Case Study: Ethical and Governance Failures of Martin Shkreli

This case study analyzes the corporate governance failures associated with Martin Shkreli, focusing on his actions as CEO of Retrophin and Turing Pharmaceuticals, particularly the drastic price increase of Daraprim. The assignment examines ethical theories like individualism, utilitarianism, agency, stakeholder, and shareholder theories to evaluate Shkreli's behavior and its impact. It also delves into the Fraud Triangle, white-collar crime, and the roles and responsibilities of a Chairman and CEO, comparing Shkreli's actions with ethical business practices. The study highlights the legal consequences Shkreli faced, including charges of securities fraud, and the broader implications for the pharmaceutical industry and corporate governance. Finally, it explores how agency, stakeholder, and shareholder theories apply to the case, emphasizing the importance of ethical leadership and oversight in preventing financial misconduct.

Running head: CORPORATE GOVERNANCE
Corporate Governance
Name of the Student
Name of the University
Author Note

1
CORPORATE GOVERNANCE
Answer 1
Ethical theories are the governing laws regarding morality and they lay the path as to
what is wrong and what is right. The ethical theories are the principles governing standards of
right and wrong and they denote the basis of human character as well as the obligations that
humans have pertaining to their character and behavior. Just and fair behavior are a mandate that
are guided by the ethical theories. Ethics is about the rights and obligations that have an
individual has in a society and they make the difference between rights and wrong easy to gauge.
The different types of ethical theories are- Teleological Ethical Theory, Deontological Ethical
theory, Virtual Ethical Theory and System Development Ethical Theory (Lucas, Van & Maat,
2016).
Business Ethics is a kind of applied ethics and they help in solving moral dilemmas that
might arise out of a problem. All matters of business conduct are dealt with the help of ethics
(Crane & Matten, 2016). An organization is run by the people who are guided by norms, values
and ethics and these emanate from the codes of business ethics (Lin, Abney & Bekey, 2014).
The ethical theories that apply in analyzing the present case are:
Individualism
This theory is applied in cases when an individual puts his interest ahead of anyone
else’s. This helps in maximizing profit and any method appliedin maximizing profits against the
bounds of law are unethical. The method applied by Shkreli in gaining profit was unethical and
illegal.
Utilitarianism

2
CORPORATE GOVERNANCE
This theory states that any decision taken has to be seen in comparison to
other’s happiness and one individual’s happiness is not more valuable or less to anyone else. If
any action causes more harm to others than causing happiness, it shall be considered unethical.
In the case of Martin Shkreli, more harm was caused than happiness, therefore, it was against the
principles of utilitarianism.
Answer 2
The fraud Triangle was formulated by Donald Cressey which explains the
reasoning behind committing fraud and draws a relation between fraud committed and unethical
behavior. Some factors that lead to the fraud triangle are Pressure, Opportunity and
Rationalization (Mansor, 2015). The pressure is an important determinant that acts as trigger.
Opportunity to commit the crime is a necessity because companies that are actively work on
committing fraud are looking for opportunities and chances. Rationalization is the mindset to
commit a crime and earn unethically. Applying the fraud triangle, it can be said that greed played
a major role and that once a fraud starts to be carried out, there is an increase in greed and the
more opportunities he gets, the greedier he becomes. Therefore, the greed make the person
commit the crime and thereafter he loses his power to rationalize.
White collar crime are crimes which are not violent in nature and they are
mostly financially motivated. Both business and government professionals commit this crime
and they have a high social standing (Smith, 2017). Security fraud is committed in the
investment and corporate set up where the investors are induced into making purchases based on
any false information they receive, thereby incurring losses.

3
CORPORATE GOVERNANCE
Nick Leeson’s fraudulent offences are considered to be a blot on the
banking history and how the investors have conducted themselves. Though there have been
many instances where the fraudsters have been punished but the seriousness and the calamitous
act of Nick Leeson in the collapse of the bank Barrings cannot be compared to many. Nick was
charged with fraud, forgery that led to the collapse of the historic bank and was also given a
punishment to serve in Singapore jail for 6.5 years.
Answer 3
Roles and responsibilities of a Chairman and a CEO
The roles and duties if the chairman and the CEO are similar but they is
also a marked deviation in the responsibilities they share. The Chairman is the sole responsible
head for ensuring leadership in a company and he is answerable to the Board. His role in the
Board is of primary importance for carrying out the overall functions of the Board as well as for
individual participation of the members in the boardroom (Dimopoulos & Wagner, 2016). The
Chairman heads the meetings of the company and therefore it is his responsibility to effectively
carry out the functions of the company. There needs to be substantial communication between
the members and therefore he shall ensure that the communication flows between the
Association of Members in the meetings. The CEO assumes the role of managing the daily
affairs of the company and is also important for the management of the business. The CEO
makes decisions related to the management of the company and plans the strategies of the
company’s business.
Chairman’s roles and responsibilities

4
CORPORATE GOVERNANCE
The Chairman works in an independent capacity and post his appointment,
he is supposed to work as an independent authority in his tenure. The responsibility of the
chairman is to look after the company and oversee that the principles of corporate governance
are maintained and upheld (Tricker & Tricker, 2015). The agenda that is set for the functioning
of the company has to be done keeping in mind the goals of the Board. The matters related to
strategy and evaluation of business plans are done by the chairman.
The company is reeling under accusations of fraud and therefore when
Tilles takes over as the CEO, he has to start from scratch and build the reputation of the company
bit by bit. He has to restore the faith of the people and also encourage the members of the Board
to act fairly. He has to initiate a healthy environment and transparency whereby all the problems
plaguing the company are effectively managed and handled by him.
Answer 4
Martin Shkreli is infamous in the pharmaceutical and investment industry
for defrauding people and increasing the price of a lifesaving drug. Martin is referred to as the
Pharma Bro who was sentenced to seven years in prison for committing security fraud and also
duping investors and defrauding them. He ran the drug company and was also the
pharmaceutical executive. He was found guilty in two hedge funds case and also a drug
company. He was accused of committing conspiracy to commit security fraud as well as found
guilty on two counts of securities fraud (Raleigh, Green & Lavine, 2014). He was charged with
eight, out of which the court found him guilty of three counts while he was the head of the
company Turing Pharmaceuticals. The Hedge funds investor was duped by him and well as the
MSMB Capital Management and MSMB Healthcare investors were defrauded by him. He
created the company Retrophin and the court convicted him of conspiracy to commit those

5
CORPORATE GOVERNANCE
crimes and securities fraud for manipulating the shares of the company. He raised the price of the
life-saving medicine by more than 5,000 percent and later in court did not apologize for the
crimes he committed. He was held to be involved in other crimes too which were not reported
due to lack of evidence. The charges were criminal and the Brooklyn federal court found him
guilty of 3 charges out of 8. The maximum harm was faced by the ailing and the poor and the
rich clients did not suffer much loss. The Government could have played a major role in ensuring
that the pharmaceutical industry did not aim to make profits by running down on poor clients. By
buying the rights of old medicines that are live saving and which treat rare diseases, the price of
those medicines will grow. The Government should aim at decreasing the price of generic
medicines.
Answer 5
Agency theory:
In corporate governance, this theory is used to understand the relationship
between agents and principals. The agent is the representation of the principal and therefore he
shall uphold the vital principles of the principal keeping aside his self –interests (Bosse &
Phillips, 2016).
Stakeholder Theory:
This is a very important theory in relation to organizational management
and theories of business ethics. The stakeholder is responsible for managing the ethics and
morals of a business organization. The stakeholders are in a fiduciary relationship and therefore
they need to put the interests of the company ahead of themselves.
Shareholder Theory:

6
CORPORATE GOVERNANCE
This theory was proposed by Milton Friedman and it was stated by him
that the sole responsibility of a company should be to maximize profits. The management is the
representative of the shareholders and they act as the agents of the company. The shareholders
need to morally and economically tune to serve the interests of themselves. The managers
constantly feel the pressure to maximize profits and therefore they are made to manipulate the
accounts so that they receive the maximum gain. (Danielson, Heck & Shaffer, 2015)
These theories can be applied in case of Shkreli wherein the interests of the
company was not kept in mind and the total aim was to maximize profit. The principles of
corporate governance was not upheld. In cases where there is limited oversight, the investors are
at the receiving end and the shareholders and the principals gain unlawfully.
Ethics is a guiding principle which is philosophical and can only give a
sense of right and wrong but they cannot be said to have the power to completely eradicate
problems related to financial fraud.

7
CORPORATE GOVERNANCE
References
Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of
Management Review, 41(2), 276-297.
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Danielson, M. G., Heck, J. L., & Shaffer, D. (2015). Shareholder theory–how opponents and
proponents both get it wrong.
Dimopoulos, T., & Wagner, H. F. (2016). Corporate Governance and CEO Turnover Decisions.
Lin, P., Abney, K., & Bekey, G. A. (2014). Robot ethics: the ethical and social implications of
robotics. The MIT Press.
Lucas, K., Van Wee, B., & Maat, K. (2016). A method to evaluate equitable accessibility:
combining ethical theories and accessibility-based approaches. Transportation, 43(3),
473-490.
Mansor, N. (2015). Fraud triangle theory and fraud diamond theory. Understanding the
convergent and divergent for future research. International Journal of Academic
Research in Accounting, Finance and Management Science, 1, 38-45.
Raleigh, G. G., Green, J., & Lavine, J. (2014). U.S. Patent No. 8,793,758. Washington, DC: U.S.
Patent and Trademark Office.
Smith, K. (2017). White‐Collar Crime. The Wiley‐Blackwell Encyclopedia of Social Theory, 1-2.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.