Mylan’s Greed

 

With CEO compensation pricing at over 531 times the average employee compensation in the US, we’re left to wonder “why?” By studying the rise in CEO compensation in the U.S through the Mylan case, the framework of greed as motivation can easily be applied. Mylan is a leading pharmaceutical company in America that specializes in generic and specialty drugs-their most notable product being the EpiPen. In 2015, Heather Bresch, CEO of Mylan, made over $18 million in total compensation while the EpiPen priced in outrageously at about $600 per two-pack. What was Bresch and Mylan’s motivation for price gouging the EpiPen? It is arguable that the major motivation behind this act was to drastically inflate CEO compensation because of internal and external influence of corporate greed.

The framework of greed as motivation is an analysis of market and employee behavior. Often we look solely at the person’s internal motivation, which is very insightful when analyzing situations, but not often do we analyze the external environment in which employees are placed and how these environments impact employee behavior. In terms of Mylan and CEO compensation, where Bresch’s compensation rose 671% between 2007 and 2016 (between various positions within the company), internal and external factors will be analyzed to prove the hypothesis that Mylan’s motivation comes from corporate greed and is reflected by how the company compensates their C-suite executives at the expense of out-pricing thousands of people who rely upon the life-saving drug carried by the EpiPen.

It is important to understand a brief history of why America is fueled by corporate greed to accurately analyze Mylan’s motivation. Journalist John Cassidy examined in his piece The Greed Cycle that there was a boom in corporate greed starting in the 1990s because there was nothing in the way of business moguls from making tons of money. Essentially there are still no checks and balances on CEO compensation in America, but recently publically traded companies are now affected by the implementation of the U.S Securities and Exchange Commission’s say-on-pay act which states that stockholders in a publically traded company now have the right and duty to voice their concerns and critiques over CEO compensation. How affective can this quick attempt to fix a big problem be? Cassidy elaborates by describing economists Jensen and Meckling’s analysis of the principal-agent relationship where the principal is the stockholders and the agent is the CEO. Essentially the two criticize how this relationship hinders ethical business practices and furthers the vicious cycle of corporate greed. With the CEO in the stockholder’s pocket, the CEO is somewhat forced to only make decisions that maximize company profits. In most situations, maximizing company profit is at the dispense of the bottom or middle level employees and customers. Thus, even though the say-on-pay act is a great first start for companies to be held accountable to how they are compensating their executives, it still plays into a vicious cycle where the relationship between the charged and the accuser is symbiotic and mutually beneficial. Cassidy’s statement concisely concludes the history of corporate greed when he writes, “the message that corporate America took from [the LBO phenomenon’s] ordeal was quite different: senior executives who converted to the new religion of shareholder value tended to get very rich, while those who argued that corporations ought to consider their employees and customers as well as their stockholders often ended up without a job” (Cassidy 68).

Where Cassidy analyzes the external divers of corporate greed, the question is still there for what internally drives this greed. German economist and business analyst Burkard Sievers wrote in his piece Socio-Analytical reflections on Capitalist Greed:

From a socio-analytic point of view, greed thus can be conceptualized as an unconscious dynamic in an organization or any other social system that is fueled by the desire, if not the ‘drive’, to aggressively incorporate ‘good objects’ from its environment in order to fill its inner void, to improve its image, reputation, power, and position in the market with regard to its customers and/or competitors – or, at a minimum, to provoke envy (Sievers 44)

It is common knowledge amongst people in business that the unspoken number one rule of operating a company is to always increase shareholder wealth and to do so will reap well on the company. Thus, Sievers adds, “corporate greed can, for example, be seen as being induced by shareholders’ ever-increasing demand for profits” (Sievers 49). Mylan is a publically traded company. On February 23, 1973 Mylan had its initial public offering on the NASDAQ and has been publically traded ever since. This means that Mylan is truly in the pocket of their investors which holds them accountable to them instead of the thousands of people who could genuinely benefit from their product. Unfortunately, the public is the one who suffers at the hand of corporate greed from two sides in the Mylan case. First, the CEO is taking home millions of dollars and gaining a lot of power because of an irrational and unethical price increase per two pack of the EpiPen and secondly, Mylan must remain competitively profitable to continue to be successful on the NASDAQ. Evidently, CEO compensation and stockholder equity go hand and hand in terms of corporate greed. Because of the external pressure for a company to succeed and its direct correlation to a CEO’s performance, it is therefore the utmost importance for said CEO to individually succeed to maintain a powerful and positive reputation and to keep their job. With the lack of support from the company and stockholders, it is increasingly difficult and unlikely that a CEO will make the ethical decision over the profitable one. Additionally, Sievers wrote, “in pursuing profit maximization as its primary, if not exclusive aim, the corporation induces narcissistic self-interest in its roleholders to make as much money as possible” (Sievers 50). The situation turns out to be that the better Mylan performs, the more money Bresch is entitled to. This is how companies in America operate with free market capitalism where private owners run a trade for profit.

Mylan is not the only major corporation to come under fire in 2016 for their egregious CEO compensation at the expense of their customers. Companies unlike Mylan, like Shell, have also been under fire by the media. But Mylan’s sector of the economy-pharmaceuticals, has a record of overcompensating their executives. With a market that has so much demand-a market that is literally a matter of life or death, it is argued that this is a market sector that maybe should not be privatized. Journalist Tamara Rosin wrote in her article “S&P 500 pharma CEOs took home $18.5M median pay in 2015” for Becker’s, “the median pay for pharmaceutical and biotech company CEOs was 71 percent higher than the median compensation of $10.8 million taken in by the S&P 500 executives across all industries in 2015” (Rosin) which brings in the perspective that Mylan is in a market that has consumers highly dependent on their products and is also one that pays their executives very well. The analysis of Mylan’s CEO compensation and EpiPen price dilemma brings more than just the issue of CEO Compensation being too high compared to the median employee in America. The case also has such a deeply engrained social justice aspect as well.

For Mylan, the price increase conflict began in 2007 when Mylan got the rights to distribute Epinephrine through an instantly injectable source they called the “EpiPen.” At this point Mylan’s sales were about $200 million (Koons). Over the years, Mylan’s sales grew quickly from $200 million to billions of dollars. By 2015, Mylan held 85% of Market share on injectable drugs because their competitors essentially became rather obsolete for various reasons. As Mylan gained market dominance, over 40% of Mylan’s company revenue came from the EpiPen segment of their business which continued the vicious cycle of the increasing price over the past nine years (Willingham 2). The reality of the situation is that the drug within the EpiPen is worth about $1 per pen, but, before insurance, a two-pack sells for a ticket price of $600 (Willingham 3). The more Mylan increases the price, the more revenue the company makes and consequentially, the more Mylan can pay their executives. Another ethical road block that arises with Mylan’s pricing is that the EpiPen has an expiration date of one year. So even if a consumer does not need that EpiPen for an entire year, they still must incur the cost annually as a back-up in case that reaction comes again. If we conservatively assume the average consumer pays $300 for a two-pack annually since the age of 5 years old, that is over $22,000 spent on EpiPens alone in one person’s lifetime (if price, insurance, etc. stayed the same and assuming a lifespan of of 80 years). Regardless, the external motivation is relatively simple in terms of analyzing Bresch’s decisions-there is an extreme amount of pressure on her shoulders for Mylan to perform well on the open market. But, that can’t be the only motivator. Which begs the question: what about Bresch’s personal internal greed?

The EpiPen scandal is not the first time Bresch’s morals were challenged by the court of public opinion. In fact, when she was beginning her career, Bresch was caught up in an MBA scandal where she put having her MBA on her resume but the university wouldn’t confirm it (Urbina). After much struggle, Bresch was finally awarded her executive MBA even though she didn’t necessarily earn it because of her family influence. This is a small example of Bresch bending the rules in her personal history that may provide some indication to why she has performed as she has through her role as Mylan’s CEO – her ethics just maybe aren’t there. But Bresch has a long-standing connection to Mylan as she has worked in some facet of Mylan for over fourteen years. She is clearly dedicated to the company and its wellbeing, but maybe she has no direct understanding of the implications her actions have. Clearly this is a viable possibility as she was forced to appear at a congressional hearing where her ethics and morals were harshly questioned. When she became CEO of Mylan in January of 2012, she was one of the first female CEOs in a fortune 500 company. Bresch is a businesswoman working at a very large and profitable business. She, being a woman, probably has even more pressure and scrutiny on her as a minority in business whom is leading a multi-billion-dollar company in the competitive global market of the twenty first century. So, in some regards, she should be compensated very well for defying the odds and essentially finding the market for EpiPen and making it Mylan’s. But, she didn’t stop there. The decisions that she approved to raise the prices at the expense of a lot of people’s very serious allergies is not ethical and directly ties to her shown character of greed and disillusion.  Emily Willingham, journalist for Forbes, wrote “The consumers of EpiPens aren’t purchasing luxury planes, able to shell out what the market will bear. They are buying desperately needed lifesaving drugs, drugs that Mylan itself told the world they needed” (Willingham 2). In terms of the EpiPen, Bresch oversaw an aggressive and controversial marketing campaign that featured shocking commercials about the dangers of anaphylaxis from allergic reactions. This marketing campaign brought to light the reality that the EpiPen has become an everyday necessity for millions of individuals in the US as most humans have some sort of allergy and allergies can be developed at any point in a human’s life. The Epipen is the only life saving device of its kind which increases Mylan’s market control and ability to spike prices, especially because in the US the government cannot intervene and set prices in the pharmaceutical industry.

Mylan has the power to influence the pharmaceutical market and the U.S. government as such a huge monopolistic corporation. With powerful lobbyists, this power was exerted when Mylan pushed to have free non-specific prescription EpiPens in the public schools of 48 states in case of an emergency. This is an important program to parents and children across the country who battle severe allergies and anaphylactic consequences (Willingham 3). Mylan is even continuing the efforts to get EpiPens in public places like restaurants and hotels. Bresch stated, “We are continuing to open up new markets, new access with public entity legislation that would allow restaurants and hotels and really anywhere you are congregating, there should be access to an EpiPen” (Koons). Although these are good actions for the public, it just shows how much market manipulation and power the company has because they are the sole supplier of the life-saving EpiPen. On paper, these efforts are a good thing, but it is also an smart and ruthless marketing plan, which happen to be Bresch’s specialty. Sources have reported that the efforts to get EpiPen in public places has increased Mylan’s consumer base by 67% (Koons). It may now be more clearly defined that Bresch is fueled by the external motivation and pressure to succeed within a market to keep Mylan’s brand alive and the internal motivators of personal wealth and success as well. The lobbying efforts of Mylan, are a small bandage for the huge wound their market practices has left.

Overall, the internal and external motivation behind Bresch’s actions on behalf of Mylan is fascinating and complex. With the external pressures of increasing stockholder’s wealth as a publically traded company, to the internal pressures to succeed, it seems unlikely that a CEO would have the support or will to turn against. With CEO compensation pricing at over 531 times the average employee compensation in the US, we’re still left to wonder “why?” But by explaining the background of corporate greed and applying it to the Mylan case, it is easier to understand CEO Heather Bresch’s motivations and decisions through the external corporate market and the internal motivation for wealth and success. These factors are exactly what contribute to her greed and therefore her very large paycheck. Unfortunately, the answer to “why?” is not necessarily a pretty one. CEO’s are compensated so highly and CEO compensation has been greatly inflated because it simply can be in America. Mylan’s case is not unique. America is the “land of opportunity” but as one can see through the Mylan case, America is only the land of opportunity to a special lucky few who step on the backs of others to gain personal wealth and success.

 

 

Works Cited

Cassidy, John. “The Greed Cycle.” The World of Business. PDF.

Koons, Cynthia. “How Marketing Turned the EpiPen Into a Billion-Dollar Business.” Bloomberg Business week. Bloomberg, 23 Sept. 2015. Web. http://www.bloomberg.com/news/articles/2015-09-23/how-marketing-turned-the-epipen-into-a-billion-dollar-business

Mangan, Dan. “Taxpayers fueled much more of Mylan’s EpiPen revenue as prices rose sharply.” 6 Oct. 2016. Web.

Rosin, Tamara. “S&P 500 pharma CEOs took home $18.5M median pay in 2015.” Becker’s Hospital Review. 31 August, 2016. Web. http://www.beckershospitalreview.com/compensation-issues/s-p-500-pharma-ceos-took-home-18-5m-median-pay-in-2015.html

Sievers, Burkard. “Socio-analytic Reflections on Capitalist Greed.” Organisational & Social Dynamics. 2012. PDF.

Willingham, Emily. “CEO of EpiPen Maker Mylan Sees 671% Compensation Increase in 8 years.” Forbes. 23 Aug. 2016. Web. http://www.forbes.com/sites/emilywillingham/2016/08/23/ceo-of-mylan-pharmaceuticals-sees-671-salary-increase-in-8-years/#2af916f04b23

Thomas, Katie. “Mylan to Settle EpiPen Overpricing Case for $465 Million.” The New York Times. The New York Times, 08 Oct. 2016. Web. http://www.nytimes.com/2016/10/08/business/epipen-mylan-justice-department-settlement.html?_r=0

Willingham, Emily. “No One is More Frustrated About EpiPen Pricing Than Mylan’s CEO, Says Mylan’s CEO.” Forbes. 25 Aug. 2016. Web. http://www.forbes.com/sites/emilywillingham/2016/08/25/no-one-is-more-frustrated-about-epipen-pricing-than-mylans-ceo-says-mylans-ceo/#2c1d252f1f62

Willingham, Emily. “Why did Mylan hike EpiPen Prices 400%? Because They Could.” Forbes. 21 August 2016. Web. http://www.forbes.com/forbes/welcome/?toURL=http://www.forbes.com/sites/emilywillingham/2016/08/21/why-did-mylan-hike-epipen-prices-400-because-they-could/&refURL=&referrer=#310c6822477a

Urbina, Ian. “University Investigates Whether Governor’s Daughter Earned Degree.” The New York Times. 22 Jan. 2008. Web. http://www.nytimes.com/2008/01/22/us/22heather.html

 

Life Update: September in Chicago

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Chicago sunset from the LondonHouse rooftop bar

Well I’m back. The more days that pass, the less and less familiar the memories and times of living abroad feel. The weirder part is that it doesn’t even feel like my summer happened.

Being back here has been one busy whirlwind! From being President of my fraternity to 18 credit hours (at an honors level) to managing seeing all my new friends… it’s a lot! But that is essentially what college is for-having too much to do and no time!

I love the crazy ride though.

The hardest part of living in the city for me is the commute. I love being downtown and I love being in Roger’s Park at my apartment. It’s hard to split my time..not to mention it’s exhausting. Somedays I am so done but then I have to take a 40 minute shuttle/bus/L ride + walk 1o minutes to finally be home. Some days I don’t want to be home at all-I wanna be out and about exploring this amazing city!

As for school: I am still an HR major with a Finance minor and I’m loving it and very reassured that this is the path for me! I am in the HR classes regarding Compensation and Employment Relations right now. Although I am not connecting 100% with the professors, I am really enjoying the class content. I feel like I am building a great foundation this semester for me to pursue my chosen career!

As for fun… my roommates and I have been enjoying cooking and baking! We also have enjoyed decorating our place and making it our home 🙂


My October adventure goals are to:

  1. Try a new coffee shop
  2. Go to second city
  3. Go to Rocky Horror (again)
  4. Have an awesome halloween!
  5. Go to Lincoln Park Zoo Fall Fest

Thanks for reading my little life update!

XO Cassie