strokes prompting questions about whether the company
had delayed the discovery of these risks. Leaks of internal documents
revealed comments by the company’s vice president for clinical research that
suggested she knew that Vioxx could cause cardiovascular side effects and
was contemplating designing an important clinical trial to obscure this find-
ing (Mathews 2004). In another widely publicized case, the lead researcher
responsible for ImClone’s anti-cancer drug was called to testify at a congres-
sional investigation hearing and asked to address allegations that his lucra-
tive company ties had led him to manipulate drug study data (Urancek
2002). Whether Merck or ImClone scientists had designed studies in order
to heighten efficacy or mask side effects is unknown. Yet, commentary in the
scientific literature indicates a long-held uneasiness about whether company
sponsored drug trials are skewed to produce positive data. Others say that
this conclusion is too facile – that companies sponsor only those trials where
prior data support a reasonable expectation that outcomes will be positive.
5
The term “off label” refers to the use of a drug for other than approved indica-
tions.
Another questioned practice is covert reporting of the same data. For

instance, researchers found that meta analysis of the side effects of the
antipsychotic risperidone was skewed because what appeared to be 20 sepa-
rate studies was actually only 9 studies reported multiple times, often with
different lead authors (Rennie 1999). Re-publication of favorable studies arti-
ficially skews the balance of opinion in favor of a drug and some researchers
suspect that drug companies do this deliberately. Another criticized study
design practice deals with how companies define and code adverse drug reac-
tions. Obviously, the number and kind of ADRs reported can be influenced
by company decisions, for instance, to characterize an event as disease rather
than drug related. This issue arose when regulators were attempting to deter-
mine if the antidepressant SSRIs caused an increase in suicidality. Some crit-
ics accused companies of wrongly attributing all suicidal behavior to the
depression the drugs were designed to treat. Subsequently, research showed
that these drugs could increase suicidal behavior and black box warnings to
this effect were added to the U.S. drug labels almost 16 years after the first of
these drugs was marketed (Food and Drug Administration 2004).
Another related issue involves whether companies or company ties influ-
ence data interpretation or opinions about drug products (Zuckerman
2003). Recent studies have given credence to an association if not causation
in this regard. For instance, in 1998, a debate existed about the safety of cal-
cium-channel antagonists. One study at the time showed that 96% of med-
ical journal authors writing on the topic who supported the use of the drugs
had a financial relationship with the manufacturers of the drugs compared
with 37% who were critical of them (Stelfox 1998). This study and others
have been cited as evidence that an association with industry lessens objec-
tivity about the benefits and risks of drugs. Another possibility, of course, is
that scientists and physicians form a favorable opinion about a product
which then leads to a research affiliation with a company.
Again, the possibility that conflicts of interest can lead to biased studies and
opinions has led to university and journal policies requiring disclosure of indus-
try ties. University policies, based on the belief that the amount of money deter-
mines the amount of influence, also limit the extent to which faculty can finan-
cially benefit from commercial affiliations. These policies cannot, however, elim-
inate the potential for bias. Sensitivity to the problem should prompt researchers
to remain vigilant – to carefully review all protocols to eliminate biasing design
elements and to maintain critical and objective data interpretation.
3 Selecting Drugs to Develop
Several ethical and social questions exist about the choice of drugs to
develop. The first involves whether the result is worth the effort and cost.
Researchers often wish to devote their time and expertise to developing
drugs that will make a major difference in the lives of sick patients. The
socially beneficial aspect of their work is what drives them and keeps them in
the lab. In contrast, they chafe when asked to develop a chemically related
drug that offers only minimal improvement over existing therapies, so-
called me-too drugs. The term me-too comes from the fact that, as soon as a
large market prototype drug becomes available, several other similarly active
compounds immediately follow from competing companies. This kind of
drug is attractive for companies to develop since they can capitalize on the
research and approval of the successful prototype, develop follow-ons more
efficiently, and take an easier share of a large established market. Me-too
drugs are also developed to preserve a market for a blockbuster drug, the
patent for which is about to expire. Patenting a similar drug can allow the
company to maintain premium pricing rather than watch revenues decline
when the drug losses patent its patent and becomes generic.
Most often, the follow-ons offer some benefit over the prototype, such as
lesser toxicity, improved pharmacokinetic profile, more favorable compati-
bility with co-morbid conditions, or easier use. Patients benefit when the
me-too offers significant medical benefit and generates price competition
(Dimasi 2004). The reason that many researchers dislike developing me-
toos, however, is that too many offer only a marginal benefit, so small, claim
some, that the intellectual and financial development resources expended far
outweigh any medical or social benefit. The situation worsens, claim some,
when aggressive marketing obscures the small differences between a high
priced new drug and a cheaper generic. Scientists and physicians prefer
intrinsic medical value rather than marketing to determine which drugs get
prescribed. The fact that these drugs are considered duplicative and wasteful
of resources incites consumer groups as well. Criticism of me-too drugs is
relevant even in the situation where the existence of the me-too is the result
of a development race rather than post hoc imitation. Once a strong class
breakthrough drug has been approved, some favor a system that will allow
only those follow-ons that demonstrate significant improvements over the
prototype. Currently, most regulatory systems approve drugs based on their
intrinsic merits rather than whether they offer significant benefits over exist-
ing drugs.
An example of the me-too phenomena is captopril, the prototype for
angiotensin converting enzyme (ACE) inhibitors, a class of drugs used to
control hypertension. The approval of captopril was followed by at least 15
me-too ACE inhibitors most of which have equivalent efficacy and side
effect profiles. The similarities are so close that one pharmacologist sug-
gested that physicians should routinely prescribe whatever brand was
cheaper (Garattini 1997). An example of a drug developed to preserve rev-
enues from a patented blockbuster is the acid reflux drug Nexium® by Astra
Zeneca. This drug is the S-isomer of the company’s blockbuster drug
Prilosec® which had been a major revenue producer until its U.S. patent
expired in 2001. Astra Zeneca took advantage of the fact that isomeric forms
are considered by the FDA to be different compounds and can be separately
patented. The company studies showed the S-isomer to be somewhat more

effective than the racemic mix and, while other companies can experience a
loss of up to 85% of a drug’s revenues within a year of patent loss, Astra
Zeneca was able to preserve its franchise for Prilosec by marketing Nexium,
the sales for which were $3.3 billion in 2003. However, this move created a
storm of criticism when patients understood that they paid up to eight times
as much for the patented Nexium as for the generic and very similar (and
now over-the-counter) Prilosec. Company reputation suffered as a result
and a class action lawsuit was filed alleging that deceptive advertising of a
medically significant benefit over Prilosec led to the demand for Nexium.6
Whether prescribing a me-too based on price or prescribing an equally effec-
tive generic drug, the cost saving can be substantial and, at a time when
financial resources for health are limited, economic considerations are not a
minor point. The profusion of these follow-on drugs has led commentators
to ask whether this conventional form of pharmaceutical business competi-
tion serves society as well as it should.
This me-too value issue relates to a larger question about the role of the
pharmaceutical industry in society and whether the industry has an obliga-
tion to focus their efforts on innovative therapies and those for neglected ill-
nesses. Some dislike the question since it implies a social obligation that is
more appropriate for governments than business. The criticism seems aimed
more at the existence of the capitalist system which would become seriously
eroded if companies were required to compromise their focus on the bottom
line to benefit public health. In contrast, the focus on corporate profits con-
tributes to serious social injustice since drugs are not developed for diseases
that exist in poor countries (Hartog 1993). Because of increasing pressure
from underserved groups, this issue will continue to be debated by the
industry and policy makers.
4 Human research ethics
Because of a long-standing history of abuse, the ethical issues associated
with human research have received widespread attention. Multiple national
and international guidelines and regulations were developed to ensure that
human subjects are treated ethically and responsibly.7 Because these
resources are readily available, this section will deal only with the general
categories of research topics that generate the most ethical concern.
6
See Prescription Access Litigation Project at URL: http://www.prescriptionac-
cesslitigation.org.
7
See generally, the Nuremberg Code (available at http://ohsr.od.nih.gov/guide-
lines/nuremberg.html), The Declaration of Helsinki (available at http://
www.wma.net/e/policy/b3.htm), The Belmont Report: Ethical Principles and
Guidelines for the Protection of Human Subjects of Research, Report of the
National Commission for the Protection of Human Subjects of Biomedical and
Behavioral Research, 44 Fed. Reg. 23,192, Department of Health, Education. &
Welfare, 1979, April 18.
4.1 Risk vs Benefit

The first consideration for any researcher is to assess whether the potential ben-
efit of the proposed research outweighs the potential harm. Harms can include
physical, psychological, social, or economic. In addressing this issue, most
research can be justified if benefit and risk is applied broadly in a utilitarian
sense, i.e., any harm to the relatively few subjects is justified either because the
research leads to new medical products that can benefit the many or, with failed
trials, the benefit from medical knowledge gained and the sparing of the many
patients from a useless or unsafe drug. However, ethical norms require that the
risk-benefit calculus consider primarily the effects of the research on the
human subjects and, additionally, on the potential to advance medical knowl-
edge. For instance, in the U.S., IRBs (the institutional review boards that
approve human research) are instructed to assess risk and benefit as follows:
Risks to subjects [must be] reasonable in relation to anticipated benefits, if any, to
subjects, and the importance of the knowledge that may reasonably be expected to
result. In evaluating risks and benefits, the IRB should consider only those risks
and benefits that may result from the research (as distinguished from risks and
benefits of therapies subjects would receive even if not participating in the
research). The IRB should not consider possible long-range effects of applying
knowledge gained in the research (for example, the possible effects of the research
on public policy) as among those research risks that fall within the purview of its
responsibility.8
The Declaration of Helsinki (section A.5) is more narrow and states that
the well being of the human subject should take precedence over the inter-
ests of science and society. Other aspects of minimizing risks to subjects
require that sufficient prior research should be performed to understand the
potential risks as much as possible. Researchers also must be qualified and
adhere to standards of good research practice so as to preserve the benefits of
the research as much as possible, thus not exposing subjects to risk for no
good purpose. Minimizing the risks and burdens to subjects in these ways
adheres to the ethical norm of non-malfeasance or doing no harm, which is
a principle obligation of any research physician.
4.2 Informed Consent
Over the years, lack of informed consent has been at the heart of most
unethical studies. Failure to fully inform subjects uses people as a means to
an end (to produce data), disrespects the right to personal autonomy, and
offends our sense of fairness. A commonly cited example occurred in a San
Antonio, Texas study in the 1970s that enrolled mostly poor Mexican-Amer-
ican women who had had multiple pregnancies and were seeking contracep-
tive advice or medication. The double blind, randomized, placebo controlled
study was intended to evaluate the cause of oral contraceptive side effects.
8
21 Code of Federal Regulations sec. 111(a)(2).
Subjects enrolled in the study were not told that they could receive a placebo
and, as expected, there were a high number of unplanned pregnancies in the
placebo group (Veatch 1971). Ethical lapses such as this are the reason for
mandatory requirements that subjects be provided a clear and accurate
explanation of risks, benefits, and alternatives before enrolling in any clinical
study.9 In order for consent to be meaningful, the potential subject must be
given understandable information, informed of all of the expected conse-
quences that a reasonable person would want to know about, and given an
opportunity to ask questions and an adequate time to reflect before commit-
ting. Special attention to the consent process is needed when studies are
complex or particularly risky and when subjects’ ability to understand is
compromised. Some researchers in these situations have required subjects to
pass a comprehension test before enrolling them into studies.
4.3 Free Consent
Informed consent is not the same thing as free consent. Respect for persons
requires that consent to research be truly voluntary. For various reasons,
some patients are more vulnerable than others and are therefore more sus-
ceptible to the influence of a trusted physician who asks for consent to join a
drug study. Especially when patients are desperate for any chance of treat-
ment, physician researchers need to be careful to minimize the possibility of
coercion or undue influence in the recruitment process. Vulnerable patients
also include those who are economically and medically disadvantaged and
who may volunteer simply because money is offered or the fact that research
participation offers the only access to medical care. Those who lack mental
capacity and cannot competently consent to research need a proxy who rep-
resents the patient’s best interest. In addition, many believe that patients with
mental deficits should be included in drug research only if the mental condi-
tion is a necessary characteristic of the research population. Most countries
also have provisions forbidding or controlling the use of prisoners in research
because of the difficulty in dissuading the incarcerated from the belief that
cooperation with researchers will result in favorable prison treatment.
In general, little regulation exists regarding the methods or safeguards
that should be employed to ensure that vulnerable or incapable subjects con-
sent freely. As a result, individual researchers need to tailor their recruitment
methods to minimize any coercive influences.
4.4 Privacy
The information collected in drug research is medical in nature and, as such,
must be kept confidential. Also, the fact that a subject has entered a clinical
study often reveals his or her diagnosis, so enrollment is also private infor-
9
The FDA regulations on informed consent are at 21 Code of Federal Regulations
sec. 50.20 et seq.
mation. Every precaution should be taken to respect the privacy of the sub-
ject and the confidentiality of the patient’s information.
4.5 Research in Children
Pediatric drug research has been generally neglected because of the reluctance
to subject children to unknown risks given that they cannot protect their own
interests through informed consent. In addition, the protective instincts of
parents and guardians make them unwilling to enroll their children in
research. The resultant lack of data on how children react to drugs means that
most pediatric treatment proceeds through trial and error. Regulatory agen-
cies are trying to correct this disadvantage by offering drug companies
inducements to conduct pediatric research and by specifying the ethical
requirements necessary to enroll these subjects in research. For instance, the
FDA regulations list the safeguards that must be satisfied depending on the
risk of the research, the potential benefit to the child, the potential to produce
generalizable knowledge about the child’s disease, and the opportunity to
understand, prevent, or alleviate a serious problem affecting the health or
welfare of children. The regulations also specify the qualifications of parents
or other consent providers and require the assent of the child if feasible.10
4.6 Placebo Controls
The ethical debate about the use of placebo controls centers on the scientific
benefits of eliminating the most study variables vs the risks to subjects of for-
going standard treatment. The use of placebo controls, according to most
researchers, best satisfies the fundamental research goal of producing scien-
tifically accurate and dependable data that can distinguish the effect of the
drug from other influences, such as spontaneous change in the course of the
disease, placebo effect, biased observation, or chance. Regulatory agencies
will not approve a drug without sufficiently controlled data and the FDA
especially adheres to the belief that no control is better than placebo.11 Thus,
drug companies often rely on the use of placebo controls because the result-
ing study data are considered trustworthy by the regulatory agencies and by
physicians. Placebo controls are also desirable since, by producing fewer
confounding variables, studies can be conducted more rapidly with smaller
populations than clinical trials using active controls. Shorter clinical trials
with fewer subjects can save time and money and put effective products on
the market more quickly (Harrington 1999; Jost 2000; Temple 2000).
The problem with placebos is that human subjects must agree to random
and blind assignment to a therapeutically inert substance masked as an
active treatment. Obviously, the sicker the patient, the greater the potential
10
See 21 Code of Federal Regulation sec. 50.50-50.56.
11
In the United States, the regulations that specify the requirement for reliable study
data are found at 21Code of Federal Regulations sec. 314.126.
harm from placebo administration. The duplicity (even though consented

to) and the fact that diseased subjects receive no active treatment is consid-
ered unethical by some researchers and standards bodies. For instance, the
World Medical Association (in the Declaration of Helsinki, C. 29) states that
placebo controls should be used only in the absence of existing proven ther-
apy. With few provisos, the Declaration requires that, if other therapies are
available, experimental drugs should be tested against the best of them. The
World Medical Association’s stance on the use of placebos was promulgated
after some controversial AIDS research in Africa and was intended to reflect
a widespread interest by Association members to place subject safety over
concerns about data certainty.
In the African studies, the drug AZT was tested to prevent the transmis-
sion of HIV infection from a pregnant woman to her newborn. The studies
were carried out in 11 impoverished developing countries. Women in these
countries were given a shorter and less expensive AZT treatment regimen
than was used effectively in Western countries. The studies, which were dou-
ble-blind and placebo-controlled, ultimately determined that the new treat-
ment protocol was better than no treatment but not as effective in preventing
infant infection as was the full Western treatment. According to the
researchers, the use of placebos was justified because the study women had no
access to prenatal care and, if they did, could not afford (nor could their
countries afford) the drug as it was prescribed in the West. Thus, no study
women were denied access to any locally available treatment. Plus, the studies
offered at least some chance that these women would receive active treatment
(Bayer 1998). Heated debates among medical professionals and medical ethi-
cists followed publication of the study results (Angell 1997; Resnik 1998; Peri-
natal 1999). The major objections included the exploitative nature of the
research and doubts about whether there was full informed consent (always
an issue since many people do not understand the concept of placebo control
even after an explanation). But the primary ethical objections focused on the
fact that the HIV infection rate in the babies born of the study subjects would
have been significantly less if the study had used an active treatment control
with the effective Western treatment rather than placebo.
Given the differences of opinion on this topic between regulatory agencies
and medical organizations, debates about placebo controls are expected to
continue. In this environment, it is important for researchers to explicitly jus-
tify the use of placebos based on compelling medical and scientific criteria.
4.7 Adherence to Protocol
Research protocols need to be carefully designed in order to produce scien-
tifically valid data and to protect the rights and interests of human subjects.
Failure to adhere to the protocol undermines both. A widely publicized
example of this kind of failure occurred in 1999 when an 18 year old human
subject Jesse Gelsinger died in a gene therapy trial conducted at the Univer-
sity of Pennsylvania. Gelsinger’s death resulted in investigations that dis-

closed multiple failures to follow protocol requirements, including failure to
stop the study if subjects developed certain levels of toxicity, enrolling sub-
jects who failed to meet eligibility criteria, failing to report side effects, and
failing to notify the IRB of protocol changes. In Gelsinger’s case it was likely
that these failures contributed to his death and the family sued as a result. In
addition, the FDA ordered Penn to halt all gene therapy experiments at its
Institute for Human Gene Therapy and brought debarment proceedings
against its director (FDA 2002). The tragedies associated with this incident
were many and, in addition to the death, included a major setback in the
progress of gene therapy research and the career injury suffered by one of the
country’s best gene therapy scientists. Most of the time, protocol violations
do not produce such widespread destruction. But at a minimum, the failure
to adhere to protocol requirements compromises the integrity of the result-
ant study data and thus undermines all subsequent research and clinical
decisions based on that data. Consequently, it is difficult to underestimate
the importance of this research requirement.
4.8 Monitoring
Vigilant study monitoring is required so that studies can be stopped as soon
as the balance of harms and benefits becomes unfavorable. Monitoring has
become more difficult as companies have been conducting multi-center
studies often managed by independent contractors (called CROs, clinical
research organizations). Hoechst Marion Roussel12 experienced a problem
in this regard when it conducted trials on Cariporide®, a drug expected to
reduce cardiac tissue damage after a heart attack. The Naval hospital in
Argentina was one of 26 Argentinean study sites and one of 200 medical
centers worldwide that participated in the 11,500 subject trials. In 1998,
Hoechst and its U.S.-based CRO, Quintiles Transnational, noticed some
irregularities with the Naval Hospital trial and notified local authorities.
Criminal investigations led prosecutors to allege that 137 patients had not
consented to the study treatment and signatures on at least 80 consent doc-
uments had been forged. Prosecutors also collected evidence that subjects’
records contained duplicated electrocardiograms with the characteristic
findings needed to justify entering the patient in the trial. At least 13 sub-
jects had died, and prosecutors claimed that some of these deaths were
attributable to the experimental drug (Borger 2001). While no one thought
that the drug company or the CRO had been responsible for these prob-
lems, the multitude of offshore studies and the fact that both the company
and the study monitor were in other countries most likely contributed to
the problem.
12
This company later merged with France’s Rhone-Poulenc SA to become Aventis
SA.
4.9 Compensation for Injury

Most countries have requirements that research subjects be told whether
they will receive medical care or compensation for injuries experienced in
clinical trials. However, there is no uniform practice about the provision of
treatment or compensation. Some researchers provide neither and others
provide both.13 And there is a range of practice between these two options.
Injured human subjects who are not treated or compensated for their
expenses and losses are left to their own devices and they sometimes sue the
study sponsor. Many commentators see the unfairness in such situations and
have lobbied for some uniform treatments and compensation practices.
During the 1970s, a consensus began to evolve among medical ethicists that
compensatory justice principles required that subjects who were injured as a
result of participating in clinical research are entitled to full compensation
for both medical and non-medical related costs. Policy reasoning that sup-
ported this conclusion stemmed from the view that society as a whole has a
direct stake in the conduct of scientific research, including the knowledge
benefits that come from experimental failure. If society shares the benefits,
so should it share the financial burden of the research activity by paying for
the costs of research-related injuries. Legal and ethical commentators argued
that even if these injuries occurred through no fault of the researcher or
sponsor, accountable public policy required that responsibility be fixed
wherever it will most effectively reduce the hazards to life and health inher-
ent in the research endeavor. If research sponsors were committed in
advance to pay for injuries, the tendency to engage in excessively dangerous
research would also be minimized and research sponsors would take more
care in designing safe trials, monitoring for injury, and stopping trials as
soon as the data revealed excessive risk. Also, companies are most often in a
better financial position to bear the costs of research injury by including the
cost of injury compensation in the price of the product. Finally, people
would more likely consent to participate in research if they knew they would
not be responsible for the costs of any injuries. Many proponents of this view
also argued that since the primary goal of compensatory justice is to restore
the injured person as much as possible to his or her original condition,
injury compensation should include medical and non-medical costs of
injury, the latter including such things as lost wages or services provided
while the injured subject was disabled (Levine 1998).
These arguments have been presented over the years to various national
and medical commissions (U.S. President’s Commission 1982) but consis-
tent policy has failed to result primarily because of disagreements about who
should bear the expense. Consequently, researchers need to consider in
advance how they will manage this aspect of their research activity.
13
Companies attempt to obtain insurance to underwrite the risk but it is often not
available because of the unknown risks inherent in research.
4.10 Post-study Responsibilities to Subjects

After a clinical drug study ends, subjects become patients again and are most
often referred back to their primary care physician for any needed follow-up
care. There are times, however, when subjects will expect something more
from the company. Subjects who experience long term side effects from
study drugs can expect help from the company despite any contrary provi-
sions in the consent form. In other cases, when subjects benefit from the
experimental drug, it is natural that they would want to continue taking it.
Prohibitions on selling experimental drugs prevent such access and, espe-
cially when the drug was an over-all failure and will not be marketed, sub-
jects can feel abandoned and unfairly denied effective therapy. The acuteness
of the situation is heightened when the drug treated cancer or some other
life threatening illness. These are reasons that the Declaration of Helsinki
contains a provision that effective drugs be provided to all study subjects at
the conclusion of research. Not all researchers abide by this provision and it
remains a matter of debate (Lie 2004). Envisioning all possible study out-
comes in advance will help researchers devise strategies to address questions
about post-study support.
5 Publication of Negative Data and Data Access
Drug companies are not required to publish study results. Except under rare
circumstances, regulatory agencies keep company data confidential and only
require disclosure of selected summaries of study data in the drug labeling.
As a result, negative drug study data often remains unpublished. Nothing
stimulated an interest in changing this status quo as did the revelation about
unpublished data on the efficacy and safety of the use of SSRIs14 in depressed
children.
All SSRI manufacturers had obtained approval to market for use in
depressed adults and for years physicians had been prescribing the drugs for
children off-label. Eli Lilly & Company then performed studies and obtained
approval to market its SSRI Prozac® for use in depressed children. When
GlaxoSmithKline applied for similar approval in the U.K. for its drug Paxil®
(Seroxat® in the U.K.), the resulting investigation shed light on the phenom-
enon of selective publication. U.K.’s Medicines Control Agency (MCA) dis-
covered that GlaxoSmithKline had conducted nine studies of its drug in
depressed children but had published only one. When the MCA and then the
FDA conducted analyses of the individual and combined data in all of the
nine submitted studies, the combined data showed that the drug was not
effective in pediatric depression. Furthermore, in total, these studies showed
that 3.4 percent of children who were taking or had recently stopped Paxil
had attempted suicide or thought more about it. That compared with 1.2
14
SSRI’s are selective serotonin reuptake inhibitors used to treat depression and
related diseases.
percent of the children taking a placebo, a statistically significant difference.

In contrast, the one study that GlaxoSmithKline had published showed that
the drug was better than placebo in children and was not associated with any
suicidal attempts or ideation. Further investigations revealed that other
companies had also sponsored but not published negative pediatric SSRI
studies. GlaxoSmithKline had not been marketing the drug for childhood
depression. However, critics, regulators, and prosecutors claimed that the
company knew that the drug was widely prescribed for children and that, by
publishing only the positive study, the company misled physicians and
patients about the efficacy and safety of the drug. The press on the story con-
vinced the public that this kind of publication bias was common, and the
ethical, clinical, and scientific integrity of the industry was called into ques-
tion. The resultant furor involved the drug regulatory agencies (they started
to reconsider their practice of keeping study data confidential), drug compa-
nies (they began to face lawsuits and criminal charges were brought against
GlaxoSmithKline), medical journal editors (they sought wider disclosure
standards), the U.S. Congress (which convened investigations), and academ-
ics and patient advocates (who demanded full access to all drug company
research data) (Couzin 2004; Kennedy 2004; Letter 2004; Masters 2002;
Steinbrook 2002).
The SSRI situation stimulated a renewal by national and international
groups to encourage registration of all drug studies and disclosure of all
drug study data (Arzberger 2004). Registries had existed for this purpose but
had not been widely used by companies. Surveys had shown that existing
registries had not produced the openness and transparency that would have
prevented the problem seen with pediatric SSRI data. Even companies that
had attempted to address publication bias had not been successful in avoid-
ing problems. For instance, six years before the pediatric SSRI problem,
GlaxoSmithKline’s predecessor Glaxo Wellcome announced on its website
that it would register, make accessible, and publish all of its clinical trials.15
Openness and access, while well intentioned, is operationally difficult.
The problem with publishing all studies is that some are merely small trial
balloons and small sample sizes tend to magnify or diminish influences and
findings. In addition, some studies are recognized after the fact as being
flawed in some important way. Publication of such studies would constitute
misrepresentation of the behavior of a particular drug. Publication of nega-
15
For an example of corporate trial registry, see GalxoSmithKline at http://ctr.gsk.co.uk/
welcome.asp. For a collaborative industry proposal, see the Joint Position on the
Disclosure of Clinical Trial Information via Clinical Trials Registries and Data-
bases at http:// www.efpia.org/4_pos/sci_regu/Clinicaltrials2005.pdf. See also the
Good Publishing Practice (GPP) for Pharmaceutical Companies at http://
www.gpp-guidelines.org. The International Committee of Medical Journal Edi-
tors (ICMJE) uniform requirements for manuscripts is at http:// www.icmje.org.
See also, the Consolidated Standards of Reporting Trials (CONSORT) statement
at http://www.consort-statement.org.
tive studies could also lead physicians to prematurely reject a medicine.

Researchers learn from failed trials and many times are able to change the
study conditions to improve a drug’s performance. Companies are also
reluctant to publish if it undermines their ability to patent or keep sensitive
business information confidential. Others wonder if the mountain of data
that will become available will be digestible and practically useful for physi-
cians and ask why physicians should not continue to rely on the regulatory
agencies for the vetting of drug data. Despite these difficulties, the SSRI case
stimulated renewed and wider efforts by companies, journals, and medical
and scientific organizations to eliminate publication bias, allow for greater
transparency and access to trial data, and improve the ability to evaluate
data, flawed or not.
6 Product Pricing and Access to Drugs
New drugs are expensive because manufacturers need to recoup the consid-
erable expense of getting a new drug to market (upwards of $800 million16 in
the U.S. at the time of this writing) (DiMasi 2001). The price paid by patients
is sometimes covered by insurance or public health programs but, fre-
quently, uninsured patients in developed countries and most patients in
undeveloped countries cannot afford to pay for new drugs (Kucukarslan
1993). This disparity has prompted members of society to ask whether the
industry is going to address the problem. Many large pharmaceutical com-
panies have programs that provide needy patients with drugs and/or assist
patients in obtaining public or private insurance to cover the cost of its
drugs.17 Yet, these programs help only a relatively few patients prompting
countries and patient groups continue to lobbying the industry to make
medicines more affordable. In the U.S., Congress frequently considers bills
that would mandate drug price controls. And in Germany, where price con-
trols exist, companies went so far as to contribute € 200 million (about $189
million in 2002) to the national health plan to prevent the country from
imposing a further 4% price cut on prescription drugs (Fuhrmans 2002).
Some states in the U.S. have even sued drug companies for allegedly inflating
prices (Gold 2002). Patients in the U.S., where drug prices are often the high-
est, hire tour companies to bus them to Canada where drugs can cost as
much as 50% less (Weil 2004). Activities such as this prompt debates about
allowing importation of cheaper drugs, (Kennedy 2003) or controlling
patent monopolies (Brown 2004).
Desperately needed drugs create extra pressure on companies as when the
AIDS activist group Act-Up was created to harass Burroughs Wellcome to
lower the price of the first anti-AIDS drug AZT. Act-Up’s tactics were very
16
Included in the cost of developing a successful drug are the costs of developing
and testing drugs that never reached the market.
17
See, for instance, Merck’s Patient Assistance Program, at http://www.merck.com/
pap/pap/consumer/index.jsp.
disruptive and included convincing the National Institutes of Health to

adopt a “reasonable pricing rule” imposed on companies who develop drugs
with the assistance of publicly funded research (Adams 2000) and prompt-
ing Congress to investigate Burroughs Wellcome drug pricing. The company
did lower AZT prices and other companies with AIDS drugs were made to
follow suit (Cimons 1989). Most of the pressure, however, comes from third
world countries where drugs are not affordable, even for the generics used to
treat common diseases such as tuberculosis and malaria. The global AIDS
crisis has added fuel to the protests against drug prices and spawned multi-
ple efforts to develop generic drugs in violation of drug company patents
(Gellman 2000). All of this activity has put pressure on the pharmaceutical
industry to disclose its price setting practices, lower prices, and/or relinquish
patent rights to allow the manufacture of cheaper copies of patented drugs.
The pharmaceutical industry has been hard pressed to convince the pub-
lic that forcing these changes, while producing short term relief, would
dampen incentives for industry to engage in expensive R&D and would ulti-
mately deprive society of valuable drugs. The U.S. Pharmaceutical Research
and Manufacturers of American reported that, in 2003, its member compa-
nies invested an estimated $33.2 billion on research to develop new disease
treatments. This figure amounted to spending an estimated 17.7 percent of
domestic sales on R&D – a higher R&D-to-sales ratio than any other U.S.
industry.18 Without the ability to freely price, this vigorous activity will
inevitably diminish. Given the high cost of development and the crucial
need for prescription drugs, this cost vs value vs access debate is sure to con-
tinue for many years.
7 Marketing and Advertising
There are three main ethical issues associated with drug company marketing
and advertising. The first is whether the material is truthful and fairly bal-
ances information about benefit and risk. The second issue has to do with
whether companies medicalize conditions to generate a market for drugs or
otherwise stimulate off label use. The third issue concerns the amount of
money companies spend on advertising.
Since prescription drug regulations have been on the books, company
marketing material has been required to be truthful, contain all material
information, and fairly balance risk and benefit information.18 The industry
has also adopted voluntary codes to promote and support ethical marketing
practices.20 These regulations and codes are a result of continuous negotia-
18
See http://www.phrma.org.
19
The U.S. regulations for drug marketing and advertising are found at 21 Code of
Federal Regulations Part 202.
20
See, for example, Code of Pharmaceutical Marketing Practices of the Interna-
tional Federation of Pharmaceutical Manufacturers Associations, available from
http://www.ifpma.org/.
tion between regulatory agencies, drug companies, and physician groups

about the boundaries of legal and ethical prescription drug marketing and
advertising practices. Nothing has tested these requirements more, however,
than when companies in the U.S. were allowed to market drugs directly to
patients. Until recently, it was widely believed that direct-to-consumer ads
(DTC ads) for prescription drugs were inappropriate because lay people
lacked the education to understand the technical medical information that
was conveyed. In addition, drug ads can be misleading since they promote
one drug only and fail to educate patients about other treatment options.
Another primary objection concerns the fear that manufacturers, in their
effort to persuade, attempt to downplay the risks and give patients the mis-
impression that the drugs are totally safe. The FDA struggles with DTC ads
because it is under-staffed to police them and because drug companies
always seem to be pushing the envelope of tolerability, especially for televised
ads where the time to present risk information is limited. Physicians gener-
ally dislike DTC drug ads because they prompt patients to self diagnose and
put pressure on the doctor to prescribe which often forces doctors to spend
valuable time explaining why a certain advertised drug is inappropriate
(Hollon 1999; Pines 1999; Terzian 1999; Wilkes 2000). For all of these rea-
sons, most countries do not allow DTC drug advertising. In contrast, this
activity has been widespread in the U.S. since the late 1980s. The drug com-
panies claim a right to commercial free speech and the FDA, after conduct-
ing some surveys, decided that patients had a legitimate right and need to
learn about newly available prescription drugs and these ads can be educa-
tional and empowering and can prompt patients to seek needed medical
attention. Despite the expected benefits, however, debates continue about
whether DTC prescription drug advertising is good or bad for the medical
profession and the public (t’Hoen, 1998; U.S. General Accounting Office
2002).
DTC drug advertising is an effective way to increase prescribing. Research
has shown that drugs that are heavily advertised, whether to physicians or
patients, are prescribed more. In one study, researchers at Harvard Univer-
sity and the Massachusetts Institute of Technology looked at the effect of
DTC drug advertising on spending for prescription drug. The study found
that every $1 the industry spent on DTC advertising in 2000 yielded an addi-
tional $4.20 in drug sales. In addition, DTC advertising was responsible for
12% of the increase in prescription drugs sales, or an additional $2.6 billion,
in that same year (Kaiser Family Foundation 2003). Numbers like this are
the reason that the industry in the U.S. is likely to continue this activity.
The so-called medicalization issue involves the question of whether phar-
maceutical company marketers intentionally (and irresponsibly) create an
expansion in what is considered a disease condition. One reason, for exam-
ple, that attention deficit hyperactivity disorder (ADHD) became a legiti-
mate diagnosis was the discovery that Ritalin® could control it. A similar
change occurred when drugs were found to control hair loss, male erectile
dysfunction, short stature, and menopausal and pre-menstrual symptoms.
This kind of expansion has been given a name by critics, diagnostic bracket
creep, and has come to mean that what was once considered within the range
of normal experience and behavior was now classed as illness. The introduc-
tion of new drugs is the primary reason that diagnostic bracket creep occurs.
Debates exist about whether this phenomenon generates better and more
enlightened treatment for patients or an irresponsible medicalization of
conditions that should not be considered diseases. This debate is currently
robust within the psychiatry and psychology professions when one com-
pany’s SSRI antidepressant was approved and marketed for a new disease the
company called social anxiety disorder (SAD). Since many people are often
uncomfortable in new social situations, critics accused the company of using
its ads to expand the market for its drug by blurring the distinction between
a legitimate psychiatric disorder and normal personality variation (Vedan-
tam 2001).
These criticisms of drug marketing practices have led to the question of
cost vs benefit. If the advertising (especially the DTC kind) does not improve
health awareness or provide other benefits and, worse; if the ads are harmful,
the cost of advertising becomes an issue. In 2003, U.S. companies spent $3.22
billion in DTC advertising (Hensley 2004) and it is reasonable to assume that
this amount is incorporated, at least to some extent, into the price of the
products.21 Supporters of DTC advertising believe that it can have a positive
effect, such as when the ads prompt people to seek treatment with choles-
terol lowering drugs. Advertising lipid lowering drugs, for instance, can
decrease healthcare costs from the decrease in cardiovascular morbidity in
treated patients. Critics, however, deplore the spending and wonder if the
increase in the number of prescriptions written for advertised drugs is con-
tributing significantly to patient health. In the midst of this debate, some
companies, such as Johnson & Johnson, are skewing their patient ads to
highlight the educational and safety aspects. According to the company, the
move was to reduce the animosity directed to these ads and preserve the
right to market directly to patients by educating and counseling consumers
to improve their health (Hensley 2005).
8 Post-marketing Safety Monitoring
Drug companies have increasingly understood that the commitment they
must make to a new drug is often more than the usually quoted statistic of 10
years and $800 million to get the drug to market. The post-market research
and surveillance phase of a drug’s life is now often as active as the pre-mar-
ket phase. Companies are either obliged by the regulatory agencies or volun-
21
Industry statistics indicate that the primary effect of DTC ads is to increase drug
spending by increasing the number of prescriptions written, not the prices of the
advertised drugs.
tarily undertake these post-market programs. Reasons for doing so are usu-
ally related to the fact that clinical research can never predict precisely how a
drug will behave once prescribed in the open market. Plenty of examples
exist of drugs approved for marketing only to be withdrawn within a short
period because of unexpected side effects. Historically, the rate of drug
recalls in the U.S. is 2–3% (Kleinke 1998). Drug companies also know that
physicians will prescribe a drug for many patients who were not included on
the pre-market studies – children, pregnant patients, the elderly, patients
with co-morbid conditions, or even patients with other diseases. These cir-
cumstances give rise to two questions that have ethical relevance. How much
post-market safety monitoring should the company perform? And, to what
extent is it the company’s responsibility (as opposed to the physicians) to
collect data on or study off-label uses? The question about post-market
safety monitoring depends on the extent of pre-market research, the utility
of the drug, and the severity of potential side effects. For instance, if there
was extensive pre-market research, the drug is for an unmet medical need,
and the potential for side effects low, then the need for safety monitoring or
further study is probably on the low side of the spectrum. The question
about off-label use is more difficult to resolve. On the one hand, physicians
need to take responsibility for their prescribing. If there is little data to indi-
cate that a drug is safe for a particular use, this suggests that the physician
should use the drug under research rather than clinical conditions and the
company should not be responsible if the physician is reckless in this regard.
On the other hand, if the company knows that the drug has a high potential
for toxicity, doing nothing seems irresponsible, especially since the company
benefits from the expansion in the market attributable to off-label use. This
is exactly the view taken by critics in the Vioxx debate (described above). The
significant legal, financial, and reputational harm that resulted in that case
indicates that companies need to devote considerable attention to their
responsibilities for post-market drug safety.
Obtaining Ethics Advice

Companies have several options when seeking ethics advice to manage the
issues described above. Large companies tend to have in-house ethics offi-
cers who are either primarily responsible for legal compliance and report to
the general counsel or, even better, are more narrowly focused on ethics and
who liaison with the legal department. Resources to support such people
include the Ethics Officers Association22 and Business for Social Responsibil-
ity,23 both of which exist to educate and enhance communication about
business ethics. Some companies also empanel ethics advisory committees
22
See www.eao.org.
23
See www.brs.org.
to address ethics issues as they arise or seek outside individual consultants

who work on discreet issues. Several aspects of using outsiders need to be
addressed when pursuing this course of action. Ground rules and agree-
ments must be established about confidentiality of discussions, whether the
company discloses its use of ethics advice (this can seem self-serving), com-
pensation (too much seems like buying an opinion, too little will deter par-
ticipation), and how to manage ethics advice that conflicts with manage-
ment decisions. The advisors themselves also need to be carefully selected.
Although a company will not be well served by retaining a committed indus-
try critic, neither is it helpful to hire a yes man who will justify and endorse
all company decisions. Companies will benefit maximally from learning
about all sides of a debate, and should retain an advisor who will provide
objective advice while retaining a willingness to support the overall corpo-
rate effort. Expertise is also a factor. A good company advisor will be educa-
ble about the technology, knowledgeable about general pharmaceutical
company business and legal affairs and about business ethics, and able to
provide practical advice. Because it is rare for one person to possess all of
these skills, companies may want to convene a panel of advisors with a vari-
ety of expertise (Brower 1999; Eaton 2004; Eaton 2005).
Regardless of the method used, an awareness and incorporation of an
ethical perspective into business decision making will serve pharmaceutical
company interests. Both economic and socials goals are advanced when
business ethics programs assist in responsible development and marketing
of medical products, support physicians in their treatment of patients, and
advance the important social benefits of pharmaceutical and bio-technolo-
gies.
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Corporate Responsibility for Innovation –
A Citizenship Framework
Dirk Matten, Andy Crane, Jeremy Moon
Summary
This paper applies the metaphor of citizenship to business-society relations
because citizenship is concerned with power and responsibility as two major
themes in the context of ethical implications of corporate innovation. After
exploring and explaining these themes, we investigate the application of the
citizenship metaphor to corporations in three ways: corporations as citizens;
corporations deploying government-like powers in relation to human citi-
zens; and corporations as arenas for stakeholders to act in citizenship-like
ways. We illustrate how citizenship status, processes and entitlements of cor-
porations themselves, of human members of societies, and stakeholders of
corporations are structured. We consider the usefulness of our approach for
understanding corporate responsibility in the context of innovation as well
as for future research.
1 Corporate Innovation and its Societal Impacts
The debate on the ethical implications of innovation, in particular the use
of new and hazardous technologies, has a rather longstanding and well
established place in the business ethics literature (di Norcia 1994). Among
the papers in this volume, in particular the work of Margaret Eaton (in this
volume) provides an exhaustive overview over the state of the art of the
debate in particular from the perspective of business ethics. While this
debate has focused in the main on applying a philosophical perspective on
the issues, other contributions in this volume (e.g. the papers by Kuhlen,
Nuettgens, Seiter, and Selgelid) clearly reflect a more broader debate on the
wider societal and, in fact, political implications of corporate innovation
and development of new technologies. Innovation and the deployment of
new technologic options by private actors, most notably corporations, is
increasingly perceived as having fundamental implications on the con-
sumption choices, living standards and quality of live of individuals and
societies globally. We will confine ourselves to illustrating these more
recent shifts with three examples based on innovation in products, innova-
tion in production technologies and innovation in product distribution
and delivery.
64 Dirk Matten, Andy Crane, Jeremy Moon
– Innovation in products: one of the key challenges for pharmaceutical

companies during the last years has been the question of providing access
to drugs for the developing world. On the one hand, many companies
have faced serious public criticism about the fact that they are unwilling
to waiver their patent protection for drugs which most ‘consumers’ in the
developing world are unable to afford. A landmark example here was the
PR disaster for many major pharmaceutical companies following the
(likely) defeat in a case against the South African government allowing
generics for retroviral drugs to be imported into the country (Crane and
Matten 2004:107–109). Pharmaceutical companies are able to provide
solutions for many of the most pressing global health problems and, due
to their economic power, by many are considered responsible for tackling
these issues in ways which go far beyond the opportunities of govern-
ments, most notably those in the global south. On the other hand there is
an increasing temptation then for pharmaceutical companies, in order to
make sustained profits, to refrain from developing new products particu-
larly catering for the diseases of the poor (Attaran 2004; Barton 2004).
With considerable investment necessary to develop a new drug the risk of
public outrage putting pressure on companies to then sell their products
to reduced prices is just too high. Again this situation raises questions
about the power of corporations to tackle fundamental global health
issues.
– Innovation in production technologies: the use of genetic engineering
or, more generally, biotechnological innovation has given rise to a
broad debate on the general issues this raises for society at large (Har-
ris 1994; Häyry 1994; Taunton-Rigby 2001). For instance the debate on
genetically modified organisms in the food chain has put companies in
the limelight and has raised issues of power and responsibility for the
quality and impact of basic commodities. In particular, the ability of
consumers to make an informed choice is increasingly put into ques-
tion. Furthermore, as most of these innovations take place in the cor-
porate sphere, companies are perceived increasingly as being responsi-
ble for shaping significant and often irreversible technological progress
with severe implications for fundamental human rights of individuals.
So, for instance, the use of the information from the genetic code of
people in various products and services, from pharmaceuticals to
insurance, raises questions about rules and ethical norms which should
govern the development and subsequent application of these new tech-
nologies.
– Innovation in product distribution and delivery: corporations such as
internet providers or mobile phone companies make use of innovative
technologies to provide information and communication services. In
administering these new technologies companies not only provide new
products but actually shape the way fundamental consumption and life
Corporate Responsibility for Innovation – A Citizenship Framework 65
style choices of consumers are made (Langford 2000). However, these

new technologies also impact quite significantly on broader issues of
societal concern. So, for instance, a debate about the corporate responsi-
bility for child abuse based on contacts through chat rooms on the inter-
net or by mobile phone communication has increasingly raised question
about the corporate responsibility for new options of criminality facili-
tated by these technological innovations (BBC 2005a). More recently, the
internet provider Yahoo was accused of having been directly complicit in
putting a Chinese regime critic for 10 years to jail by providing crucial
information about the person’s email account to the Chinese prosecu-
tors (BBC 2005b).
These are just three areas of innovation and some anecdotal examples of
recent controversies around corporate innovation. Underlying these argu-
ments is the fact that the responsibility for generating and facilitating the use
of new products, technologies and services has increasingly shifted towards
the private sector. Corporations thus shape increasingly fundamental con-
sumption choices, lifestyle options and, as some of the examples show, create
arenas which significantly impact on fundamental human rights of individ-
uals. Innovation then straightforwardly raises fundamental questions about
the role of corporations in society, their power and responsibility in using
these technologies but also the role of governments and civil society in
enabling or restricting the way business benefits from the use of innovative
technology.
In the following, we will suggest a citizenship perspective as an approach
to describe, analyse, understand and potentially manage some of the issues
around corporate responsibility for innovation. We will do so by, first, dis-
cussing the relations between corporations and citizenship on a more gen-
eral level (section 2). This discussion exposes particular shifts in business-
society relations which we will explore in more detail. While section 3 then
provides the basic step of applying citizenship thinking to corporations we
will explore the conceptual implication of this step in section 4. The final
section 5 then provides a brief conclusion and application of the suggested
framework to the debate on business ethics and innovation.
2 Business-society Relations as an Arena for Citizenship1
This paper applies the metaphor of citizenship to business-society relations.
We chose this metaphor because it raises important questions of power and
responsibility which are in turn central to the developing agendas of busi-
ness-society relations in the context of innovation.
1
This chapter draws on our Corporations and Citizenship Cambridge University
Press (forthcoming). It incorporates and develops our thinking in: Crane, Matten
and Moon 2004; Matten and Crane 2005; Moon 1995; Moon, Crane and Matten
2005. Dirk Matten would like to thank Shahanara Bhunyan for support with the
literature research for this paper.
Whilst many studies which apply the idea of citizenship to corporations

to business – society relations adopt a single perspective, that of corporate
citizenship or membership of society, we adopt a three dimensional perspec-
tive by analysing corporations: as if they were people-type citizens; as if they
were governments in relation to people as citizens; and as if they create an
arena for people to enact citizenship. Through these conceptualisations we
examine the different ways in which corporations possess and structure citi-
zenship status, entitlements and processes. We do so in the context of two
important and seemingly contradictory contemporary developments in
business-society relations: the nature and appropriateness of increasing
business power and the new claims being made by firms about their being
socially responsible.
We use the concepts of citizen and citizenship in their metaphorical
sense.2 As mentioned, we apply them to corporations in three ways: corpora-
tions as citizens who participate in political communities and authorise gov-
ernments to rule therein; corporations ruling political communities through
deploying government-like powers and responsibilities; and corporations
creating opportunities or arenas for their stakeholders to act in citizenship-
like ways. There will always be debate about citizenship’s meaning, merits,
and appropriateness. There are internal dynamics to this debate as new
models of citizenship are developed against which practices are judged. As
Marshall observed of the political concept of citizenship:
Societies in which citizenship is a developing institution create an image of an ideal
citizenship against which achievement can be measured and towards which aspira-
tion can be measured (1950:29)
For corporations, the nature of these debates reflects social and business
contexts within firms, among firms, within countries and among countries.
Recognizing that, like its related political concepts, the metaphor of citizen-
ship for corporations is essentially contested (Gallie 1956) does not, of
course, obviate the need for closer investigation into its theoretical appropri-
ateness.3
Corporations are generally regarded as the most prominent organisations
of contemporary capitalism in part because of the employment, production,
investment and wealth that they account for. They are now generally under-
stood to be non-governmental profit-making business enterprises owned by
shareholders who control the overall firm policy but managed by the agents
of the owners. Their legal identity is distinct from that of their members and
their internal governance regimes reflect government regulation and wider
features of their national business systems. (Albert 1991; Whitley 1999)
2
See Moon, Crane and Matten 2004 (432–434) for a discussion of the use of
metaphors in the analysis of business.
3
See Moon, Crane and Matten 2004 (433–434) for a discussion of essentially con-
tested concepts.
However, numerous big businesses are known as privately-owned in that the

shares in the company are not traded through stock exchanges. These
remain a particularly important form of big business in parts of the world
particularly Asia. Other big businesses are exclusively institutionally-owned
(e.g. by banks, governments), a common form of business organisation in
Rhenish capitalism of Germany, Austria and Switzerland, for example. The
wider definition also brings in cooperative businesses, particularly promi-
nent in Southern Europe. Colloquially, the word corporation is generally
used to denote any form of big, private business devoted to profit-making.
This is the definition that we will use as the key issues of power and respon-
sibility link to the size, ownership and purpose of the firm, rather than to
one particular feature, albeit a very important one, of ownership and con-
trol.
2.1 Business-society Relations
In the last decade or so there have been some radical developments in the
agenda of business-society relations. These reflect changes in the corpora-
tions themselves and changes in the social and political context of business.
Consideration of these developments has not simply been in the forums of
university seminars and academic journals, nor of the pages of the financial
media, nor yet in the agitprop media of the critics of corporations. The
social status and impact of corporations has also been the subject of films
(e.g. “The Corporation”, “Roger and Me”), of documentaries (e.g. “The End
of Politics”, “Supersize Me”) and ‘airport literature’ (e.g. “No Logo”).
These and other forms of media coverage have brought to mass attention a
whole range of issues which reflect or address business activities. For example,
the role of Shell in Nigeria and the extent of its responsibilities for the social,
political and economic status of the Ogoni people has raised questions about
the extent to which a corporate presence is an implicit endorsement of gov-
ernmental actions and the extent to which corporations should bring pressure
to bear on governments. Conversely, the role of oil companies in benefiting
from the US invasion of Iraq and the subsequent political settlement has ani-
mated anxieties about such close involvements with government. Recent con-
cerns about obesity in western countries have raised the question of the role
and responsibility of fast-food businesses for the health and well-being of their
consumers, echoing debates about tobacco companies’, governments’ and per-
sonal responsibilities for cigarette consumption and attendant health risks.
The publication of the 2005 Nike Social Report in which its suppliers are
named and their working pay and conditions independently audited and
reported represented a new landmark in the extent to which a western-based
retailer is prepared to take responsibility for its supply chain.
Bringing some of these themes together we can see two simultaneous and
seemingly contradictory trends. On the one hand there is a critique of what
is deemed excessive business power such that the rights of citizens and the
powers of governments (assumed in this critique to be protective of citizens’

interests) are weakened. On the other hand there are claims by businesses
that they are taking more responsibility for society, or as acting as ‘corporate
citizens’, and there are more clearly articulated expectations by citizens and
governments that corporations should take greater responsibility for society.
The view that corporations are assuming excessive power is manifest in
various ways. At the level of political practice, this is evident in the anti-glob-
alisation movement. This is a very heterogeneous movement, in terms of
philosophy, organisation and tactics, but united in a main target of corpo-
rate operations across a range of countries. Their central critique is not sim-
ply that corporations have power but that this is magnified by the ‘global’
nature of multi-national corporations, or MNCs. In some cases anti-global-
isation reflects hostility to the cultural referents of particular brands, as in
the attack on McDonald’s outlets in France. In other cases it reflects a cri-
tique of the business practices of major corporations through, for example,
the terms and conditions of employment in the third world subsidiaries or
supply chains of western clothing and sports equipment companies, the con-
cerns of various fair trade movements. As discussed earlier, a number of
aspects of the innovation process in companies and their use of technology
to address, or not address, global problems is a frequent topic of critics from
this movement. In other cases it reflects a general critique of the political
power that goes with global economic power and the way in which this com-
promises the position of governments, particularly in developing countries,
in their deciding the terms of inward investment of such MNCs. Hence
MNCs are accused of escaping tax law, of extracting excessive benefits from
developing countries and of making improper payments to secure invest-
ment opportunities. These perspectives have also been witnessed in a new
literature which is critical of the activities of particular corporations and
corporate activity. (e.g. Hertz 2000; Korten 1995; Monbiot 2000)
Contemporaneously, corporations have been claiming that they are act-
ing more responsibly. Even sceptics of the idea that businesses should com-
promise their core market activity have noted this trend. Martin Wolf, Chief
Economics Commentator of the “Financial Times”, commented that there is
a sense that corporate social responsibility is ‘an idea whose time has come’
(2002:62) and Clive Crook, Deputy Editor of “The Economist” observed that
‘over the past ten years or so, corporate social responsibility has blossomed
as an idea, if not as a coherent practice’ (2005:3).
At the nominal level, corporations claim to be acting more responsibly
through the adoption of such terms and self-descriptions as corporate citi-
zenship, corporate social responsibly, business ethics and sustainable busi-
ness. In many cases, corporations go beyond the mere adoption of sociable
labels, they also seek to integrate their responsibility into their brands (e.g.
BP claims to be a green energy company). Reflecting the fundamental open-
ness to accept responsibility for the societal role of his company Jean-Pierre
Garnier, CEO of the pharmaceutical multinational GlaxoSmithKline argued

in a recent interview: “I don’t want to be the CEO of a company that caters
only to rich countries. I’m not interested.” (“Financial Times”:22.VII.2005)
Whilst there may well be certain business advantages to the use of images
of corporate responsibility in marketing and branding, this can also be a
source of cynicism. Critics may well ask what lies behind the brand? In many
cases this can be substantiated by organisational manifestations of new
forms of responsibility. Many companies have now developed organisational
resources and processes to reflect their increased social commitments, be it
defined as corporate citizenship, corporate responsibility or sustainability.
Sometimes these are free standing and in other cases they are housed in
larger functional units. Some companies are assigning board level responsi-
bilities for these new social relations. Another manifestation of new social
relations is that many companies are developing programmes and policies to
substantiate their commitments and organisational innovations. These
range from community involvement, through concern with responsibility in
the products and processes, to attention to their labour relations. Commu-
nity involvement to some extent reflects a traditional commitment to phi-
lanthropy on the part of companies, whether reflecting religious and ethical
commitments or more functional concerns with labour force loyalty and
productivity.
However, today corporations are viewing community involvement in
much more systematic rather than discretionary fashion and doing so in a
way that reflects a more self-conscious stakeholder approach. Concern with
the products and processes reflects a decision to ensure that goods and serv-
ices reflect various social expectations in their composition, in the ways in
which they are produced, and in the social and environmental externalities
thereby created. Sometimes this includes securing third party audits and ver-
ification. Thirdly, many companies are also investing greater resources in
workplace conditions and even in the extra-work circumstances of their
staff, reflecting new demands in the area of work-life balance and new atti-
tudes to and expectations of employment.
In some cases these new areas of company activity have been comple-
mented by self-regulation. An obvious means to this end is through the use
of external or internal corporate codes to guide and benchmark responsible
behaviour of corporations and their employees. Although these are often
criticised for their lack of wider accountability, they do bring opportunities
for corporations to develop policies which reflect and complement their
own range of commercial activities. Moreover some companies are develop-
ing codes which provide for independent verification and certification, often
in collaboration with stakeholder organisations.
Another manifestation of greater company concern with their social rela-
tions is their preparedness to join business associations whose purpose is to
encourage and develop the social face of business. For example, in the UK
over 700, mainly large, companies are members of Business in the Commu-
nity (BITC). BITC provides a variety of services and awards in the area of
socially responsible business through its national and regional offices,
though it emphasises that membership itself should be a step to a more
reflective and proactive style of engagement with society. There are similar
association in the USA (e.g. Business and Society). Internationally there are
other business associations to encourage more responsible business. CSR
Europe, the International Business Leaders’ Forum. Membership of the UN
Global Compact entails commitment to ten principles covering human
right, labour standards, the environment and corruption.
Another important development has been the growth of social reporting,
be it within general company communications, in dedicated social responsi-
bility reports, or within their annual reports. Some go so far as to legitimise
their reports through external verification and stakeholder engagement (e.g.
British American Tobacco, Nike). Various indicators of business responsibil-
ity have also been developed and adopted in tandem. Some of these reflect
agreement among corporations about appropriate reporting norms (e.g.
Global Reporting Initiative).
A new burgeoning of CSR consultants suggests that companies are pre-
pared to pay for advice about their CSR (Fernandez Young, Moon and Young
2003). There have also emerged new responsible business professional net-
works (e.g. CSR Chicks, Lifeworth, Association of Sustainability Profession-
als). A new business media on socially responsible business is also emerging.
This includes dedicated media outlets (e.g. “Ethical Corporation”, “Ethical
Performance”) as well as greater attention to these themes in the mainstream
media, illustrated by the “Financial Times”’ employment of a CSR corre-
spondent and recent special supplements of corporate social responsibility
in “The Economist” (22.I.2005), “The Independent” (23.III.2005) or the
“Financial Times Deutschland” (7.XII.2005).
So, in conclusion, there is plenty of evidence that corporations are at least
keen to be regarded as behaving more responsibly and there is also plenty of
evidence of resources being invested in organisational developments consis-
tent with this. What explains these developments?
2.2 Recent shifts in business-society relations towards the political
Having sketched something of the changing nature of business – society
relations we now turn to providing some explanation for the trends that we
have identified. This section is divided into two parts, the first addressing the
drivers of business power and the second addressing the movement for cor-
porate social responsibility.
Corporations are acquiring an increasingly conspicuous and, in some
respects, contentious profile. There are various reasons for this. Corpora-
tions have acquired a greater share of economic participation following
widespread privatisations; they have created new consumer markets; their
cross border activities appear to have increased; and they have assumed
greater roles in the delivery of public goods.
First, corporations have acquired more commercial opportunities. In
many parts of the world this results from the waves of privatisations in what
were already capitalist economies witnessed over the last quarter century
(e.g. in Australia, New Zealand, the UK, the USA). Elsewhere this has
resulted from more abrupt shifts following the collapse of communist
regimes. As a result corporations have become responsible for more facets of
citizens’ lives than they used to be. In many communities, what was once
delivered, for better or for worse, by governmental organisations (e.g.
telecommunications, energy, water, mass transport) is now delivered by pri-
vate corporations. Although governments have tended to retain regulatory,
fiscal and organisational capacities, the tides of privatisation have not only
had the effect of increasing the corporate sector’s share of gross national
product and employment but also of yielding to corporations pivotal roles
in policy areas previously regarded as fundamentally political (e.g. invest-
ment in and performance of transport and utility companies; access to and
use of such natural resources as water, oil and gas).
Secondly, corporations appear more conspicuous because they have cre-
ated new consumer markets. This is most obviously true where there have
been recent increases in the range and availability of consumer goods (e.g.
China). However, it also reflects longer-term shifts in western societies from
‘the politics of production’ to ‘the politics of consumption’. The increasing
commodification of life is evident in such domestic activities as home
improvements, gardening and sports.
Thirdly, corporate cross-border activities have grown. Thus, corporations
are often more conspicuous simply because they are large and foreign rather
than small or medium and local. This is manifest in vast increases in national
foreign direct investment and international intra-and inter-company trade.
This is in turn predicated on trade liberalisation facilitated by political
reforms, increased access to developing economies, technological change,
economies of scale and scope, and cultural homogenisation. For corpora-
tions, globalisation thereby offers opportunities to increase growth, stabilise
performance, exploit new investment opportunities and increase market
power.
Fourthly, there is evidence of wider changes in patterns of societal gover-
nance such that governments have reduced some modes of exercising their
authority (see Moon 2002). In addition to the effect of the privatisation of
governmental responsibilities in creating new market opportunities for busi-
ness (see above), another corollary is that governments have actually encour-
aged corporations to contribute to wider governance activities. Similarly,
many western companies operating in developing countries undertake such
responsibilities in lieu of governmental provision be it in the provision of
pensions, education, worker rights and opportunities and environmental
responsibility. This expansion of corporate profile thus in part reflects regu-

latory failure and regulatory vacuums.
At the same time as these powerful drivers of increased business power
have gathered pace other contemporary phenomena have encouraged cor-
porations to behave more responsibly. We divide these drivers into market,
social regulation and government regulation: they amount to trends towards
a socialisation of markets.
A number of market drivers for more responsible business behaviour
have emerged. There are new consumer demands for products and processes
which reflect more socially responsible practices. Although some of the pub-
lic opinion data on consumers’ preparedness to punish irresponsible retail-
ers may disguise the effect of price in their actual spending choices, certain
new niche markets reflect new social values (e.g. as met by The Body Shop,
Green Mountain, ethical trade systems) and of periodic occasions when con-
sumers can be mobilised in consumer boycotts (e.g. boycotts of American
sports wear companies’ Bangladesh suppliers employing child labour).
There is also evidence of a greater impact of investors on the agenda of
corporate social responsibility. This in part reflects the development of sys-
tems of socially responsible investment (SRI) and also the expansion of SRI
agendas into wider investment criteria. Although, SRI funds still only
account for a relatively small share of total investments (about 15% in the
USA, 5% in the UK), these are growing and becoming more engaged with
companies. Moreover, general investment funds have also taken an interest
in SRI criteria, from risk and corporate governance perspectives.
Employees’ expectations are also informing corporate social responsibil-
ity. This in part reflects new assumptions about their employers’ responsibil-
ities in the work-life balance. In addition, companies are regarding their
social responsibilities as part and parcel of being a good employer, both in
order to attract and retain employees. Some companies regard the composi-
tion of their workforce as linking their social responsibility with their market
orientation.
Business customers are increasingly imposing supply chain assurance and
auditing systems, particularly international branded businesses which are in
turn responding to social regulation of western NGOs (see below). More-
over, competitors can also be a driver of greater business responsibility as
they use their social involvement as a feature of their competitive branding.
Turning to social regulation, NGOs have emerged as prominent shapers
of social agendas which articulate social expectations of business. NGOs
such as Greenpeace, the World Wildlife Fund, Amnesty International, Oxfam
have developed critiques of individual businesses and types of business prac-
tice rather than just of governments and capitalism in general. Whereas ini-
tially these NGOs tended to take an adversarial perspective on corporations,
there are now instances of more cooperative relationships such as Amnesty
International’s collaboration with the International Business Leaders’ Forum
in developing a Human rights road map. The impact of NGOs on business

responsibility agendas has been assisted by IT developments enabling ready
communications between developing world and western NGOs and by the
interest of the western media in bringing NGO concerns to wider public
attention. Thus, issues such as the working conditions in developing country
suppliers of western countries have become familiar with wide sections of
western societies.
Governments themselves have also taken an interest in encouraging
increased business responsibility. Although some of definitions of corporate
social responsibility would appear to exclude activities that are required by
law or regulation, many governments have sought to use various forms of soft
regulation to encourage business to take greater responsibility for social agen-
das through mandating, partnering, facilitating and endorsing (Moon 2004).
The Australian Prime Minister’s Business Leaders’ Roundtable and the UK
Minister for Corporate Social Responsibility illustrate governmental interest
in endorsing greater corporate social responsibility. OECD governments have
sought to facilitate multinational corporations to comply with the OECD
Guidelines for Multinational Enterprises by acting as a national contact point
to support companies seeking to conform to the standards set out in the
Guidelines. The UK government’s Ethical Trade Initiative and the CSR Acad-
emy illustrate the readiness of government departments to bring their fiscal
and organisational resources to partnerships with business and non-govern-
mental organisations in order to advance social agendas in business.
2.3 Corporate Power and Responsibility
Some of the key issues that arise concerning corporations and citizenship
derive from both their relationship to other sources of power and from the
significance of their power relative to that of others in society. As in other
institutions such as governments, churches and trade unions, the power of
corporations is itself a resource for irresponsibility, corruption and decep-
tion and thus there has been an interest in finding appropriate balances
between enabling corporations to fulfil their claimed purposes of meeting
demands, employing people and returning profits to owners with restrain-
ing them from exploiting the powers that go with these purposes inappro-
priately. This has been an abiding theme in debates about corporations and
society from Charles Dickens’ stories of early nineteenth century British cap-
italism through to more recent debates about the allocation of responsibili-
ties for the Enron and Parmalat collapses and measures to prevent repeti-
tions.
Hence, we take the view that consideration of corporations and citizen-
ship should be contextualised by the themes of power and responsibility.
After all, the whole significance of the broader concept of citizenship: it is
about identifying, allocating, delineating, restraining, relating and opera-
tionalising power and responsibility. Thus political debates have raged about
who is or who should be a citizen because of the opportunities that political

power affords and the responsibilities that citizens either expect to be shown
to them or which are expected of them. Corporations, like people, both have
power and are subject to power. They are both attributed responsibility and
they claim responsibility. Clearly, power and responsibility are closely
related. The possession of power is often a pre-requisite to the ability to take
responsibility, yet its possession is also regarded as a reason for which its cus-
todians, users and beneficiaries are expected to exercise responsibly.
Most debates about corporations and power revolve around evaluations
of corporations’ own power and estimations of appropriate constraints
upon them that can be affected by the application of governmental includ-
ing judicial power (i.e. regulation) or mutual power (i.e. self-regulation).
These impositions of power on corporations are often designed to protect
investors, employees and societies from the abuse of corporate power. But
they also extend to meeting collective business (and arguably societal) inter-
ests of enabling fair and free competition among corporations. Debates
about corporations and responsibility also revolve around the relative
responsibilities that corporations owe to their owners and to their other
stakeholders such as their investors, employees and customers, and wider
societal interests. This introduces powers afforded by systems of corporate
governance. Debates persist here, particularly over who should have power
over the corporation and to whom are its executives responsible. This is
most vividly illustrated in the somewhat caricatured attribution to Milton
Friedman that the responsibilities of managers are solely to the company
owners4 which is pitted against the various applications of stakeholder the-
ory to corporations’ responsibilities.
The concept of citizenship enables examination of the ways in which cor-
porations deploy or temper their power to exercise responsibility, to who
and why. This can be applied in three ways, first in the ways in which corpo-
rations can be considered as citizens. Secondly, certain new roles of corpora-
tions are akin to those of governments and therefore raise the question of
citizenship rights of people who are affected by corporate activities. Thirdly,
and relatedly, following the logic of stakeholder power and arguments about
corporate responsibilities to their stakeholders, corporations create arenas
for stakeholders to act as citizens, both in respect to the corporations them-
selves but also in wider societal governance.
It could be argued that our threefold distinctions are rather artificial. We
would concede that, from an Aristotelian perspective these distinctions
might seem otiose: the three perspectives could be regarded as mutually
reinforcing facets of citizenship. However, for the purposes of evaluating
4
He specified that this should be within customary ethics and the law, and also
acknowledged the mutual benefits of corporate community investment even
though he thought that this should be better described as corporate self-interest
rather than responsibility (Friedman 1970).
corporations this approach brings the advantages of general conceptual clar-

ity in a field where this is sometimes lacking, and of underlining the political
significance of our dimensions of corporate citizenship. By distinguishing
the different power relations and responsibility roles that corporations
adopt, we are better able to identify the dynamic qualities of corporations in
context. As a result, our findings can be addressed to wider questions of
institutional review in global governance. Of course, the three general con-
ceptualisations of corporations and citizenship that we adumbrate are differ-
entially experienced according to the respective societal and corporate gov-
ernance systems that different political communities have developed.
3 Applying Citizenship to Corporations
We argue that the concept of citizenship is appropriate for consideration of
the power and responsibility of corporations for several particular reasons.
First, the very fact that corporations use the term corporate citizenship as
one of several synonyms for their greater social responsibility warrants tak-
ing seriously. This enables us to evaluate corporations in part on their own
terms. Secondly, citizenship is a concept which is expressly concerned with
social relations of power and responsibility which, as we have suggested,
enframe many of the current debates about contemporary business-society
relations. More specifically, citizenship is an organising principle for aligning
powers and responsibilities among members of political communities (i.e.
on a horizontal dimension), and between them and other institutions wield-
ing power and responsibility (i.e. on a vertical dimension).
Thirdly, the concept of citizenship is at the heart of wider debates about
societal governance of which corporations form a key part. Thus, critiques
of corporate power are often underpinned by a view that citizenship auton-
omy and choice are being structured by corporate agendas. Alternatively,
there is the view that these citizenship pre-requisites are being undermined
as the key institutional representatives of citizens, democratic governments,
are being superseded by corporate power. Yet more broadly, there is concern
that the contemporary forces of globalisation and the undermining of
national governments are also inimical to effective citizenship. Although this
latter point does not necessarily directly relate to corporations, by virtue of
their role as agents of globalisation (e.g. through foreign direct investment,
global supply chains) they are implicated in broader political debates about
citizenship. Paradoxically, this point parallels other broader citizenship
themes as globalisation raises questions of changing and even multiple citi-
zenship through new patterns of migration and political identity. Perversely,
perhaps, the view that governments are becoming increasingly ineffective, be
it because either of globalisation or corporations, is also associated with the
view that citizenship is endangered by the evidence of voter apathy in many
developed political systems (though not, it seems in places where democracy
is relatively new such as South Africa, Ukraine, Iraq).
We adopt T.H. Marshall’s definition of citizenship as comprising three

types of rights: civil, political and social (1965). However, we adapt his clas-
sification from simply being rights based and follow the Aristotelian
assumption about duties of citizenship, to each other and to the polity as a
whole. Civil rights consist of those rights that provide freedom from abuses
and interference by third parties (most notably governments), among the
most important of which are the rights to own property, exercise freedom of
speech, and engage in “free” markets. We refer to these rights and correspon-
ding duties as citizenship status. In contrast to these more passive rights
(which government respects or actively facilitates) the second category of
political rights moves beyond the mere protection of the individual’s private
sphere and towards his or her active participation in society. This includes
the right to vote or the right to hold office and, generally speaking, entitles
the individual to take part in the process of collective will formation in the
public sphere. We refer to these rights and duties as citizenship processes.
Thirdly, Marshall’s social rights consist of those rights that provide the indi-
vidual with the freedom to participate in society, such as the right to educa-
tion, healthcare, or welfare. We refer to these rights and duties as citizenship
entitlements. In the next section, which fleshes out our three dimensions of
citizenship, we will outline different configurations of status, processes and
entitlements of citizenship.
4 Three Conceptions of Corporations and Citizenship
As the changing roles of corporations in business-society relations are com-
plex and multi-faceted, rather than cram all of these relationships into a sin-
gle conception of citizenship, we present three different ways in which the
concept of citizenship illumines the powers and responsibilities inherent in
business-society relations. In each of these conceptions, we distinguish dif-
ferent roles and relations for corporations, for governments and for citizens, by
which we also refer to what others describe as the third sector, or societal
NGOs.
4.1 Corporations as Citizens (see Figure 1)
The first conception focuses on corporations as citizens that are ruled but
also participate in the functioning of the overall political community. Thus,
there are ways in which corporations, like other citizens in democracies are
members of communities and engage with other members to enhance the
social fabric. In addition, like other citizens, corporations periodically bring
their interests and values to the formal governmental processes of law mak-
ing, implementation and adjudication within their political community. In
this conception corporations are on a similar horizontal relationship with
other corporate citizens and human citizens. Like human citizens, corporate
citizens are also a vertical relationship of power with government in which
the citizens ‘author’ the authority of government, most obviously through
elections, and thus governments are responsible to these citizens. However,

within the parameters of their legitimate authority, governments are also
empowered to govern all citizens. Corporations can be considered as if they
were citizens in as much as they work ‘with’ and participate ‘in’ society and in
bringing their concerns to government and reacting to government legisla-
tion and executive action. The focus here, then, is on how corporations share
status and process elements of citizenship.
Governments
Citizens Corporations
Political community as the

arena of citizenship
Figure 1: Corporations as citizens
Arguments about corporations being like citizens can have a number of

sources, though these are not necessarily mutually consistent. Since medieval
times, European business people engaged in citizenship-like ways through
their membership of and participation in their guilds, the forerunners of
business associations, which provided systems of governance within individ-
ual trades and forms of mutual support. In early phases of representative
politics, business ownership enabled people to meet a property franchise.
Secondly, corporations could be considered as part of society in that their
members, be they owners, managers or employees are human members of
societies. Relatedly, traditions of industrial paternalism or industrial philan-
thropy speak of the social face of business. Theories of business legitimacy
are often premised on the need for corporations to win the approval of soci-
ety for their individual and collective existence and success. Some theories
identified social objectives with normal business activity:
Building a better community; improved education; better understanding of the
free enterprise system; an effective attack on heart ailments, emphysema, alco-
holism, hard chancre or other crippling disease; participation in the political party
of choice; and renewed emphasis on regular religious observances are examples of

such further goals. (Galbraith 1974:184)
The idea that corporations could be considered as if they were citizens

can also draw on the slightly different sort of argument, that corporations
have a distinct functional identity: they are praised or blamed, they make
deals, enter into contracts and develop internal decision-making system and
structures independent of the people within the company. A further variant
is the significance of corporations’ distinct legal identity. In essence, incorpo-
ration presumes that the businesses is recognised as being capable of acting
il/legally and as having duties and rights of legal protection and compensa-
tion. Businesses can enter into legal agreements, own property, employ
workers, sue and be sued. As a result a company can be treated in the eyes of
the law as if it is an ‘artificial person’. More generally, the application of the
citizen metaphor to corporations can draw on the argument that “every large
corporation should be thought of as a social enterprise; that is, as an entity
whose existence and decisions can be justified only insofar as they serve pub-
lic or social purposes”. (Dahl 1972:17)
Although there are clearly limits to the application of the citizenship
metaphor to corporations particularly regarding their status (e.g. they do
not vote or sit on juries), nonetheless they participate in various processes of
citizenship. First, corporations engage in various forms of lobbying, be it of
governments or of business associations or of the media. This is akin to pres-
sure group activity, justified in liberal democratic politics as an extension of
participation through voting. Secondly, corporations participate within
community processes of decision-making and mobilization. This might
include membership of ‘social’ partnerships with non-profit and govern-
mental organizations. These might be concerned with such matters as local
economic development, education or environmental concerns. Thirdly, cor-
porations can align their activities with broader social agendas as captured in
the terms sustainability and ‘triple bottom line’ thinking, with its commit-
ments to social justice, environmental responsibility, and economic develop-
ment (Elkington 1999). Corporations may even open their own processes to
social engagement as in systems of stakeholder reporting and in deliberation
over the targets of corporations social investments. Moreover, corporations
can enjoy entitlements which are akin to those of citizens such as protection
under the law and eligibility for subsidies under various public policy
regimes (e.g. for training programmes).
4.2 Corporations as Governments (see Figure 2)
Here we refer to the ways in which corporations are acting as if they were
governments and are responsible for the delivery of public goods and for the
allocation, definition and administration of rights. This could either be in
substitution for government, in the absence of government, or in areas
beyond the reach of governments, specifically internationally. Such develop-
ments raise important questions for the governing of citizenship even

though the cases of corporations replacing citizens entirely are rare (e.g.
‘company towns’, corporations’ health and education systems in developing
countries). In such a conception the corporation shares a horizontal dimen-
sion with government and is vertically aligned with human citizens within a
political community. The focus here, then, is how corporations inform the
status, processes and entitlements of people as citizens.
Governments Corporations
Citizens
Political community as
the arena of citizenship
Figure 2: Corporations as governments
First, corporations might become involved in governing citizenship

where government ceases to do so. This situation mostly occurs as a result of
institutional failure and new political ideology in liberal democracies, and in
the shift from communist to capitalist systems in transitional economies.
This may happen either when corporations have opportunities to step in
where once only governments acted or where corporations are already active
but their role becomes more pronounced if governments retreat.
Thus corporations can become more responsible for citizen entitlements
of former public services. We see corporations increasingly active in the
takeover of former public services, such as public transport, postal services,
healthcare or education. In fact, many so-called ‘corporate citizenship’ initia-
tives are fundamentally equivalent to corporate philanthropy and targeted at
reinvigorating (or replacing) the welfare state, such as improving deprived
schools and neighbourhoods, sponsoring university education or the arts, or
setting up foundations for health research.
Although the status of citizens is generally the preserve of govern-
ments in developed countries, corporations become directly involved in
the ways citizens can claim status by their participation in labour and
product markets and in down-sizing industries where governments may
have taken responsibility. Similarly, civil rights of prisoners are increas-
ingly a corporate responsibility as correctional and security services are
privatized. Governmental failures in developing or transforming coun-
tries shift the focus to corporations as Shell found in Nigeria when it was
implicated in the failure of the state to maintain the protection of the
civil rights of the Ogoni people. It is now suggested that corporations
should ‘step in’ when the status of citizens is threatened in such circum-
stances.
In terms of citizenship processes, corporate roles appear more indirect in
that they can help facilitate, enable, or block certain political processes in
society, rather than directly taking over formerly governmental preroga-
tives. Thus many political issues are now directed at corporations rather
than at governments (e.g. anti-corporate protests, consumer boycotts).
Hence, rather than replacing governments, corporations here could be said
to have provided an additional conduit through which citizens could
engage in the process of participation.
Second, corporations become active in the citizenship arena where
government has not as yet assumed the task of governing. Historically,
this was the situation that gave rise to paternalistic employee welfare pro-
grammes by wealthy industrialists in the nineteenth century. More
recently, exposure to this situation for multinationals is particularly a
result of globalization, where lack of local governance in developing
countries presents corporations with a choice as to whether to step in as
‘surrogate’ governments. Corporations such as Nike, Levi Strauss and oth-
ers which have ensured employees a living wage, and finance the school-
ing of child laborers have entered into relationships concerning entitle-
ments with citizens of developing countries. This possibility may be
extended by TRIPPS agreement in which large pharmaceutical companies
undertake obligations to provide free or discounted drugs where govern-
ments are unable to provide them.
In the case of citizenship status, there is evidence that corporations can
encourage or discourage oppressive regimes extending citizenship status as
under the apartheid period of South Africa and more recently in Burma,
Chad, Uganda and Sudan. More widely a new range of civil rights and
other status issues are emerging, in particular, issues of privacy and protec-
tions of basic freedoms, surrounding new IT and biotechnology industries.
These responsibilities often emerge because governments have not worked
out their preferred regulatory regime but nevertheless, can have massive
implications on life choices of citizens. Similarly, in processes of citizen par-
ticipation, corporations can act as a default option in the absence of gov-
ernment responsibility as in Burma where citizens dispossessed of rights to
vote might turn to lobby corporations.
Third, corporations become involved where the governing of citizenship

is beyond the reach of the nation state. These situations are a result of the
globalization of business activities, an increasing liberalization and deregula-
tion of global economic processes, and escalations in trans-border activity
by corporations in which citizen status, entitlements and processes are asso-
ciated with supranational or deterritorialized entities such as global markets
or the ozone layer.
Corporations can impact on entitlements through their leverage for
“favorable” conditions for foreign direct investment which can translate into
low social standards, depressed wages, and limited regulation of working
conditions. Accordingly, it can become incumbent upon the actions of
MNCs to protect (or not protect) social rights, such as through the intro-
duction of global codes of conduct. Due to the globalization of certain
financial markets nation states have only limited ability to protect certain
aspects of citizenship status, particularly property rights over pensions and
insurance.
Current changes in global governance have given impetus to corpora-
tions’ role in governing processes of citizenship particularly with self-regula-
tion through programs such as the Chemical Industry’s Responsible Care or
the Apparel Industry Partnership. Also corporations are playing an increas-
ingly prominent role in such global regulatory bodies as the WTO, GATT or
the OECD that have significant impacts on the way governments all over the
world govern their relations with their citizens.
4.3 Stakeholders as Citizens (see Figure 3)
Our third conception of citizenship introduces a rather different perspective
upon corporations as it envisages circumstances whereby corporate activity
itself can shape opportunities for corporations’ stakeholders to act as if they
were citizens in relation to the corporation. In this conception, corporations
are aligned in vertical relations with a variety of stakeholders in the context
not of governing the political community (as in our first and second concep-
tions) but of the corporation (or, of corporate governance). The focus here,
then, is on how corporations constitute an arena in which people can engage
in citizenship processes, which may include engagement concerning the def-
initions of their status and entitlements.
Clearly the ways in which stakeholders’ citizenship status, entitlements
and processes elate to corporations varies enormously among individual
stakeholder types such as investors (or owners), employees, customers and
societal groups, and among national business systems, but generally the issue
of rights has been central to stakeholder relations both in the normative
(Donaldson and Preston 1995) and strategic variants (Freeman 1984).
Although the ownership relationship of investors to corporations is at
one level a simple economic one, it does also raise issues of power and
accountability which are not unlike certain citizenship issues. This political
Governing body of
the corporation
Customers Employees Shareholders
Civil society Government Suppliers
Corporation as the
arena of citizenship
Figure 3: Stakeholders as citizens
dimension is most evident in the notion of shareholder democracy, which

presumes that a shareholder is entitled to have a say in corporate processes
rather than simply accepting blindly managers’ decisions (e.g. over executive
pay, board membership). Social responsible investment funds now increas-
ingly engage in extended dialogue with corporate leaders over issues such as
human rights, diversity and labour standards
Employees are the stakeholders that are most frequently conceptualised
in citizenship terms (Organ 1988) even though the usage has tended to
emphasise solidarity rather than rights and duties. Even the “Harvard Busi-
ness Review” countenanced the idea of ‘building a company of citizens’
through the Athenian model of citizenship as a new democratic model of
management (Manville and Ober 2003). However, employees also enact
processes of participation through engagement with financial (through
shareholding) and operational engagement, ranging from the most explicit
in cases of negotiations about down-sizing to the, usually, more humdrum
in the implementation of regulation and self-regulation. These processes
clearly vary among national business systems but, again depending on those
systems, these can also go to the heart of employee status and entitlements. In
some cases we have seen evidence that corporations encourage some aspects
of employee citizenship (e.g. solidarity with the firm) but at the same time
discourage other aspects (e.g. status of unions).
The idea of consumer sovereignty, central to justifications for markets,
literally embraces the language of citizenship, reflecting freedom and
authority. Although this is conventionally associated with the quality, price,

and availability of product offerings, ‘ethical’ or ‘political’ values of con-
sumers have also featured not only in purchasing decisions but also in the
mobilisation of these values through NGOs which engage in more direct cit-
izenship processes with corporations. In the cases of some aspirational goods,
consumers can also acquire some citizenship-like status of certain branded
corporations through their solidarity with the product/brand (e.g. Harley-
Davidson). Clearly, the relationships between ‘consumer’ and ‘citizen’ role
are difficult to disentangle, especially when citizens are increasingly being
encouraged by governments to behave like consumers.
The combination of corporate global power and expectations of respon-
sibility have brought the supply chain into new sharp relief as part of the
arena of corporate governance. The power to purchase brings responsibili-
ties to suppliers especially where purchasers are moving away from short-
term, adversarial relationships. This can afford some suppliers, most obvi-
ously in the Japanese model, greater ‘insider’ status and with it the informal,
partial, and voluntaristic nature of partnerships which may enable protec-
tion of status even though this might inhibit wider processes of supplier
‘democracy’.
Finally, civil society organisations have often been corporations’ greatest
critics in purporting to represent the interests of sections of society, society
in the round and even the environment. Thus they may sometimes resemble
human citizens at their most disgruntled. More broadly, they have been wel-
comed as an adjunct to formal modes of political citizenship because they
offer avenues for self-development, active involvement in the community, as
well as a form of collective representation to, or resistance to, government
and other powerful actors through associations. On the other hand, they are
the least formally engaged of the stakeholders we have considered, which
inhibits the clarification of their status, process and entitlement relations with
corporations.
5 Conclusions: Citizenship and Corporate Responsibility
for Innovation
Through consideration of the different citizenship relations of corporations
we have attempted to signal how a host of powers and responsibilities which
corporations have acquired or are attributed contribute to a full understand-
ing of the social and political underpinnings of their market operations.
Rather than see corporate social responsibility, corporate power and corpo-
rate stakeholders as entirely distinct topics, as they are often treated in the lit-
erature, we have seen them as reflecting different aspects of these power and
responsibility relations. Moreover, all three perspectives have illustrated how
roles of corporations do not reflect only their economic operations but also
their social and political context. Changes in systems of societal governance
and in social demands and expectations have clearly informed the develop-
ment of corporate roles, for better or for worse. These roles can bring differ-
ent citizen status, process and entitlements for corporations, citizens, and
business stakeholders.
With regard to the topic of this volume the proposed framework actually
opens up a couple of implications not only for better understanding public
perceptions of corporate responsibility for innovation but also for develop-
ing approaches to tackle the issues.
– Thinking of corporations as citizens, they are participating in societal gov-
ernance chiefly by providing and using certain technological options. The
use of stem cell research, genetically modified organisms or genetic data
for insurance purposes has severe implications on entitlements of fellow
citizens. Key solutions from a citizenship perspective lie in the increased
provision of arenas of deliberation with other citizens and offering degrees
of participation to other citizens concerned by the technologies (Rennet
al. 1995). With regard to the development of new drugs for neglected dis-
eases (mostly of the global poor) a recent study (LSE and Wellcome Trust
2005) suggest that a key solution to approach this contested topic is the use
of public-private-partnerships in order to develop these drugs. In a citi-
zenship perspective this does not only reflect the participative nature of
the governance of (global) health politics but it also highlights the neces-
sity of protecting corporate entitlements, in particular the entitlements of
shareholders on securing viable economic returns while at the same time
assuming responsibility for major societal concerns.
– The perspective of corporations as governments exposes in particular those
situations where corporate innovation has put companies in a situation
where they directly or indirectly can either protect or violate fundamental
citizenship rights of individuals. This gets immediately visible in the case
of big pharmaceutical companies who, unlike governments, actually dis-
pose of theoretical option of providing drugs for treating diseases such as
HIV/AIDS, malaria or yellow fever. The companies in fact have a funda-
mental impact on how of basic social, political and civil rights of individ-
uals are shaped. It would occur then that companies discharge accounta-
bility in a similar way governments discharge accountability to their citi-
zens. This would in particular include accountability about their actual
cost-benefit situation with regard to the provision of these drugs or pro-
viding transparency about the way they shape global trade agreements
and influence political decisions pertinent to their business interests.
This becomes particularly evident in cases where governments do not
protect the status and entitlements of their citizens. In the Chinese exam-
ple cited earlier then a company such as Yahoo, rather than becoming
complicit in infringing fundamental citizen entitlements such as freedom
of speech and expression would assume responsibility in protecting these
rights through its policies.
– Corporations might be exposed to treating their stakeholders as citizens

in situations where their stakeholder relations put them in a position to
either further or infringe these rights. This, for instance, would suggest
to assume a fairly far reaching level of responsibility for the way chil-
dren use their services. Rather than just treating them as customers, the
company would also pay particular attention to the way broader rights
of children need to be protected when surfing the web or using chat
rooms. On a more general level then this perspective exposes the politi-
cal nature of corporate decisions on innovation with regard to their
stakeholders and suggest polity-like modes of interaction with the
stakeholders. A fairly common examples are codes of conduct (Bondy et
al. 2006) which companies increasingly use in making their ethical
stance explicit and transparent to their stakeholders. A citizenship per-
spective then exposes these codes more as a political tool similar to laws
and ordinances in the political sphere rather than treating them as sim-
ple management tools.
Our contribution is thus far mainly conceptual and suggestive of a
research agenda which would, first, encourage greater focus on the political
aspects of business-society relations alongside the economic. Secondly, it
would encourage analysis which considers both power and responsibilities
which attend any particular business-society relationship. Thirdly, our dis-
tinction of the ways in which business-society relations structure and reflect
different citizenship status, processes and entitlements offers a ready frame-
work for research. Fourthly, our approach brings with it normative consider-
ations, particularly concerning the appropriate balances of powers and
responsibilities for corporations and other economic, social and political
actors.
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Access to Medicines and the Innovation Dilemma –
Can Pharmaceutical Multinationals be Good Corporate
Citizens?
Andreas Seiter
Introduction
Pharmaceuticals are a key input in health care systems. For many diseases,
they provide the basis of treatment or even the entire treatment. In OECD
countries, pharmaceuticals account on average for 10–15% of total health
expenditure1. In developing countries, the share of pharmaceuticals is usu-
ally higher (up to 50% and more), partly because there is only a limited
range of other, more sophisticated services available.
Patients in developing countries rate the performance of health care sys-
tems to a large extent based on the availability of pharmaceuticals. Atten-
dance rates in African clinics fluctuate based on the availability of drugs –
people show up for treatment if they know that there are supplies, and they
stay away when they hear from others that the clinic has run out of drugs.
Unfortunately, in today’s world we are far away from being able to secure
access to safe and affordable medicines for all people on this globe. This is
partially a problem of resources – there is not enough money to buy drugs in
many poor countries. But even if the resource gap could be closed by
increasing wealth or external donor funding, there are additional hurdles
that prevent access for poor people, such as corruption and fraud, distribu-
tion problems, lack of regulatory oversight leading to counterfeit and sub-
standard drugs being marketed as well as cultural and knowledge barriers.
Institutions like the World Bank work with governments to address the
systemic weaknesses in many countries. They provide funding not only for
the procurement of drugs, but also for system improvements, training and
capacity building. However, one characteristic of the pharmaceutical sector
is that most of the activities are private for profit. Not only are all major
global or regional manufacturers privately owned and run as for-profit busi-
nesses, also the trade and distribution is largely in private hands. Most devel-
opment country governments run their own public delivery systems which
1
OECD Health Data, 2005, http://www.oecd.org.
90 Andreas Seiter
Access Framework
Accessibility Interventions Availability
Determinants Determinants
Drug Supply
User -Type Determinants
Location -Quantity
Determinants
Drug Supply Drug Demand
Location Accessibility Availability -Type
Quality of -Quantity
Products
User's Attitudes/ & Services
Determinants Expectations Prices of Drug
Acceptability Affordability
of Products Products and
and Services Services
Characteristics Determinants
User's Income
of Products and Ability to Pay
Services
Acceptability Affordability
Determinants Determinants
Figure 1: Determinants of access to medicines (Management Sciences for Health)
include procurement of pharmaceuticals, storage and supply to government

owned health centers. However, these centers usually cover only a part of the
population. Large parts get their treatment in a private sector that has devel-
oped its own independent supply systems, in many cases without proper reg-
ulation and oversight (see Table 1).
From a World Bank perspective, the question is how this vibrant private
sector with its different tiers can be effectively utilized, so that it supports the
overall public health goals in addition to pursuing economic interests. What
Table 1: Differences in governance and capacity parameters between the

tiers of the private sector supply chain in developing countries
Integration/ Regulatory Public Financial and
concentration Oversight Scrutiny technical
capacity
Multinational High High Medium High
manufacturers
National Low Medium Low Medium
manufacturers
Importers/agents Low Low Low Low
Wholesalers Low Low Low Low
Retail pharmacists Low Low Low Low
Access to Medicines and the Innovation Dilemma 91
becomes clear here is that the multinational pharmaceutical companies rep-

resent only one of these tiers. While they are key for the development of new
drugs and the supply with modern medicines that are not yet widely available
from generic drug makers, they are not much involved in the supply of older
essential medicines or in the local distribution chain in developing countries.
Even if these large companies would completely forego their profit motive
and deliver drugs at cost to low income countries, the impact on access to
medicines would be limited in absence of a strategy to secure performance
and integrity of the entire distribution chain down to the retail level.
Business Model of the Pharmaceutical Industry –

Innovative and Generic
The pharmaceutical industry can be divided into two blocks: innovative,
research based companies that invent new treatments and sell them at a pre-
mium as long as they have patent protection, and generic companies that
manufacture well-known drugs and compete over price. Some innovative
companies have diversified into the generics business (such as the Swiss
Novartis, which owns the generic drug maker Sandoz, currently the second
largest globally operating generics company). Some of the larger generics
companies are increasingly investing into R&D, trying to win a share of the
more profitable business with patented drugs. In addition, the lines are
blurred by innovative companies selling their old brands in competition with
generic manufacturers, trying to optimize profits by lowering prices in mar-
kets that are price sensitive, while maintaining higher prices in other markets.
On the other side, some generic drug makers sell their products under brand
names and with a premium similar to innovative drugs, predominantly in
smaller markets with low levels of transparency and competitive pressure.
What sets pharmaceuticals apart from other products is that the costs for
research and development (R&D) are very high, whereas the unit costs for
manufacturing are usually low in comparison. In a way, modern pharmaceu-
ticals can be compared with software products that require high investments
into development, but can be easily copied once they are on the market. Inno-
vator companies have to refinance the R&D costs during the remaining
patent life of a product after launch, which is usually about 10 years (50% of
the total patent protection period of 20 years). The price of a product has to
be set high enough to pay for (1) the R&D cost of this product, (2) a share of
the R&D costs of other products that failed and could not be marketed, (3)
the variable costs of the product such as manufacturing, marketing and sales,
(4) a share of the company overheads and (5) a profit for the shareholders.
Generic drug companies usually enter the market with a new product
immediately after the patent of the originator expires. Large markets such as
the US or Germany are targeted first. The price of the first generic is about 20–
92 Andreas Seiter
30% lower than the original, which is enough to generate significant sales with
relatively limited marketing expenses (the product is already well known, cus-
tomers are waiting for the first generic because they want to utilize the savings
potential). At such a price level, a generic product is usually very profitable, as
the manufacturer does not have to amortize large R&D expenses. This explains
why in competitive and prize sensitive markets generic prices keep dropping
until they reach a trough which is defined by the manufacturing costs plus
general overheads and a profit margin. This can be 10% of the original price or
even lower. At this stage, manufacturers that can make large volumes have an
advantage: economies of scale drive manufacturing costs further down – one
of the reasons why the Indian pharmaceutical industry is so competitive even
compared to other countries with similarly low labor costs.
Both innovative and generics manufacturers, assuming that they do busi-
ness in developed countries, must have strong capacities in general manage-
ment, marketing, manufacturing and quality assurance. The pharmaceutical
industry in developed countries is highly regulated and under significant
competitive pressure. Neglecting quality standards or mismanagement in
economic terms can lead to serious consequences including loss of share-
holder confidence and takeover by another company. For R&D based com-
panies, the shareholder value is defined by the “pipeline” of new drugs in
development and the expected revenue growth based on this pipeline. Many
companies that were household names a few years ago meanwhile lost their
independence and were “digested” in a merger or takeover after falling
behind in a less forgiving market environment. These dynamics must be
taken into consideration when thinking of pharmaceutical companies as
potential partners in development. On the one hand, a good corporate
image is important to create a positive business climate and secure customer
loyalty in developed markets. On the other hand, companies will only have
limited resources available for development related projects that do not
directly contribute to their present or future bottom line.
In developing countries, the managerial and quality standards in the
national drug industry vary. Several countries do not have the regulatory
capacity to enforce strict GMP (Good Manufacturing Practices) guidelines.
Economic ties between political and administrative decision makers and the
companies sometimes lead to favoritism and double standards. Another
problem is lack of capital to invest into modern technology and attract qual-
ified technical personnel for the operations of a state-of-the-art pharmaceu-
tical manufacturing plant. As a result, there is a significant quantity of sub-
standard medicines in circulation in developing countries. WHO, USP
(United States Pharmacopeia) and others regularly publish data on substan-
dard and counterfeit drugs2. This issue is at the very basis of Corporate
2
Matrix of Drug Quality Reports on USAID-assisted Countries, United States Phar-
macopeia, March 2005, http://www.uspdqi.org/pubs/other/GHC-DrugQuality
Matrix.pdf.
Social Responsibility – the first obligation for a business should be to make

sure that its products are effective and do no harm.
The Innovation Dilemma

If an innovative company is successful in its mission and develops a truly
innovative, life saving medicine, it finds itself in moral dilemma between eco-
nomic logic and the human obligation to help. Being in possession of some-
thing that can save people’s lives, the company is a target for consumer
activists and media who will demand flexibility in pricing and generosity in
giving. Business logic, on the other hand, demands that it asks a price as high
as possibly viable in the market – excluding people who cannot pay such a
high price from access. A price that is accepted in a rich country, where the
population is covered by insurance, is most likely beyond affordability in a
poorer country, for public buyers, insurers and private payers equally. Even in
a rich country, a new treatment for a disease that so far was untreatable cre-
ates additional expenses and budget pressures for health systems. On a
domestic scale, companies respond to this pressure usually by generating
patient assistance programs. Such programs offer free treatment for unin-
sured people under a certain income level. They are common in the US where
many people do not have coverage for drugs under their health insurance.
The battle over patents and prices for antiretroviral drugs against HIV,
which climaxed in a lawsuit against the South African government (1998–
2001)3, shows the international dimension of this conflict. Since then, com-
panies have developed various models to offer new essential drugs either at a
steep discount4, or through subsidized treatment programs that include ele-
ments of prevention, patient education and system development. Another
alternative are out-licensing contracts that allow national manufacturers to
make these drugs for local or regional use in countries that cannot afford to
pay the price of the original.
Despite several successful models for improving access to important
medicines in various developing countries, the conflict between poor coun-
tries keen to obtain newly developed essential drugs at the lowest possible
cost and companies who want to preserve their profits is continuing, as the
debate around the CAFTA agreement (free trade agreement between the US
and several Central American countries) demonstrated. It is particularly dif-
ficult to find solutions in countries like Brazil that have significant purchas-
ing power in the hands of the upper and middle class, but at the same time a
large number of poor people that receive subsidized health benefits from a
3
2001: Drug firms withdraw from AIDS case, BBC News, On This Day, 19 April
2001, http://news.bbc.co.uk/onthisday/hi/dates/stories/april/19/newsid_2488000/
2488509.stm.
4
Accelerating Access Initiative, http://www.ifpma.org/Health/hiv/health_aai_hiv.aspx.
94 Andreas Seiter
financially overstretched government or have to pay out of pocket. This con-

flict between the business side of innovation and society’s expectation to get
fast and affordable access to new life saving technologies is a significant
causal factor for “Big Pharma’s” chronic image problem. But the same con-
flict is also a driver behind many of the “Good Corporate Citizenship” initia-
tives launched by major drug companies in an attempt to fulfill their per-
ceived moral obligation.
Incentives for Innovation

Given the business model of innovative pharmaceutical companies, it is clear
that the focus of their R&D will be on treatments for diseases that affect peo-
ple in affluent markets. Nevertheless, born out of the dialogue with Global
Society, there are an increasing number of voluntary initiatives by major drug
companies to utilize their R&D capacity for the benefit of people in the devel-
oping countries. In the absence of a significant market, however, it is difficult
for a for-profit company to justify major expenses for the final stages of devel-
opment of a product that targets diseases of people who cannot pay for treat-
ment. Governments of major donor countries are aware of this dilemma and
have responded for example by developing a concept for advanced purchas-
ing agreements for vaccines5. It would offer a manufacturer an attractive price
for a product that fulfils certain specifications. After a certain time, when the
manufacturer has sold enough to refinance the R&D investment, the contract
foresees a steep price cut that would free donor funds for future innovations.
In general, it can be said that in absence of an affluent market, there must be
a committed institutional buyer or a financial risk sharing agreement to allow
drug companies to make a full investment in medicines for so-called
“neglected diseases”. For diseases that have at least a limited market in devel-
oped countries or countries with a partially affluent population, the company
that develops the drug may be able to recover the development costs if it gets
an acceptable price and a period of marketing exclusivity for these affluent
markets. Orphan drug laws, as they are in place for example in the EU and the
US, allow for such additional exclusivity for manufacturers who invest in dis-
eases that affect only a small population.
Public Private Partnerships for Innovation in Areas

Neglected by the Market
In recent years, a number of partnerships have been initiated, funded by
international donors and large foundations, which focus on specific disease
5
Introducing Advance Purchase Commitments, DFID consultation note, 2005,
http://www.bvgh.org/documents/DFIDAPC2-pager.pdf.
areas relevant for developing countries6. As far as these partnerships have

external funding, they can outsource parts of their R&D needs to pharmaceu-
tical companies or specialized research contractors. In such relationships, the
partnering company may offer some pro-bono work, access to proprietary
information or charge service fees below market rates, but it does not bear the
financial risk of the development process. The progress of these partnerships
has been encouraging so far, but the final test will be whether they are
resourceful enough to bring a product to market. At the final stages of devel-
opment, when costs go up exponentially, the donors behind the partnership
will find themselves in the same position as described in the previous para-
graph: Without a realistic expectation for donor funding to pay for the final
product, the investment into late stage development will be hard to justify.
Developing Country Needs in the Pharmaceutical Sector

The public discussion about developing country needs in terms of pharmaceuti-
cals is usually focused on two issues only – price of drugs and innovative treat-
ments for neglected diseases. Part of the problem is that the official voices of these
countries frequently, although with notable exceptions, represent a system that
caters more to the needs of bureaucrats than of patients and health care workers.
Only when a wider range of stakeholders is interviewed on the ground, it is pos-
sible to get a more complete picture. As a matter of fact, in those countries that
show the worst performance in terms of health indicators, the main problems are
lack of access to very basic essential drugs that are available on the global market
in good quality at low prices. Due to dysfunctional health systems, these essential
drugs are not reaching the people, because of one or several weak links in the dis-
tribution chain, starting from poor planning, bad storage conditions, theft from
warehouses, inadequate financing at the central or regional level and other fac-
tors. In addition, the lack of knowledge and shortage of well trained health work-
ers and physicians lead to suboptimal use of available medicines.
The launch of an ambitious treatment strategy with innovative medi-
cines, for example for AIDS or malaria, requires substantive efforts to
address systems related problems in such an environment. This is one of the
areas in which the World Bank and other multilateral organizations are
engaged and trying to assist countries in upgrading their systems. However,
these organizations frequently lack business experience and may miscalcu-
late the dynamics of the private sector. Here is a true chance for better col-
laboration and new types of partnerships in the future. Sometimes it
requires an external initiative such as a treatment program sponsored by a
major company or a partnership of donors to create pressure on inadequate
systems and catalyze the changes necessary for better performance.
6
World Health Oganization, Public-private Partnerships, http://www.who.int/
neglected_diseases/partnership/en/.
96 Andreas Seiter
Economic Considerations versus Equitable Access

It has become relatively easy to convince multinational, innovative pharma-
ceutical companies to provide an important medicine at low costs to Least
Developed Countries, for example in Sub-Saharan Africa. Due to the
poverty in these countries, there is hardly any business opportunity in the
public or private sector for highly priced medicines. Therefore the introduc-
tion of a low price version of an innovative drug does not cannibalize the
company’s sales, unless the product finds its way outside the country into
more affluent markets. In addition, the “PR value” of corporate programs
targeted at African countries is higher compared to programs in other parts
of the world.
More problematic is the situation in Middle Income Countries, in partic-
ular those with a significant size such as Brazil, India, China, Indonesia and
others. For pharmaceutical companies, these markets are commercially
important. Given the growing restrictions in terms of pricing and reim-
bursement in Europe and the growing strength of buyers in the US, compa-
nies must look at larger Middle Income Countries for future growth.
Although the share of total sales represented by the emerging markets was
only around 12% in 20047 (IMS Health), they are growing about twice as fast
as the mature markets. Therefore, companies are reluctant to offer Middle
Income Countries the same low prices as Africa. The economically rational
strategy would be to target the high income segment in these countries and
charge prices at OECD level. As a consequence, poor people would be unable
afford these new treatments, and public or private payers and insurers would
have to restrict access based on what they can afford within their limited
budgets. This could create significant conflict potential and political pressure
on the government. Drug companies are facing tough negotiations when
they want to register their drugs in these countries. The usual outcome is
that the drug is registered, although with a price significantly below the
OECD price level. Nevertheless, this price is usually too high for the poor
majority in these countries. Thus the outcome can be characterized as a lose-
lose situation: The company cannot fully exploit the economic potential of
the wealthy part of the market, while the poor part still has no or only lim-
ited access to a new treatment.
The Swiss drug maker Novartis has tried to address this issue by offering
a global patient assistance program for its leukemia treatment Glivec® 8: In
all countries that register Glivec and respect its patent, patients who cannot
afford to pay the high price become eligible for free treatment. Eligibility cri-
7
IMS Health, Global Insights, World Markets, July 2005: Looking to China and
Cancer as Cost Containment Slows Growth, www.imshealth.com/globalinsights.
8
Glivec® International Patient Assistance Program (GIPAP),
https://www.maxaid.org/.
teria are defined based on insurance coverage, personal assets and income.
The program is administered by an independent third party; the application
has to be made through a physician who is registered with the administrat-
ing entity. So far, more than 11,000 patients in 80 countries are covered by
this program (outside the US; within the US Novartis runs a separate patient
assistance program). However, such an approach is only possible if the num-
ber of patients is small, like in the case of CML (chronic myeloid leukemia).
For more common diseases, other models need to be developed in order to
address the conflict between economically rational behavior of a profit seek-
ing entity and the equity goals of public health policy.
Can the Industry Help to Improve Pharmaceutical Policy?

Pharmaceutical policy defines the rules for manufacturers, distributors and
retailers of pharmaceutical products. It sets standards for the administration
on how to enforce efficacy, quality and safety of drugs and provides the
framework for reimbursement of drug expenditure through insurers, social
security systems or direct government budget support. Pharmaceutical com-
panies try to influence policy makers in favor of legislation and administra-
tive guidelines that suit their economic interests. However, the pharmaceuti-
cal business model is very capital intensive and long term oriented. There-
fore, the big companies have a vital interest to maintain a stable political and
economic environment, and to have significant regulatory hurdles in place
that prevent lower quality manufacturers from entering the market “on the
cheap”. Thus, industry interest and general public interest are not necessarily
Table 2: Potential for collaboration between the public sector and multi-
national pharmaceutical companies in various policy areas
Policy Area Industry Expertise Alignment of Goals
Regulatory process High Medium
Good Manufacturing Practices High High
Forecasting and planning High High
Procurement Medium Medium
Pharmacovigilance, quality Medium High
assurance in the supply chain
Pricing High Low
Reimbursement Medium Low
Rational use of drugs Medium Low
Advertising and promotion High Low
Consumer education High Medium
98 Andreas Seiter
diverging in all areas. There is a shared interest in efficient regulatory proce-

dures, fairness and transparency, as well as safety and quality hurdles that
keep sub-standard products off the market. Table 2 shows in which policy
fields industry and public interests are aligned and in which they might be in
conflict. In aligned areas, a closer collaboration between policy makers and
industry experts would benefit both sides. Even in areas with generally con-
flicting goals, there might be specific projects which could justify close col-
laboration, such as a differential pricing strategy for middle income coun-
tries with large internal income variations.
What Can Realistically be Expected from the Industry?

What are Limiting Factors for the Industry’s Participation
in the Global Development Effort?
Pharmaceutical multinationals have become more responsive to the needs
of developing countries and the development community, partially due to
external pressure, partially because they see it as strategic necessity to
renew their “license to innovate” in the developed countries. Today, all
major companies are engaged in some kind of access program. Many com-
panies provide certain essential drugs to poor countries for free or at cost,
others engage in comprehensive prevention and treatment programs (such
as Merck in Botswana) or collaborate with national manufacturers who
can produce cheaper local versions of important drugs under license. A
company that is developing a new antiretroviral drug against AIDS will
routinely consult with development organizations or NGOs and come up
with an access strategy for poor countries prior to marketing the drug.
These company-owned programs may not be satisfactory to address all
needs of developing countries (in particular the middle income countries
are problematic as explained in the chapter on the “Innovation
Dilemma”), but there is a certain standard that will most likely prevail and
allow for workable solutions that accommodate some of the needs of
developing countries.
There are also a number of relatively recent product development part-
nerships and initiatives, addressing several “neglected diseases” and provid-
ing resources in kind (access to compound libraries and research tools) as
well as financing for the development of innovative drugs for diseases of the
poor. Typically, the larger corporate partner in such partnerships retains
some rights for marketing any successful end products of such joint pro-
grams in developed countries, while waiving patent rights and offering tech-
nical assistance for registration and launch in developing countries. These
partnerships might be harder to sustain or grow if companies come under
financial pressure, as long as there is no direct economic incentive to invest
into public health related projects.
A potentially limiting factor for voluntary access projects is the difficulty

to manage such projects successfully. Everybody in the development com-
munity knows how hard it is to implement a successful treatment program
in a country with very limited health systems resources and governance
structures. Children die every day form dysenteric diseases despite the avail-
ability of cheap life-saving oral rehydration products. Malaria deaths are far
too frequent and on the rise, despite the availability of effective medicines.
The compounded problems of poverty, lack of knowledge, poor infrastruc-
ture, lack of human resources and corruption undermine many well
intended projects and lead to frustration among donors who expect that
their effort will make a difference on the ground.
Pharmaceutical companies do not have a significant infrastructure in poor
developing countries. They have to rely on the capacity of local institutions
and development organizations, both working in ways that are unfamiliar for
someone used to the standards of a large multinational firm. If a project fails
due to weak local implementation capacity, the blame might fall on the com-
pany that sponsored it as the most publicly visible of the partners. This may
have a negative impact on the willingness to engage in future partnerships.
Ideas for further Development, Innovative Partnership

Approaches
Recently, there is a significant amount of debate about longer term incen-
tives for the private sector to engage in ways that benefit developing coun-
tries. Supported by the Gates Foundation, a model was developed for
advance contacting with vaccine manufacturers, offering a guaranteed price
and volume for new vaccines needed to fight infectious diseases such as
meningitis, Dengue fever and others. There is a good chance that the G-8
governments step in to set up the required guarantee funds to make this
model a reality. A similar option could be considered for new drugs.
Alternatively, orphan drug laws could make sense if a disease affects
developed country populations as well, but is too small an economic stimu-
lus to ensure its inclusion in the mainstream for profit research and develop-
ment pipelines. Orphan drug laws offer a defined period of exclusivity for an
innovator, independent of existing patent rights.
Another option that has been debated but not been pursued so far are
tradable extensions of patent rights in developed markets: A company that
makes a defined contribution to public health in developing countries would
get a certificate that can be exchanged for an additional 3 months (or other
period of time) of patent life in major markets for any product of choice.
This certificate could be traded so that the incentive would have the same
market value for all companies, whether they have patented products in the
market or not.
100 Andreas Seiter
National legislation could be used to encourage foreign companies to

invest into local manufacturers and help them move up to international
standards. As pointed out in previous chapters, there is ample opportunity
to invite industry to share know-how for regulatory and administrative
reform, although conflicts of interest need to be carefully considered. Com-
panies are providing such consulting services already on a bilateral basis,
mainly in order to improve the regulatory framework in Middle Income
Countries and create a level playing field for foreign and national manufac-
turers.
Overall, there is no doubt that the private sector can play a significant
positive role as a partner for global development strategies. This is not lim-
ited to specific sectors such as the pharmaceutical industry. Any major com-
pany doing business in sub-Saharan Africa should have good reasons for
example to provide basic health services for its workforce, in order to reduce
the economic impact of malaria and HIV/AIDS. If they succeed in higher
health standards and behavior changes in a part of the population, such
activities have positive externalities. Logistics companies could assist in
developing better distribution systems for drugs, Cell phone operators and
internet café owners could be encouraged to utilize their technology for the
dissemination of critical health information and educational messages, for
example for AIDS prevention. To realize the potential of the private sector, it
does not only require support from the business community. Much more
important would be a change of attitude in the donor community and local
governments, who need to start thinking “outside the box” and overcome
their own hesitations to engage private companies as full partners.
IT Innovations and Open Source: A Question of
Business Ethics or Business Model?
Markus Nüttgens
1 Best Practice for Free?

The internet makes data become an increasingly transient good. Almost any
song and even entire movies are available in a digital form – not always to the
delight of the copyright owners. Another type of good, which can be consid-
ered as predestined to be distributed over the channel internet, is software.
Vendors use the internet for direct sales purposes as well as for making soft-
ware explicitly available free of charge, what offers interested people the pos-
sibility to test preliminary software versions (beta versions) and to report
possible software errors (bugs) to the vendor. This concept of distributed
quality assurance isn’t very innovative. The idea of Open Source even incor-
porates the integration of all involved people and all parts of a software
product’s lifecycle via an open license model (DiBona et al. 1999, Feller et al.
2005).
To put it in a nutshell, the core idea of Open Source is that users do not
only participate in the testing process of software but also actively improve
the software itself by performing changes on the source code level. To give
users the possibility to do so, the source code of Open Source software is
often freely available over the internet – this can be considered as the very
opposite of common software business models. This paradigm gives the
opportunity to incorporate the skills and experiences of software developers
all over the world to improve the quality of a software product and to extend
it with new features. Several experiences of the last years have shown that
such collaborative and open software development processes can decrease
the amount of software bugs to a much higher extent compared to non pub-
lic source code products. It is important to mention that the term Open
Source does not mean that the usage of such software produces no costs –
the biggest part of the Total cost of Ownership (TCO) is still given by the
rollout, user training and support.
The example of the prominent operating system Linux shows that Open
Source has finally changed from an idealistic idea to a threat for commercial
software providers. One of the currently most successful open software proj-
ects is the “Apache” web server that occupies the top position among the
102 Markus Nüttgens
most used web servers (Apache 2006). From about 76 million web server
installations world wide, in February 2006, the Apache web server had a
market share of around 68 percent (Netcraft 2006).
Even governments begin to think about the usage of Open Source soft-
ware for public service purposes more often. One driver of such thoughts
might be the suspicion that sensitive data could be accessible for third
parties, if commercial software is used. A famous example that impres-
sively underlines that the publication of a software’s source code is no
security risk at all is given by the encryption software “Pretty Good Pri-
vacy” (PGP) (PGP 2006). In this case, the accessibility of the source code
greatly improves the security level of the software by offering third parties
the possibility to take an insight into the software to look for possible
problems.
These developments won’t leave the consulting business unaffected. To
give customers strategic advices for the design of information systems and to
consult a customer on the operative level during the rollout of solutions, the
competence portfolio must be extended accordingly. Thereby the consulting
companies decrease their dependence from single software vendors. Above
this, the possibility to proactively develop specific solutions arises. If this
development is performed together with the customer, a new dimension of
customer loyalty emerges.
In the following section the concept of Open Source will be explained
shortly (for a detailed introduction see Nüttgens and Tesei 2000). After that,
upcoming action options for software companies and consultants are intro-
duced and discussed with respect to the Open Source concept.
2 What is Open Source?

Open Source refers to the free availability of software source code to use
and change it according to ones personal needs. This approach at first
seems to be the total opposite of classical software sales models that nor-
mally protect the software source codes to avoid an uncontrolled spread-
ing of the software.
Currently the business models for Open and Closed Source appear to
be contradictory. Figure 1 compares the core aspects of these business
models. While traditional business models tend to match the left col-
umn, Open Source business models are more likely to match the right
one.
In the following, the terms free software and open software are used syn-
onymously for Open Source software. They express that software can be
used, copied and distributed by anyone. This might be done free of charge
or not – but in any case the software source code must be made available
to every interested person. Open Source software is not always free of
charge per definition. Fees can arise for distribution services for example
IT Innovations and Open Source: A Question of Business Ethics or Business Model? 103
Figure 1: Characteristics of software markets
but generally not for licensing issues. Proprietary software can be consid-
ered as the opposite of the Open Source concept. The usage, distribution
or modification of proprietary software generally requires an approval by
the copyright owner.
2.1 The Genesis of Open Source
Ever since the very beginning of software development in the 1960s and
1970s, programs were shared among development teams for reading, chang-
ing or reusing purposes (software sharing communities). In 1982 the com-
panies IBM, HP and DEC released commercial versions of the UNIX opera-
tion system for their own hardware. Members of various research teams
(from universities or even other companies) were recruited and they worked
on commercial software to a greater extent from then on. The simple com-
munication infrastructure started to become increasingly insufficient and so
the software sharing communities slowly started to dissolve. A vacuum orig-
inated within the software production area that motivated companies to fill
it with commercial software. This development resulted in the decrease of so
called free software. Companies and research institutions decided so use
proprietary software to a greater extent. The technological development sup-
ported this trend as operating systems were often directly dependent to
hardware so that all processors needed their own proprietary operating sys-
tem very soon.
For reanimating the cooperative spirit of the software sharing commu-
nities, the former MIT employee Richard Stallman initiated the GNU
(GNU’s not UNIX) project and founded the Free Software Foundation
(FSF) (see Stallman 2006; FSF 2006). At that time, the project goal was to
develop a free and open UNIX operating system (Müller 1999:17).

Although a UNIX kernel was never realized, the huge set of free software
systems and development tools from the GNU project enabled the devel-
opment of Linux in the early 1990s. A student named Linus Torvalds
started to work on a free UNIX kernel for personal computers with Intel
80386 microprocessors. His rapid success attracted other developers over
the internet who started to support him in his efforts to develop the oper-
ating system Linux as the first full functional free UNIX. At this time Linux
wasn’t noticed by many developers. It took another 5 years until the idea of
Linux was broadly perceived. At the end of the 1990s an increasing number
of developers began to focus on the internet and on Linux. The World
Wide Web (WWW) finally made the internet become a mass medium
whereby the amount of potential new developers (metaphorically spoken)
exploded. Companies that sold proprietary UNIX (like HP, DEC or IBM)
had a quite bad marketing at that time. So Microsoft was able to gain huge
market shares for its Windows operating system with aggressive marketing
campaigns. By 1994 Linux had reached a solid stability level and had
become prominent as a development platform. The available program-
ming languages and tools encouraged developers to start new projects for
Linux respectively to port already existing projects to this platform.
Because universities and research institutions were very interested in
Linux, more and more projects (in the fields of programming languages,
databases, graphics or desktop for example) were initiated. As the number
of fields that were addressed by free software increased, the whole free soft-
ware community grew accordingly. This also led to an increasing amount
of special interest groups. As a consequence of this upsizing, there were a
lot of different opinions of useful definitions of the term “free software”
soon. There have always been various different licenses for free software
and by the engagement of companies like Netscape, Troll Tech or IBM sev-
eral new ones were added.
The term Open Source became prominent by the Open Source Initia-
tive (OSI) – a non-profit organization with the goal to introduce the spirit
of open source to a broader public. The public success of this term was
reflected by many articles about Linux and about the publication of the
source code of the Netscape browser that were published in 1997 and 1998.
On February 23rd 1998 the Netscape Company finally announced that they
will officially use the term Open Source. Soon companies like Corel, Sun
Microsystems, IBM, SCO, HP, Oracle, Informix and SAP followed by mak-
ing similar announcements. Nowadays Open Source and the idea behind it
is established and noticed by a broad public. The mentioned characteristics
of Open Source software are subsumed in the Open Source Definition
(OSI 2006a). As the appellation Open Source is descriptive, it can not be
registered as a trade mark. Because of the free software community’s need
for a reliable identification of open source software, the OSI introduced
the certification mark “OSI certified” (OSI 2006b). If software is labeled

with this mark, the OSI certifies that the software is distributed under a
license that is conformable to the Open Source Definition. A discussion of
the currently most common Open Source licenses can be found in St. Lau-
rent (2004). As licenses are no goods, they can not be registered at the U.S.
Patent and Trademark Office as well. An OSI certification is performed in
two steps:
The OSI publishes a list of licenses that are conformable to the Open
Source Definition. If a new license should be added to this list, it has to be
submitted to the OSI for a discussion. New licenses are accepted if the sub-
scribers participating in this discussion have no objections.
To mark software with the “OSI certified” mark, the software must be dis-
tributed under a license that can be found on the OSI approved licenses list
(OSI 2006c).
2.2 Development and Distribution

The Open Source approach is based upon certain development and distribu-
tion models that are briefly explained in the following. Until 1997 the devel-
opment process of free software was practically not documented and solely
apparent from known projects like Linux. In his essay “The Cathedral and
the Bazaar”, Raymond tried to describe factors of a successful open source
development process for the first time. According to this essay, the open
source development model is also known as the “Bazaar method”. In the lat-
est version of his essay, Raymond analyses the way the development of Linux
took place and extracts the following rules for Open Source development
processes out of it (Raymond 2000):
1. Every good work of software starts by scratching a developer’s personal
itch.
2. Good programmers know what to write. Great ones know what to rewrite
(and reuse).
3. “Plan to throw one away; you will, anyhow.” (Fred Brooks, “The Mythical
Man-Month”, Chapter 11).
4. If you have the right attitude, interesting problems will find you.
5. When you lose interest in a program, your last duty to it is to hand it off
to a competent successor.
6. Treating your users as co-developers is your least-hassle route to rapid
code improvement and effective debugging.
7. Release early. Release often. And listen to your customers.
8. Given a large enough beta-tester and co-developer base, almost every
problem will be characterized quickly and the fix obvious to someone.
9. Smart data structures and dumb code works a lot better than the other
way around.
10. If you treat your beta-testers as if they’re your most valuable resource,
they will respond by becoming your most valuable resource.
11. The next best thing to having good ideas is recognizing good ideas from
your users. Sometimes the latter is better.
12. Often, the most striking and innovative solutions come from realizing
that your concept of the problem was wrong.
13. “Perfection (in design) is achieved not when there is nothing more to
add, but rather when there is nothing more to take away.” (Antoine de
Saint-Exupéry)
14. Any tool should be useful in the expected way, but a truly great tool lends
itself to uses you never expected.
15. Provided the development coordinator has a communications medium
at least as good as the internet and knows how to lead without coercion,
many heads are inevitably better than one.
On the basis of this development model, a complementary distribution
model for open source products was established. Developers provide their
software on the internet. Interested users can search for software on their
own, test and use it. Also users can get into direct email contact with the
developers and thereby participate in the development of the software.
Another possibility is given by the distribution of software bundles. Con-
trary to proprietary software, where customers have to pay license fees, fees
for free software only arise for the service of providing. This means that free
software that is acquired once can be freely passed down to others. The most
common distribution types are (1) the download from the internet, (2) the
ordering and shipping of CDs or DVDs and (3) the free give away of CDs or
DVDs as attachments to magazines.
3 Strategic Options for Consultancies

Open Source challenges the development of proprietary software and con-
secutive classical consulting services while it simultaneously provides big
chances for strategic reorientations. Figure 2 shows a strategic action
framework for IT related consulting services in the open source context.
The dimensions of this framework are (1) the consulting focus (industry
oriented vs. software oriented) and (2) the chosen development approach
(Open Source vs. proprietary software). While “industrial orientation”
means that the provided services of a consultancy focus on a certain indus-
trial sector (e.g. retail or banking), “software orientation” means that the
services are aligned with a specific software application and its feature
range. The characteristics of the development approach dimension are self
describing.
Each of the four fields of this framework is related to a particular kind of
consulting service:
Consulting
focus
Industrial
Orientation 3 D 4
A
Software
Orientation 1 A 2
Development
Closed Source Open Source approach
Figure 2: Strategic action framework for IT related consulting services
Field 1
Description: Introduction and customizing of proprietary software systems.
Providers: IT consultancies in the area of office and ERP systems.
Field 2
Description: Introduction and customizing of Open Source systems.
Providers: Companies that emerged from the Open Source community.
These companies test, document and distribute Open Source
software. Consulting services offered include introduction,
user training and technical support.
Field 3
Description: Development of technical-organizational solutions by the
usage of proprietary software systems.
Providers: Process consultancies with high industrial sector compe-
tences that implement proprietary software systems on the
basis of business process analysis.
Field 4
Description: Development of technical-organizational solutions by the
usage of Open Source systems.
Providers: Consultancies that develop and implement solutions by
using specific Open Source systems that may have been self-
developed or extended.
If one reflects the described potentials of Open Source systems and then
assesses them superior to proprietary solutions, the conclusion is that posi-
tions within field 1 and 3 will lead to competitive disadvantages in the
medium-term. The usage of closed software technologies complicates the

customer individual configuration and development of solutions.
Consultancies that are positioned in field 2 will hardly participate on
profitable projects while it’s still possible for IT oriented service providers to
exploit this field’s potential. Focusing on field 4 can be considered as the
most promising strategy because Open Source based solutions of technical-
organizational problems offer the greatest benefit for consulted customers.
Consequently following the Open Source spirit, consulting services might be
openly documented and thereby be made available in a standardized format
(as reference models for example). Beyond that, strategic customer-provider
alliances can be established on the basis of this open knowledge manage-
ment. These are advantageous for both parties involved as the cooperative
development of detailed problem solutions can be realized. Taken these
assessments, transformation strategies can be formulated according to the
arrows in figure 2.
Strategy A: Gain technical Open Source competence.
If the core competence is concentrated on the technical level, the expansion
into the Open Source sector is a feasible strategy to become a specialized IT
service provider.
Strategy B: Gain industry sector competence.
Based upon a distinct technical competence in the Open Source area, the
build-up of industry sector competence makes it possible to offer more
sophisticated consulting services to the customer – especially with respect to
the development of industry specific solutions. In addition, the mobilization
of a broad industry sector competence is a good occasion to increase the
consulting royalties. If the market share of a consultancy is too small, the
development of industry sector competence offers the opportunity of creat-
ing unique selling propositions. Building up strategic alliances with other
consultancies that are focused on industry sectors might be an alternative.
Strategy C: Gain technical Open Source and industry sector competence.
This strategy is mostly congruent with strategy B. The development of Open
Source competence has the higher priority because of the former technology
focus.
Strategy D: Gain overall Open Source competence.
The goal of this strategy is to gain a substantial overview of available Open
Source solutions to use them target-oriented (and maybe even linked). A lot
of technical competence must be developed as well to be able to enhance
existing systems. In this strategy, the build-up of strategic alliances with
other, technical-focused, consultancies might be an alternative.
In the short- and mid-term, pure Open Source providers also have the
possibility to move from field 2 to field 1 to link successful proprietary sys-
tems with Open Source systems or to transform proprietary software into
Open Source projects. This reveals that the adaptation strategies of the pres-
ent software vendors must be considered as well.
4 Outlook
The concept of Open Source offers an alternative way for developing and
distributing software. It combines already existing knowledge about software
development and software distribution and effects of the internet economy.
Due to the increasing standardization level of royalty-free software interfaces
and formats, the importance of proprietary software solutions is assumed to
decrease accordingly. If the service levels are comparable, customers feel
more attracted to Open Source distributors to avoid strategic dependencies
on vendors of proprietary software solutions. Present software costs will
remain existent to some extent, but in the context of Open Source, these
costs are no longer software license fees but service royalties. Opened and
linked collaborations appear to produce more sophisticated solutions for
company problems. The potentials arising offer consultancies the possibility
to realign their strategic focuses. Today companies no longer ask the ques-
tion “Why should we use products whose quality and enhancement is not
guaranteed by any company?” but rather “Why should we buy software
whose quality is no subject to public discussions?” and “Why should the con-
trol of central systems be given into the hands of another company?”
In the field of operating systems, the Open Source concept is already
highly established – mainly because of the engagement of distributors like
Redhat and SuSE. Time will show if a similar development will take part in
the field of application software. The consulting business can play a key role
therein.
References
Apache Software Foundation (ed) (2006) The Apache HTTP Server Project. URL:
http://httpd.apache.org
DiBona C, Ockman S, Stone M (eds) (1996) Open Sources: Voices from the Open Source
Revolution. URL: http://www.oreilly.com/catalog/opensources/book/toc.html
Feller J, Fitzgerald B, Hissam SA, Lakhani KR (eds) (2005) Perspectives on Free and
Open Source Software. Cambridge et al., The MIT Press
Free Software Foundation (FSE) (ed) (2006) The Free Software Foundation. URL:
http://www.fsf.org
Müller M (1999) Die Philosophie des GNU und die Pragmatik des Open Source. In:
Open Source – kurz & gut, Cologne et al., O’Reilly & Associates, Inc., 17–19
Netcraft Ltd. (ed) (2006) Web Server Survey 2006. URL: http://news.netcraft.com/
archives/web_server_survey.html
Nüttgens M, Tesei E (2000) Open Source. In: Scheer A-W (ed) Veröffentlichungen
des Instituts für Wirtschaftsinformatik Saarbrücken, 2000, No. 156, 157, 158
Open Source Initiative (ed) (2006a) The Open Source Definition. URL: http://
www.opensource.org/docs/definition.php
Open Source Initiative (ed) (2006b) Certification Mark and Process. URL: http://
www.opensource.org/docs/certification_mark.php
Open Source Initiative (ed) (2006c) Licensing. URL: http://www.opensource.org/
licenses/index.html
PGP Corporation (ed) (2006) PGP Source Code Downloads. URL: http://
www.pgp.com/downloads/sourcecode/index.html
Raymond ES (ed) (2000) The Cathedral and the Bazaar. URL: http://www.catb.org/
~esr/writings/cathedral-bazaar
Stallman R (2006) About the GNU project. URL: http://www.gnu.org/gnu/theg-
nuproject.html
St. Laurent AM (2004) Understanding Open Source and Free Software Licensing.
Beijing et al., O´Reilly Media Inc.
Further volumes of the series Ethics of Science and Technology Assessment
(Wissenschaftsethik und Technikfolgenbeurteilung):
Vol. 1: A. Grunwald (Hrsg.) Rationale Technikfolgenbeurteilung. Konzeption

und methodische Grundlagen, 1998
Vol. 2: A. Grunwald, S. Saupe (Hrsg.) Ethik in der Technikgestaltung. Praktische
Relevanz und Legitimation, 1999
Vol. 3: H. Harig, C. J. Langenbach (Hrsg.) Neue Materialien für innovative Pro-
dukte. Entwicklungstrends und gesellschaftliche Relevanz, 1999
Vol. 4: J. Grin, A. Grunwald (eds) Vision Assessment. Shaping Technology for
21st Century Society, 1999
Vol. 5: C. Streffer et al., Umweltstandards. Kombinierte Expositionen und ihre
Auswirkungen auf den Menschen und seine natürliche Umwelt, 2000
Vol. 6: K.-M. Nigge, Life Cycle Assessment of Natural Gas Vehicles. Development
and Application of Site-Dependent Impact Indicators, 2000
Vol. 7: C. R. Bartram et al., Humangenetische Diagnostik. Wissenschaftliche
Grundlagen und gesellschaftliche Konsequenzen, 2000
Vol. 8: J. P. Beckmann et al., Xenotransplantation von Zellen, Geweben oder
Organen. Wissenschaftliche Grundlagen und ethisch-rechtliche Implika-
tionen, 2000
Vol. 9: G. Banse, C. J. Langenbach, P. Machleidt (eds) Towards the Information
Society. The Case of Central and Eastern European Countries, 2000
Vol. 10: P. Janich, M. Gutmann, K. Prieß (Hrsg.) Biodiversität. Wissenschaftliche
Grundlagen und gesellschaftliche Relevanz, 2001
Vol. 11: M. Decker (ed) Interdisciplinarity in Technology Assessment. Implemen-
tation and its Chances and Limits, 2001
Vol. 12: C. J. Langenbach, O. Ulrich (Hrsg.) Elektronische Signaturen. Kulturelle
Rahmenbedingungen einer technischen Entwicklung, 2002
Vol. 13: F. Breyer, H. Kliemt, F. Thiele (eds) Rationing in Medicine. Ethical, Legal
and Practical Aspects, 2002
Vol. 14: T. Christaller et al. (Hrsg.) Robotik. Perspektiven für menschliches Han-
deln in der zukünftigen Gesellschaft, 2001
Vol. 15: A. Grunwald, M. Gutmann, E. Neumann-Held (eds) On Human Nature.
Anthropological, Biological, and Philosophical Foundations, 2002
Vol. 16: M. Schröder et al. (Hrsg.) Klimavorhersage und Klimavorsorge, 2002
Vol. 17: C. F. Gethmann, S. Lingner (Hrsg.) Integrative Modellierung zum Globa-
len Wandel, 2002
Vol. 18: U. Steger et al., Nachhaltige Entwicklung und Innovation im Energiebe-
reich, 2002
Vol. 19: E. Ehlers, C. F. Gethmann (ed) Environmental Across Cultures, 2003
Vol. 20: R. Chadwick et al., Functional Foods, 2003
Vol. 21: D. Solter et al., Embryo Research in Pluralistic Europe, 2003
Vol. 22: M. Decker, M. Ladikas (eds) Bridges between Science, Society and Policy.
Technology Assessment – Methods and Impacts, 2004
Vol. 23: C. Streffer et al., Low Dose Exposures in the Environment. Dose-Effect
Relations and Risk-Evaluation, 2004
Vol. 24: F. Thiele, R. A. Ashcroft, Bioethics in a Small World, 2004
Vol. 25: H.-R. Duncker, K. Prieß (eds) On the Uniqueness of Humankind, 2005
Vol. 26: B. v. Maydell, K. Borchardt, K.-D. Henke, R. Leitner, R. Muffels, M. Quante,
P.-L. Rauhala, G. Verschraegen, M. Zukowski, Enabling Social Europe,
2006
Vol. 27: G. Schmid, H. Brune, H. Ernst, A. Grunwald, W. Grünwald, H. Hofmann,
H. Krug, P. Janich, M. Mayor, W. Rathgeber, U. Simon, V. Vogel, D. Wyrwa,
Nanotechnology. Assessment and Perspectives, 2006
Vol. 28: M. Kloepfer, B. Griefahn, A. M. Kaniowski, G. Klepper, S. Lingner,
G. Steineach, H. B. Weyer, P. Wysk, Leben mit Lärm? Risikobeurteilung
und Regulation des Umgebungslärms im Verkehrsbereich, 2006
Vol. 29: R. Merkel, G. Boer, J. Fegert, T. Galert, D. Hartmann, B. Nuttin, S. Rosahl,
Intervening in the Brain. Changing Psyche and Society, 2007
Vol. 31: G. Hanekamp (ed) Business Ethics of Innovation, 2007
Also the following studies were published by Springer:

Environmental Standards. Combined Exposures and Their Effect on Human Beings
and Their Environment, 2003, Translation Vol. 5
Sustainable Development and Innovation in the Energy Sector, 2005, Translation
Vol. 18
F. Breyer, W. van den Daele, M. Engelhard, G. Gubernatis, H. Kliemt, C. Kopetzki,
H. J. Schlitt, J. Taupitz, Organmangel. Ist der Tod auf der Warteliste unvermeidbar?
2006

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Ethics of Science and Technology Assessment

The Europäische Akademie zur Erforschung von Folgen wissenschaftlich-

Bad Neuenahr-Ahrweiler, December 2006 Carl Friedrich Gethmann

Presently consequences of research in the sciences and in the arts as well as

Bad Neuenahr-Ahrweiler and Gerd Hanekamp

Eaton, Margaret L., Pharm.D., J.D. Lecturer in Management, Graduate

Hanekamp, Gerd, Dr. phil. Dipl.-Chem., studied chemistry at Heidelberg and

Matten, Dirk, Professor of Policy, holds the Hewlett-Packard Chair in Cor-

nal of Management Studies”, “Organization Studies”, “Journal of Business

Moon, Jeremy, BA, PhD, Professor of Corporate Social Responsibility and

Nüttgens, Markus, Professor Dr., studied Business Administration at the

Seiter, Andreas, Dr. med., studied medicine at Friedrich-Alexander-

Selgelid, Michael J., received a BSEng in Biomedical Engineering at Duke

ment at the University of the Witwatersrand in Johannesburg, South Africa;

Business Ethics of Innovation. An Introduction

Corporate Ethics and Globalization. Global Rules and Private Actors

Research Priorities, Profits, and Public Goods:

Ethical Issues Associated with Pharmaceutical Innovation

Corporate Responsibility for Innovation – A Citizenship Framework

Access to Medicines and the Innovation Dilemma –

IT Innovations & Open Source: A Question of Business Ethics or

Innovations are said to be the key drivers of economic development. They

result in a critical assessment of how firms act with respect to innovations.

old solution new solution

The usual assessment of innovations in business is connected with the

old solution new solution

business state economy society community

matrix traditionally corresponding to the core interest of firms are marked

widened view on innovations has to be developed. In a first step the manage-

References and further reading

2 A Notion of Corporate Ethics

Europe; “CSR-Europe” is an organization which has got quite a lot of money

integrating it into (national) company law, as part of director’s duties and

3. by critizising (or even opposing) existing law in order to bring about

embarking on this philosophical position makes the entire concept of cor-

of corporate responsibility, a concept that transcends the pure economic

corporations unfold in such cases political initiatives for what is called

3 Corporate Ethics and Globalization

ditions. The federation of the apparel industry, national and international, is

Corporations as partners of “Global Public Policy Networks” sharing

was Göran Lindahl, then president of the multinational engineering firm

are manifestations of corporate ethics. In order to draw such a picture we

4 Open Problems and Research Questions

world is necessary for universal moral convictions to be founded. [...] A uni-

(3) In view of such a general theory of twenty-first-century capitalism it

welfare and to participate, instead, in ethico-political processes to foster the

Hanekamp G (2001) Kulturalistische Unternehmensethik – ein Programm.

Ruggie JG (2002) Voluntary Initiatives and Global Economic Governance. Keynote

(WHO) currently considers “antimicrobial resistance to be one of the top

Dynamics and Distribution

ernmental intervention in the market is needed. Below I argue that govern-

Intellectual Property Rights

Alternative Incentive Schemes

On Pogge’s related proposal (which can also be considered a “pull pro-

Ethical Issues Confronting Companies in the Early 21st Century

1996). At other times, the complaint is about the magnitude of corporate

Another questioned practice is covert reporting of the same data. For

patented. The company studies showed the S-isomer to be somewhat more

4.1 Risk vs Benefit