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Trust, Conflicts of Interest and Death Bonds

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You trust your brother- in-law, and tell him you want to buy a used car. He says his cousin knows cars. You talk to his cousin, who recommends you buy a Saab. He finds you one; you buy it. All is good.

Then you learn the cousin is a used car dealer, and the car came from his inventory. Next, you learn your brother-in-law received a referral payment from his cousin for your business.

Now there are at least two people you trust a lot less. And the phrase “conflict of interest” becomes personal. But how, exactly, are the two related?

When I wrote (with Maister and Galford) The Trusted Advisor, we introduced the Trust Equation:

T = (C+R+I) / S, where
C=credibility, R=reliabilty, I=Intimacy, and S=self-orientation.

(To be precise, it’s a formula not for trust, but for trustworthiness of the one who would be trusted.)

The numerator factors are pretty clear. It’s the denominator that gets most readers’ interest, and rightly so—it’s the most powerful.
On a personal level, we trust someone if their focus and interest is about us: we do not trust them if their focus and interest is about themselves.

It’s why we’re sceptical of used-car dealers, telemarketers, and other stereotypes of sellers—people who clearly want our money, but less clearly have our interests at heart.

Conflicts of interest are fuel for the fire of self-orientation. How we choose as a society to deal with them says a lot about our view of government, and of humanity.

Arrayed in increasing order of social involvement:

Seven Responses to Conflicts of Interest: 

    by Level of Social Involvement

  1. Level one is caveat emptor. Society doesn’t have an interest compelling enough to create a solution beyond “deal with it.”
  2. Level two is ethical. Rely on collective shame heaped on used-car dealers to enforce behavior.
  3. A third is professional. The Association of Used Car Dealers should develop and enforce guidelines. (The Association for Brothers-in-Law is a less likely candidate for this approach).
  4. A fourth is enforcement. Vote for whatever district attorney will prosecute the hell out of the guilty parties using whatever laws are on the books.
  5. A fifth is required disclosure. As long as your brother in law and his cousin tell you their interests, the problem reverts to level 1.
  6. A sixth is regulatory. The National Used Car and Brother-in-Law Exchange Commission will do what the industry failed to do.
  7. Finally, there is structural reform. Separate the evil-doers so that they are not only free from temptation, but can never conspire to develop their nefarious schemes.

Society evolves. Big Tobacco went from level 1 to level 7 in mere decades. Sarbanes-Oxley was a level seven solution after many years at level three. Elliot Spitzer got elected governor of New York because of his activity at level four. Glass-Steagall’s repeal went from level seven back to levels five and lower.

Senator Herb Kohl of Wisconsin has been holding hearings about the pharmaceutical industry’s role in medical research; many researchers are funded by pharmaceutical industry money. The question is: what to do about it?

Kohl is inclined to recommend level five—disclosure. The Pharmaceutical Manufacturers Association says leave it at level three. Doubtless there are other views covering the others.

The July 30 2007 cover story in BusinessWeek is about Death Bonds—securitized life insurance policies, the same thing we’ve seen with mortgage-backed securities. The idea is individuals can cash in their life insurance policies to investors, and benefit. Along with the investors. The sooner the insured dies, the faster the investor makes money.

Right now, 26 states require professional licensing for "life settlement brokers"—level six.  Several investment banks have founded the Institutional Life Markets Association to lobby for appropriate regulation—level three. New York is prosecuting Coventry First—level four.  (Data from the BW article.)

What is the right role of society in mitigating conflicts of interest to foster greater trust?

How the Pharmaceutical Industry Can Increase Trust

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“You can’t talk your way out of what you behaved your way into,” says Stephen Covey.

But not everyone believes Covey.

NY Times, May 22, 2007.

“Columbia University dismissed its financial aid director yesterday after the release of documents showing he promoted a student loan company in which he had a stake, sending letters to parents and alumni on three occasions praising the lender.”

NY Times, March 21, 2007.

…the year [Dr. Allan Collins]was chosen as president-elect of the National Kidney Foundation, the pharmaceutical company Amgen, which makes the most expensive drugs used in the treatment of kidney disease, underwrote more than $1.9 million worth of research and education programs led by Dr. Collins…In 2005, Amgen paid Dr. Collins at least $25,800, mostly in consulting and speaking fees…

…Dr. Donald Hunninghake served on a government-sponsored advisory panel that wrote guidelines for when people should get cholesterol-lowering pills… eight of [the panel’s] nine members had financial ties to drug makers.

A 2002 survey found that more than 80 percent of the doctors on panels that write clinical practice guidelines had financial ties to drug makers.

Doctors said that lectures were highly educational, and that drug makers hired them for their medical expertise and speaking skills. But former drug company sales representatives said they hired doctors as speakers mostly in hope of influencing that doctor’s prescribing habits.

I don’t wish to engage in pharma-bashing. But Covey’s point needs heeding.

Columbia’s response to conflict was to say that the director, a 1985 graduate of the university, had “abused a position of trust and violated the university policy on conflicts of interest.”

So they fired him.

Covey, presumably, would approve.

Not so in pharma. In recent decades, the business of making and selling drugs has become much less about making and much more about selling. Perhaps that’s why the industry tends to see its trust problem as a marketing or PR issue—’if only the public knew the full truth, they’d trust us.’

Typical is this headline, from an April post by Ipsos research, :

Pharmaceutical Companies Need To Raise Awareness Of Their Social Investments To Improve Industry’s Image

Or this, promoting an interactive web seminar:

How can you safely navigate this politically-charged environment—and keep your business and brands strong? What can you do to restore public trust—even while facing negative campaign rhetoric? Find out at a New WebSeminar—Surviving the Election Wars: Strategies to Build Trust and Defend Brands.

Just to be clear who they view as being in charge of trust and brands:

If you are involved in advertising, marketing, market research, corporate communications, product and brand management, senior management, public affairs, or public relations…This is a program you can’t afford to miss!

PhRMA, the industry association, is a big proponent of the trust-is-a-communications-issue viewpoint. In an article appropriately titled "New PhRMA Leaders Discuss Future of the Industry, Need for More Public Education, " PhRMA’s CEO, ex-congressman Billy Tauzin, says, "“For PhRMA to continue to advocate well for our members, we must begin to correct the misconceptions and the outright fraudulent views that have been created about our work and our products.”

So, how’s it working? Here’s one survey:

43% of US adults believe that pharmaceutical companies fund groups like the American Heart Association and the National Kidney Foundation in order to get more people to buy their products or medicines, whereas only 21% believe it is to demonstrate that the companies care about a health issue supported by the group.

Truth: the pharmaceutical industry is loaded with good, smart, dedicated, well-meaning people. It has saved millions of lives, and improved millions more. It has the potential to do unimagineable good. We need a trusted pharmaceutical industry. But it’s the industry that must do the heavy lifting, not the consumer. The only real way to be trusted is—to be trustworthy.

A friend who does PR for pharma tells me it is difficult to give away drug coverage to lower income people—for free—because people are suspicious.

Covey’s right. You can’t talk your way out of a problem you behaved your way into—ask Imus. You can’t market your way out of structural conflicts of interest—ask Arthur Andersen. You don’t become trustworthy—worthy of trust—via marketing or advertising or PR agencies. That’s throwing water on a grease fire.

Pharma needs a fundamental recontracting with two critical constituencies—patients and physicians. It’s a business thirsting for trust—but trust based on values and behaviors. Not on spin, ads, press releases, awareness improvement and “education.”

We should all be rooting for pharma to make that shift.