Business Law: Ethical Considerations in a Drug Recall Decision Making

This essay presents a balanced argument concerning a company's decision to recall a non-FDA approved drug with potential side effects. It contrasts the traditional shareholder-focused view of corporate responsibility, which prioritizes profit maximization and continuing sales even with potential lawsuits, against the stakeholder theory, which emphasizes the importance of considering the interests of customers, employees, and the broader society. The essay argues that while continuing sales may yield short-term profits, recalling the drug would better serve the long-term interests of all stakeholders, including shareholders, by preserving the company's reputation and avoiding regulatory scrutiny. Desklib offers a wealth of similar solved assignments and study resources for students.

BUSINESS LAW
STUDENT ID:
[Pick the date]

For Argument: Considering that the drug is non-FDA approved, hence it is likely that there
would be some side effects which is quite possibly the same with other such medicines. Also,
in case of recall of the medicine from the shelf, the profits of the company would be
adversely impacted. This would lead to loss of revenue and profits resulting in delay in
dividend payment. As per the traditional view of corporate responsibility highlighted by
Friedman, the primary responsibility of the business is to make money for shareholders. This
is also known as shareholder approach to corporate responsibility as only the interest of
shareholders are considered while that of other stakeholders is kept aside.
It is evident that in line with the traditional corporate responsibility view, the company should
aim to maximise the profits. In the given scenario, the profits of the company would be
maximised when the drug is not recalled and sales continue to happen. If there is any lawsuit
in relation to the side effects, the same would be settled and the cost involved would be lower
than the loss of profits in case of drug recall. Therefore, it makes sense to continue selling the
drug so that the profits can be maximised.
Against Argument: In line with the stakeholder theory, the business or firm is not responsible
only to the shareholders but also the stakeholders at large. This would include customers,
employees, government and society at large. If the drug is not recalled, then it would cause
harm to the customers and tarnish the image of the company which would have adverse
impact on the future product launches by the company. Additionally, continuing the product
on shelf could adversely impact the interest of the shareholders in the long run as even though
the short term profits would arise but the company’s brand name would be harmed.
Also, the side effects in the long run would attract attention from regulators and government
agencies which would result in bad publicity and loss of trust of consumers. As a result,
based on the stakeholder theory of corporate responsibility, it makes sense that the company
should consider the interest of the stakeholders collectively before taking a decision. In the
long run, it is evident that interests of all the stakeholders (including shareholders) is served
well if the drug is recalled so that the company’s reputation remains intact and hence the
business of future drugs is not adversely impacted.