Will Agency Provide Justification For Execs?
- Published on January 6, 2011
- Written by ED DEVLIN, CBCP
Believe it or not, the federal government may just give you a reason for executives to support your plan.
Apparently the Food and Drug Administration (FDA) is frustrated that “high-dollar fines” have seemingly failed to concern a number of corporate executives. These fines have escalated way beyond the millions of dollars into the billions of dollars. An article in the Oct. 31, 2010, Philadelphia Inquirer reports:
“Eric Blumberg, Food and Drug Administration litigation chief, told a pharmaceutical industry audience that his agency was looking for cases to use what is known as the Park Doctrine as a tool to change the corporate culture of firms that have thus far shrugged off other penalties. He singled out firms, including Pfizer Inc. and Eli Lilly & Co. that have paid multiple penalties in recent years. For example:
Eli Lilly was hit with a $1.4 billion fine last year for illegally marketing Zyprexa, an antipsychotic drug.
The same year, Pfizer was fined $2.3 billion for illegally marketing the pain reliever Bextra.
Neither company’s stock price suffered significantly, leading some to conclude that even massive fines are viewed by investors and executives as simply the cost of doing business.”
Blumberg indicated that the FDA has increasingly signaled its intent to use a legal doctrine to bring criminal charges against top executives, even those who might have been unaware of company misdeeds.
“I don’t know when, where, or how many cases will be brought,” Blumberg told the attendees at the Food and Drug Law Institute, “but if you are a corporate executive – or counsel advising such a client – I would not wait for the first case to decide now is the time to comply with the law. They won’t get a mulligan on their conduct.
“The FDA’s first target will be companies that have illegally promoted products for unapproved uses. This practice is known as off-label marketing. It is clear that fines are not working here. We need to put something else on the scale to make people think, before they promote drugs for unapproved uses. That something is the threat of prison and industry debarment, which could re-sult from a successful prosecution using the Park Doctrine.”
Under the “Park Doctrine” a corporate officer is liable for illegal corporate actions the officer should have known about or was responsible for preventing. It stems from a case involving John Park, the president of Acme Markets, Inc. in 1970. Acme was cited for rodent infestations at a warehouse in Philadelphia (on more than one occasion). After a number of agency warnings, the FDA finally charged Park personally with violating sanitation laws.
Park argued that as company president he was too far removed from warehouse supervision to be held responsible. The case was taken to the U.S. Supreme Court which agreed with the FDA – that Park, as president, was responsible for the conditions in the warehouses.
FDA prosecutors hope to use the doctrine to extract stiffer penalties, including up to a year in prison and $100,000 fines. How will we know if the FDA is successful in including incarceration in prison as part of a sentence?
There is a test case to watch. Four executives of Synthes Inc., a company in West Chester, Pa., have pleaded guilty in connection with illegal clinical trials of a bone cement, and are being charged under the Park Doctrine by the U.S. Attorney’s Office in Philadelphia.
Why am I suggesting this tactic (using the Park Doctrine) could help you? If a corporate officer can be found liable for corporate actions the officer should have known about – or – was responsible for preventing, could they also be held responsible for failing to prevent, and properly respond to, or recover from a disaster to their company? Or could they be held responsible for failing to establish a plan to respond to a crisis (i.e. the company’s product injures people because it is contaminated or fails to operate properly)? It’s a good question, one that I’m not equipped to answer. But if the FDA gets its way, it could incentivize executives to be more proactive and supportive of the BC/DR plans in their companies.
Let me end the column with comments made by James Prutow, a consultant to pharmaceutical companies on regulatory matters. Just the talk of charges had caught the attention of his clients.
“Executives are really stepping back and asking, ‘OK, how can we ensure that we are doing the right thing as a company, and also as individuals, so we are not on the FDA’s radar screen?’” said Prutow.
Ed Devlin, CBCP, has provided business recovery planning consulting services since 1973 when he co-founded Devlin Associates. Since then, Devlin has assisted more than 300 companies in the writing of their business recovery plans and has made more than 800 seminars and presentations worldwide.