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Ranbaxy holds up an ugly mirror to corporate India

The Ranbaxy case exposes regulatory weaknesses of India’s generics business
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First Published: Sun, May 26 2013. 07 56 PM IST
Illustration by Shyamal Banerjee/Mint
Illustration by Shyamal Banerjee/Mint
Updated: Sun, May 26 2013. 08 22 PM IST
The US Food and Drug Administration (FDA) has been kind to Ranbaxy, too kind. The $500 million fine that the company has to pay is actually fairly light sentence for what it has done to the generics business out of India. The rapidly growing industry is now under a cloud. The first consequences of Ranbaxy’s actions are already being felt with the FDA issuing an alert banning import of products made at another pharma exporter Wockhardt’s plant in Aurangabad. It could be just the first of many more strictures against India’s generics companies.
Ranbaxy’s is no ordinary misdemeanour. The US department of justice said the company had “pleaded guilty today to felony charges relating to the manufacture of certain adulterated drugs”. Felony is a serious criminal charge. By accepting to pay a criminal fine and forfeiture and agreeing to settle civil claims, Ranbaxy may have succeeded in effecting damage control. That does not, however, mitigate the seriousness of its actions.
The implications of its guilt cast serious doubts not just over the conduct of generics exporters from India, but over the way business is conducted in this country. First up, it proves beyond doubt that there is no monitoring, by an independent agency, of business practices of wannabe Indian multinationals.
What was cooking in Ranbaxy’s labs over nearly five to six years was never under any supervision. That exposes the lack of teeth and, perhaps, even moral responsibility of the Indian Pharmaceutical Association (IPA), the association of drug companies. What’s worse, not till the FDA’s actions did the Central Drugs Standard Control Organization, the designated Indian regulator, initiate any action against the company whose drugs are among the pricier and more popular ones in the Indian market.
Expecting companies to voluntarily follow all the rules of the book is naiveté. Through the 1990s, numerous Indian companies exploited loopholes in the global carbon trading opportunity. Our markets are riddled with companies in every industry segment flouting norms of ethical behaviour. Falsification of data submitted to regulators, is so common a practice that Ranbaxy must have wondered what the fuss was all about. And used to getting away with lax governance and ethics standards at home, no Indian company will automatically turn lily-white merely because it is selling in a developed market.
The Ranbaxy affair also raises issues of executive conduct. The men, who were at the helm of the company in the days when it was growing rapidly on the back of such fraud, have mostly moved out now. But that does not absolve them. The company has acknowledged that in 2003 and 2005 it was informed of current good manufacturing practice (cGMP) violations by consultants it hired to conduct audits at its Paonta Sahib and Dewas facilities. That no action was taken exposes the executives of the day, including a board comprising eminent men of Delhi, to culpability.
Nor does current Japanese owner Daiichi Sankyo, come out clean in all this. For a $4.6 billion deal (to buy a controlling interest in Ranbaxy), the due diligence it did in 2008 appears to have been rather skimpy and inadequate. Or, did it simply choose to turn a blind eye to what by then was publicly known? It is worth noting that US attorney for the District of Maryland, Rod J. Rosenstein, in his ruling held Ranbaxy “accountable for a pattern of violations”. Its three facilities in Paonta Sahib, Batamandi and Dewas have been on an FDA import alert since 2008.
Responsibility for this problem must be shared equally among the congregation of executives, owners and regulators. But the bitter truth is that we have been too elastic in condoning corruption all around so that it has become deeply and shamefully a part of the ethos of Indian firms. Not all the regulation in the world will stop fraud. Corporate integrity is about culture and sadly ours is a culture where unethical behaviour is condoned and rewarded. In the end, policing cannot win at the expense of self-policing; to act to avoid prosecution cannot win at the expense of acting ethically; pragmatism cannot win at the expense of responsibility. Finally, it is about building an “ethisphere”, which can come about by accountability to the citizenry and, in turn, having an honest citizenry. It again means going back to the drawing board and not tossing off ethics as an addendum taught in isolation but braiding it into actual and current decision-making.
As Indian firms seek to do business abroad, their culture of deceit will come back to bite them.
History is littered with examples of companies whose dubious ethical standards eventually led to their demise. The graves of Qwest, Tyco, Enron, WorldCom and Arthur Andersen are the stepping stones of the US’s own exacting standards of corporate behaviour.
Do Indian pharmaceutical companies operate in a lax regulatory environment? Tell us at views@livemint.com
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First Published: Sun, May 26 2013. 07 56 PM IST
More Topics: Ranbaxy | drugs | FDA | Wockhardt | pharmaceutical |