9 warning signs your business is a legal time bomb
Corporate risk management is a deliberate act. You either choose to be proactive or you don’t. There’s no in between and when you don’t plan ahead you cultivate a reactive corporate culture. Waiting until a legal problem is “real” before doing anything about it can create a legal time bomb.
That’s why the in-depth story reported by Fortune about generic drug manufacturer Ranbaxy Laboratories is such an interesting cautionary tale. Ranbaxy Laboratories in Gurgaon, India is one of the largest suppliers of generic drugs in the world.
On May 13th, after a 9 year regulatory battle with the U.S. Food and Drug Administration and the Department of Justice, the company pleaded guilty on to seven federal criminal counts of selling adulterated drugs with intent to defraud, among other nasty things, and agreed to pay $500 million to settle civil and criminal claims.
In hot pursuit of profits at any cost
While there is nothing wrong with honest profits, Ranbaxy’s hot pursuit of profits at any cost caused it to engage in a number of behaviors that are warning signs a business may be a legal time bomb waiting to explode.
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Dictatorial management style
According to reports, Ranbaxy’s management dictated the results it wanted and didn’t care how they were achieved. As a result, they encouraged dubious business practices by turning a blind eye to illegal activity.
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Winning at any cost
At Ranbaxy, winning meant being the first to introduce new drugs and the regulatory approval process was viewed as an obstacle. Given the need for speed, Ranbaxy learned how to game the regulatory system by skipping steps, substituting products and fabricating data. They even bragged among themselves about their deceptions — all in the name of “winning.”
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Open secrets
The knowing falsification of test data and lying to regulators, especially in markets were regulations are lax and the risk of discovery low was an open secret among senior management. The trouble with open secrets is that inside the organization almost everyone knows what’s going on but they rationalize and reward the bad behavior anyway because it helps bolster profits. Insiders know, but it’s still a “secret” because they’d hate to have such information become public knowledge.
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Cavalier compliance culture
Rewarding those who game the regulatory system promoted a cavalier culture of compliance at Ranbaxy. It condoned and institutionalized bad habits within the business enterprise. Data was freely mixed and matched and even created out of thin air in an anything goes kind of way and patient safety reporting was non-existent. They even faked their own operating procedures.
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Complacent board of directors
When a senior member of the Ranbaxy management team, the person who ultimately became a whistleblower, alerted the board of directors about the house of cards that had been built within the company, only one director was shocked by the egregious state of affairs. The rest were merely agitated over the executive’s request that he be given full authority to immediately clean up the mess (which was denied). At that point, the board went from complacent to complicit.
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Ostracizing those who challenge the status quo
Ranbaxy had hired several executives from other major pharmaceutical companies but when they saw the culture at Ranbaxy and tried to do something about it they were ostracized. They eventually left the company.
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Contempt for customer welfare
A former Ranbaxy executive recounted how during a conference call when she challenged the quality of Ranbaxy AIDS medicine being supplied to Africa she was rebuked with, “Who cares? It’s just blacks dying.”
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Boycotting the product
You know there’s a problem when senior management won’t make personal use of a product it sells to others. According to the Fortune article, the Ranbaxy executives it interviewed said they stopped taking Ranbaxy drugs while still at the company. Even the FDA inspectors who inspected one of the plants where the Ranbaxy drugs are manufactured said they would never take a Ranbaxy drug.
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Suspect profits create a Catch-22
The more commercially successful the questionable behavior becomes the more deeply rooted and more difficult it is to stop without strong leadership. Confessing can mean financial disaster and so can getting caught. You’ve created a Catch-22. It took a whistle blower who knew what rocks to look under and the FDA for Ranbaxy to hit the brakes.
The ultimate cost
Ranbaxy’s $500 million settlement with the government may be the largest of its kind. However, it’s highly unlikely that the legal problems stemming from these acts are over. After all, millions of patients were prescribed these dirty drugs over a period of years and harmed to one degree or another due their lack of efficacy. Ranbaxy can therefore expect more lawsuits to come, including class actions (if they haven’t happened already).
Then there’s the issue of trust. What does it take for you to trust a business enterprise that monstrously betrayed it?
I don’t know about you, but there will be no more generics for me.
Leave a comment and share your thoughts below.
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One way to keep your business from turning into a legal time bomb is to implement Hanna’s simple Legal Leverage® tips. Get your complimentary subscription and receive valuable tips you can start using today.
Hanna Hasl-Kelchner, Esq. is The No Nonsense Lawyer and America’s Legal Landmine Expert. She helps executives, managers and entrepreneurs leverage the law into a competitive advantage by translating the law into practical business terms that allows them to minimize liability and maximize opportunity. She accomplishes this through training, coaching and independent general counsel services. Hanna has been quoted in leading business publications and appeared on MSNBC, FoxNews, and ABC, CBS, NBC and Fox affiliates nationwide.
Legal literacy blind spots: It’s not your fault that you don’t know what you don’t know
She’s a successful entrepreneur with a thriving dental practice and plans to expand her business now that all of her children were in school full time.
Finding good employees is an essential part of the growth plan and she complained to me how at one point she had hired a Korean dentist, but ultimately had to let him go.
“He was very good looking,” she said. “But terrible with the patients. Very abrupt and rude.”
“I’m never going to hire another Korean dentist.”
(Wow! Did she really just say that?)
She then casually mentioned how hiring dental assistants was a challenge too. One time, when she was pregnant with her last child her assistant was pregnant too and neither of them wanted to take dental x-rays. Now, she only wants to hire men as dental assistants because they don’t get pregnant.
I’m seriously starting to twitch because there are very few bright lines in the law between legal and illegal and what she was telling me clearly crossed the line — not just once, but twice.
When I explained to her how discriminating in the hiring process based on gender or national origin was a big no-no her eyes grew wide in disbelief.
“These people are costing me money,” she insisted. ”If my dental assistant is pregnant and can’t take x-rays it disrupts everything, it’s expensive, it costs me money.”
“I understand, but the cost of a lawsuit is much higher and if you continue with these hiring practices it’s only a matter of time before you get sued.”
“Besides, you’re from the Philippines. Right?”
“How would you like it if you were qualified for a job and couldn’t get hired because that employer had a bad experience with another Philippino?”
I could tell by the look on her face that it suddenly registered on her Richter Scale.
“That wouldn’t be fair,” she said.
“Exactly! That’s why it’s illegal.”
“Well . . . how am I supposed to know?” she stammered.
She’s right, how is she supposed to know? She didn’t recognize the legal landmine she was creating for her business because she didn’t know what she didn’t know. She was operating in a legal literacy blind spot.
It’s not her fault. You may be in a similar situation too and not know it.
An easy solution for legal literacy blind spots
We all have blind spots. Yet in business, legal literacy blind spots can be extremely painful and the School of Hard Knocks incredibly expensive.
Comedian Groucho Marx famously said we should learn from the mistakes of others because there’s not enough time to make them all ourselves. Funny man. Serious point.
That’s why I’m pleased to announce the launch of the Legal Leverage® Tip of the Week. A painless way to learn from other people’s mistakes.
After more than 30 years of practicing law I have witnessed plenty of legal mistakes and now my hindsight can become your foresight.
Every Wednesday I’ll be sharing stories about an important topic that’s often overlooked, easily fixed, and distill it into a short e-mail Tip of the Week. It’s the stuff they don’t teach you in business school, a reality check focused on raising your awareness about the legal aspects of important business issues that can cross your desk every day.
Designed for smart executives, manager and entrepreneurs more interested in growing their business than defending it in court, I will cover topics ranging from:
- how to keep yourself out of the hot seat and avoid personal liability to
- how to avoid sticky employment law situations to
- how to optimize contracts and contract negotiations to
- how intellectual property strategies can be used to protect your market share, products and services,
- and MUCH MORE.
To get your personal, complimentary copy of the Legal Leverage® Tip of the Week all you need to do is fill in the boxes on the right hand side of your screen and click the “Subscribe” button. It’s that easy.
The Legal Leverage® Tip of the Week will be delivered by e-mail to your inbox every Wednesday. It’s a mid-week reality check and virtual java-jolt that gives you no nonsense insights with:
- Short, easy to read stories about common business legal issues;
- Clear explanations of how they can affect your business;
- A practical tip you can immediately use to resolve or avoid the problem;
- Plus insights to help keep your business out of court and in the fast lane to higher profitability and more success.
The Legal Leverage® Tip of the Week is complimentary
“When you know better you do better.” ~Maya Angelou
Developing more confidence and peace of mind that you’re doing the right things to protect and grow your business has never been easier. Isn’t it time you started using the law to your advantage?
To receive your personal, complimentary copy of the Legal Leverage® Tip of the Week simply fill in the boxes on the right hand side of your screen and click the “Subscribe” button.
It’s that easy. The Tip of the Week is complimentary. Yes, FREE so subscribe TODAY today by filling in the information requested in the box in the right top hand corner of your screen, and be sure to tell your friends (the other guys are on their own).
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Hanna Hasl-Kelchner, Esq. is The No Nonsense Lawyer and America’s Legal Landmine Expert. She helps executives, managers and entrepreneurs leverage the law into a competitive advantage by translating the law into practical business terms that allows them to minimize liability and maximize opportunity. She accomplishes this through training, coaching and independent general counsel services. Hanna has been quoted in leading business publications and appeared on MSNBC, FoxNews, and ABC, CBS, NBC and Fox affiliates nationwide.
No Nonsense Lawyer Developments
I know it’s been quieter than usual on the No Nonsense Lawyer blog.
That’s only because I’ve been working around the clock on some exciting new programs to not only help you reduce your business legal liability and maximize opportunity, but to help save you money too.
The first is Independent General Counsel Services.
The second one I’m going to reveal tomorrow morning. Stay tuned!
How to reduce your cost of doing business – a risk management strategy
Once upon a time a brilliant man with an entrepreneurial spirit and enormous investment savvy had a business plan for a new hedge fund. The fund grew and began to make princely sums for the founder and the knights of his trading desks. Indeed, the firm’s ability to consistently outperform the market soon became legendary, making the founder a king among kings. It was every entrepreneur’s dream.
The firm’s stellar success, however, eventually drew the attention of the High Lord Commissioners, also known as the Securities and Exchange Commission (SEC). Operating in a regulated industry meant being subject to scrutiny. If the business plan and price of success meant being in the spotlight, it’s merely a cost of doing business . . . or so they thought.
Then one day the SEC began arresting and charging current and former knights of firm’s the trading desk with securities fraud. Over the past few years, the arrests averaged one per quarter. Life went on. It’s a cost of doing business.
One of the arrests involved charges of insider trading and instead of jousting in court the firm agreed to settle the case with the SEC for more than $600 million, a record amount for such charges. It’s a cost of doing business.
The firm began to experience higher than usual redemption rates as word of the pending settlement reached fund investors. Instead of redemptions in the $1 billion range, they were closer to $1.7 billion as more investors began to pull their money out of the fund. It’s a cost of doing business.
Then suddenly, last week the court decided not to approve the $600+ million settlement after all. The deal was off. The next day one of the high knights, one of the king’s most trusted lieutenants, was arrested and charged with securities fraud. It’s a cost of doing business.
Rumors are now circulating that the insider trading charges are a source of personal distraction for the knights of the trading desks, affecting their ability to concentrate and achieve continued stellar results. It’s a cost of doing business.
Investor’s don’t have time for due process. They vote with their feet. Record redemptions are therefore expected to continue as investor fears rise over the ability of the SEC to claw back any profits earned through illegal activity. It’s a cost of doing business.
Even if the firm is found innocent of all charges, until the matter is resolved the ongoing investigations will continue to cast a shadow on the firm and deeply damage its reputation. It’s a cost of doing business.
And they lived happily ever after? Time will tell.
As you’ve probably guessed, this is no fairy tale or April Fool’s joke. The firm currently living through this public nightmare is Steve Cohen’s SAC Capital.
While the amount of legal risk you choose to embrace in your business is a highly personal matter. SAC Capital is a cautionary tale of what can happen when those risks get heavily discounted and how they can escalate and have unintended consequences.
What that means for you is that even if you eventually “win” in court you still “lose.”
Michael Steinberg, the most senior of the SAC Capital employees to be arrested last week saw the writing on the wall as early as last fall when a former analyst pleaded guilty to insider trading and some of Steinberg’s e-mails surfaced during that investigation that are now viewed as smoking gun documents. It’s been reported that since then, to avoid being handcuffed at home in front of his children he began to occasionally spend the evening at New York hotels.
Unfortunately, that’s not the way the arrest went down. Federal agents paid a visit to his apartment at 6 a.m. the day after Steinberg and his family returned from a trip to Disney.
Some costs of doing business are no doubt more difficult to quantify than others, but that doesn’t make them any less real.
If you want to reduce your cost of doing business, it’s wise to include the cost of legal risks in your risk management and business planning process. It’s also wise to think through all of the consequences of your decision, the direct costs as well as the indirect costs, and ask yourself whether you and your family are willing and able to pay it.
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Please leave a comment if you have an example of a business situation where legal risks were discounted or ignored until they got too big to deny.
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To learn more about how to improve the risk mangement process and build a stronger company culture with a stronger internal compass grab a copy of my FREE infographic.
Hanna Hasl-Kelchner, Esq. is The No Nonsense Lawyer and America’s Legal Landmine Expert. She empowers executives, managers and entrepreneurs to anticipate predictable legal surprises and translates law into practical business terms, allowing leadership to leverage the law for competitive advantage. She has been quoted in leading business publications and appeared on MSNBC, FoxNews, and ABC, CBS, NBC and Fox affiliates nationwide.
American Idol Business Leadership Lesson
Last week American Idol contestant Lazaro Arbos, the Cuban Ricky Ricardo heart throb, received some tough news from judges Randy Jackson, Niki Minaj, Keith Urban, and Mariah Carey. The Beatles song he chose was not the right fit for his voice and as a result it was not his best performance. Lazaro’s tears of frustration were hard to hide when he heard the news.
While the title of this post might lead you to think that I want to discuss the merits of the judge’s criticism or whether they were too harsh on this sensitive singer who struggles with stuttering. That’s not the case.
What intrigues me from the leadership perspective is how important it is to match the talent with the right project.
Lazaro can definitely sing, otherwise he would not have made it this far in the competition. During a less emotionally charged moment, he agreed with the judges’ assessment and confided that his take away from all of this is that in the future he needs to really love the song for his voice to shine. As a result, he’s not going to “settle.”
While your employees may not get to pick and choose the “songs” they get to perform on your organization’s stage. Your role as a leader, indeed your responsibility as a leader, is to properly match the talent with the assignments and opportunities so that your employees can develop and shine.
Grow your people and they’ll grow your business.
Not only will your employees feel more satisfied and fulfilled by their work when using their talents and gifts to the fullest, your organization will get a stellar performance and maybe turn your business enterprise into the next “American Business Idol.”
Please leave a comment below and share this post with colleagues who might benefit from it.
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To learn more about how to build a stronger company culture and increase organizational effectiveness, grab a copy of my FREE infographic.
Hanna Hasl-Kelchner, Esq. is The No Nonsense Lawyer and America’s Legal Landmine Expert. She empowers executives, managers and entrepreneurs to anticipate predictable legal surprises and translates law into practical business terms, allowing leadership to leverage the law for competitive advantage. She has been quoted in leading business publications and appeared on MSNBC, FoxNews, and ABC, CBS, NBC and Fox affiliates nationwide.
