The purpose of this case is to explore the recent and eye-opening revelations of pervasive conflicts of interest throughout the United States medical industry, and to provide a framework within which the revelations can be examined and better understood. These revelations should provide rich, pedagogical fodder to professors of legal and ethical responsibilities of business executives, and enable those professors to demonstrate clearly the nature of conflicts of interest and the significant impact they play in the executives' ability to meet their obligations to stakeholders.
Conflicts of interest arise whenever executives have a private interest in the outcome of the task or responsibility they carry out on behalf of their employers. As a company employee, the executive owes his employer the duty to act solely for the benefit of his or her employer and not in the interest of the employee or third party; the employee's loyalty must be undivided.1 As an officer of the company, the executive is an agent of the corporation, and owes the corporation the same fiduciary duties as those imposed on employees, including the duty to act solely for the benefit of the corporation.2
Whenever a conflict of interest exists, the executive cannot be said to act solely for the benefit of the employer. The conflict of interest may cause the executive to engage in a course of action that is not in the best interest of the company, or to fail to exercise independent judgment on behalf of the company, thereby breaching the duty of loyalty the executive owes to his employer. For example, a business executive has a conflict of interest if she owns stock in a company submitting a bid to the executive's employer: the executive may be tempted to enhance the value of stock she owns in the bidding company by approving its bid. Likewise, a business executive who enters into a contract on behalf of his employer to purchase consulting services from company owned by his daughter has conflicting interests: the executive may be more interested in benefiting his daughter than in obtaining the best terms for the employer. Similarly, a business executive who serves as a consultant to a third party and negotiates a lease or purchase agreement between the third party and his employer cannot be said to be acting solely in the interest of his employee.3
Unfortunately, the importance of conflicts of interest in examining the legal and ethical obligations of executives is frequently understated, because the explanation normally accorded them is couched in singular instances, such as the three examples cited above, all of which involve a single contract and none of which posed a significant impact beyond the immediate parties to the contracts in question. Such is not the case, however, in the conflicts of interest pervading the medical industry. Indeed, because these conflicts of interest threaten the public interest in safety and effectiveness of medical treatments and devices, they elevate the importance of addressing conflicts of interest in legal and ethical responsibility courses. Further, the professor teaching in these areas occupies the unique position of addressing ethical issues residing in her own or similar academic institutions, rather than critiquing ethical issues in outside business organizations. In effect, the professor is charged with putting his own house in order, rather than critiquing the activities of unrelated parties.
This case examines: (1) the extent and purpose of payments routinely made by the medical industry to physicians employed by academic organizations or engaged in private practice; (2) the failure of physicians to comply with regulations requiring them to disclose their conflicting financial interests; (3) the inability of the medical and research system to effect compliance with disclosure requirements; (4) forces inherent in the medical research system which have increased the incidence of conflict of interest, namely vertical integration of the pharmaceutical industry, the 1980 BayhDole Act, and the accelerating need of the medical industry to conduct human experiments; (5) changes in medical research spawned by the increased dependence of drug and medical device companies on private industry medical research, namely industry contributions to physicians' nonprofit foundations, ghost written medical research, and the rise of the celebrity medical expert; (6) responses of medical institutions and academic organizations to the conflict of interest revelations; and (7) the three major solutions proposed to combat conflicts of interest in the medical research industry: mandatory disclosure of financial conflicts, instituting independent, federal testing of medical research results, and the AMA conflict of interest policy proposal. …