Distribution of Rankings Across Ethics Components, 2005
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To find out more about stakeholder perceptions, RRC used its Ethics Reputation Model to assess which factors are most closely
aligned with strong or weak ethics reputation (see Figure 3).
The 12 components on which ethics rankings are determined remain the same over time, but their relative importance, as cited
by survey respondents, often varies dramatically from year to year. On average, RRC found the strongest increases this year
in the component "led by talented management," followed by "positive relationships with vendors and suppliers," and "positive
relations with regulators."
Further supporting its strong overall ethics reputation, the industry scored well across the 12 components. Figure 3 presents
the industry's average performance on each component, ranked by quintile, with the first quintile representing the highest
quality.
The industry performed well on the following components: having talented management, strong CEO leadership, and being open
and honest. Most companies earned scores of E2 on the majority of components; very few came in at E4 or below. One notable
exception was Schering-Plough, which scored poorly on almost half of the component questions, suggesting significant ethical
weakness and a risk of ethical default.
A Troubling Disconnect
Now the not-so-good news. In an effort to find out more about the opinion of the pharmaceutical industry's other key stakeholders,
RRC worked with its affiliate, Opinion Research Corporation, to learn how the American public perceives the pharmaceutical
industry in today's challenging environment. The results point to a troubling disconnect between the views of industry insiders
and consumers.
In a nationwide poll conducted in early February, only 44 percent of 1,000 Americans surveyed said they agreed (or strongly
agreed) that the senior leadership of major drug companies "engage in ethical business practices." By comparison, 65 percent
of executives interviewed in RRC's latest survey expressed confidence that senior leadership of the major drug companies "adhere
to ethical business practices."
In the same survey, consumers ranked the ethics of drug company managers well below average in corporate America. Half of
the respondents said they are "very" or "somewhat" confident in the ethical behavior of senior leaders of American companies
generally. To take an example from another industry, about 57 percent of the same respondents said they are confident in the
ethical behavior of electric power companies.
Understand, Then Act
What difference does this make? Companies burdened with an unrealistically low public image may underperform others with stronger
reputations, ultimately affecting their bottom lines.
Commenting on these findings, Professor Stephen A. Greyser of the Harvard Business School cautions that with such a difference
in opinion, one of these groups—either executives or the general public—must be wrong.
"If it is the executives [who are wrong]," says Dr. Greyser, "then the industry must think more deeply about the perceptions
of its ethical behavior to get a more precise understanding of the sources of the public distrust, and then act on that assessment."
"On the other hand," he adds, "if it is the public that is mistaken, then industry leaders must do a much better job of
communicating the true basis of their ethical grounding to the general public."
Doretta Gasorek is principal for Rating Research. She can be reached at doretta.gasorek@
ratingresearch.com
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