Merck and corporate social responsibility

I have long suspected that corporate managers would do a lot better for both their investors and for society in general if they simply did what they're trained to do -- maximize profits -- rather than act like they know what's best for society.

Witness the Merck Vioxx flap. Merck tried to score Brownie points by voluntarily withdrawing Vioxx from the market. Holman Jenkins points out that "Merck was evidently bidding for public admiration in sacking its biggest revenue spinner. If so, the tactic seems to have failed catastrophically."

In withdrawing Vioxx, Merck threw raw meat to the plaintiffs' lawyers who were already gearing up to prove that Vioxx was a dangerous drug. But most likely it was simply over-subscribed to people for whom the benefits (lower risk of internal bleeding) outweighed the cardiovascular risk. In this scenario, withdrawing the drug hurts the people who need it. Better labeling would have been the answer. This move would have cost Merck most of its sales, but without the "public admiration" associated with a complete withdrawal. It seems that it would have been the profit-maximizing and the right thing do.

Or, perhaps, withdrawal was profit-maximizing because Merck gained significant "goodwill" benefits (albeit short-lived). If so, this is a case of Merck trying to meet unrealistic public expectations that firms should not be all-out profit-maximizers.

And of course there is the possibility (not yet proved) that Merck hid the dangers of Vioxx and deliberately over-marketed it, aided and abetted by insurance which masked the cost to consumers, as Jenkins points out.

Perhaps also Merck wore a cloak of respectability to hide the dirt, somewhat like another famous company, Enron. This is profit-maximizing only in the short-term, as subsequent events have shown.

All of these stories suggest that, in various ways, "social responsibility" is the disease, and profit-maximization is the cure.