Free Essay Sample - Purdue Pharma

Purdue Pharma is one of the famous pharmaceutical companies that produce narcotic painkillers. Despite its performance, the company has been experiencing challenges in managing its finances. In 2008, the family that owns the company transferred $1.36 billion to overseas accounts (Rowland, 2019). The amount of money was part of the profit that was distributed outside the firm. Usually, the transfer started when the firm was fined for misleading marketing of the powerful prescription drug (Rowland, 2019). Since 2000, the opioid crisis has been associated with more than 400,000 deaths in the United States (Milford, 2019). As a way of protecting the company from lawsuits, the management filed for bankruptcy (Milford, 2019). Despite the proceedings, there was no clear illustration of what happened to the many billions taken outside the company (Joseph, 2019). As a way of defending the money transfer, the company management argued that the deposit was used to pay the loans (Associated Press, 2019). However, Massachusetts had provided a lot of evidence before the law court to show the role of the Sacklers in what happened to the company (Milford, 2019). Sackers illustrated that the lawsuit contains misleading and inflammatory allegations (Schott, 2019). The linked email provides powerful information regarding the performance of the company. The approach illustrated the failure of the board, thus risking the lives of many.

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The Corporate Governance

Based on the articles, the company has been experiencing corporate governance issues, and this has triggered its failure. A few years ago, the board of Purdue Pharma was run by eight Sackler family members. Due to the negligence of the board, the company experienced an opioid crisis, which facilitated the provision of misleading marketing information. In this case, the conflict of interest among members was perceived to the cofactor of the opioid crisis (Milford, 2019). Due to conflict of interest, the directors of the company paid themselves a large amount of money (Associated Press, 2019). For instance, Ralph Snyderman, who was chairman of the board, was paid $ 168,887 in 2015 (Milford, 2019). Accountability is another critical corporate governance issue that is clearly outlined in the articles. As a way of hiding the identification, the family had transferred a large amount of money overseas. In regards, it was indicated that the money was used for payment of the loan (Milford, 2019). Lack of transparency among the board had forced the family to file for bankruptcy (De Haan and Vlahu, 2016). The approach would assist in overcoming many lawsuits that had been filed against the company (McCahery, Sautner, and Starks, 2016).

Like other countries, the United States and Australia are so concerned about corporate governance. As such, the two governments are driven to ensure transparency in corporate governance, which is a critical aspect of economic development (McCahery, Sautner, and Starks, 2016). Additionally, transparency encourages companies to create a strong background that attacks investors, thus boosting company growth (Yermack, 2017). Through the approach, it is easier for an organization to understand the risks, thus controlling from any form of mismanagement (Clarke, 2007). The government of the United States strives to ensure the directors present the interest of shareholders (Associated Press, 2019). The approach assists in minimizing issues that may arise due to conflict of interest among members (De Haan and Vlahu, 2016). As such, companies are required to deploy mechanisms that are designed to mitigate possible risks to protect the interests of shareholders (McCahery, Sautner, and Starks, 2016). In this case, the welfare of stakeholders should be the key objective that drives corporate governance.

In Australia, corporate governance is associated with regulations and the personal liability of directors (Samra, 2016). As such, the board of directors is supposed to be accountable for all activities, which is a critical aspect of maintaining the organization's performance (Yermack, 2017). Through this aspect, the government manages to control individuals from engaging in activities such as fraud, which may ruin the running of a firm.

The Insight that Agency Theory Provides into These Issues

In an organization, agency theory is critical in explaining and resolving issues, especially those that are associated with business rules and stakeholders (McCahery, Sautner, and Starks, 2016). According to the theory, corporate governance is mandated to reduce costs in production, thus improving organization performance (Samra, 2016). Among the problems facing Purdue Pharma, the agency theory illustrates that both the principals and agents have a vital role in controlling the condition (Madhani, 2017). Due to the issues that arise because of the separation of control and ownership of a company, the theory encourages the need to deploy different mechanisms to mitigate them (Yermack, 2017). As such, it is the role of corporate governance to protect the interest of the company, thus protecting the agency's trust (Samra, 2016). The board of directors is required to lead in problem-solving, thus promoting a good relationship with the stakeholders (Madhani, 2017).

Additionally, the theory protects an organization from being run by greedy leaders who are driven by individuals’ conflicts (Madhani, 2017). Through the approach, boards are encouraged to protect both the short and long term interest of the company (Samra, 2016). The approach assists the board to effectively focus on the future of the company, thus preventing greedy individuals from ruining the firm (Yermack, 2017). When a company is run by greedy individuals, there are high chance that there may be a rise in corporate governance issues (McCahery, Sautner, and Starks, 2016). Therefore, the theory emphasizes that stakeholders should be given the right to run the organization by deploying individuals that best fit their interests.

Other Corporate Governance Theories

According to the case study, corporate governance issues can effectively be understood by the application of stewardship and stakeholder theory (De Haan and Vlahu, 2016). Usually, stewardship theory highlights that boards are responsible for taking care of all activities and assets of an organisation (Samra, 2016). In this case, the theory focuses on trustworthiness in all aspects of an organization (De Haan and Vlahu, 2016). As such, it restricts individuals from engaging in activities that favour personal interest (Madhani, 2017). In this case, the support of company interest should drive managers on the kind of activities they engage in.

Being pro organization impact the board to focus on company goals, thus promoting transparency in all level of management. The stakeholder theory emphasizes that all parties, such as employees, boards, supplies, and much more, have a great impact on how an organization is run (Aguilera, Judge, and Terjesen, 2018). As such, the theory focuses on the morals and values that individuals are supposed to deploy to promote moral values (Madhani, 2017). The theory encourages that managers are supposed to be accountable for all activities taking place (Samra, 2016). Therefore, any form of mismanagement should be accompanied by consequences (De Haan and Vlahu, 2016). As such, it could be illegal for the management to provide misleading marketing information as they are concerned about the future of the company.

The Corporate Governance System of the US.

The United States is one of the countries that are highly concerned in protecting the interest of stakeholders, which form the base for economic development (McCahery, Sautner, and Starks, 2016). In this case, the board is supposed to operate in a manner that protects and promotes the interest of shareholders. As a way of protecting the interest of the company, there is a need to establish a good relationship between shareholders and the board (Samra, 2016). Through this approach, it will be easier to ensure all activities are conducted according to the shareholder interest. The approach controls the board from running according to individual interests (De Haan and Vlahu, 2016). Furthermore, the government emphasizes that the corporate governance system in a company should operate on the notion of protecting the welfare of shareholders (Samra, 2016). The approach helps to protect the company’s value, thus generating more advantages to society. As such, stakeholders are motivated to pull more resources, thus triggering the growth of the company.

Additionally, the corporate governance system in the United States is protected and regulated by the law. Corporate law aims at creating a good relationship between the shareholders and the board (McCahery, Sautner, and Starks, 2016). The law also protects the interest of the entity, thus controlling from any external factor that may influence its performance (Dimopoulos and Wagner, 2016). Usually, a company should operate as a separate entity, which controls owners from interfering with its performance (McCahery, Sautner, and Starks, 2016). The company is protected by the law from owners’ interference, thus operating according to the interest of shareholders.

Companies are also prevented by the law from engaging in activities that interfere with the public welfare (Aguilera, Judge, and Terjesen, 2018). For instance, the government of America was supposed to act according to the law when Purdue Pharma was facing the opioid crisis, which triggered to death of many people (Yermack, 2017). In this case, the company was supposed to be sued for violating corporate law and engaging in activities that violate public welfare (Samra, 2016). Enacting a law to control the kind of behavior corporate governance system engages in assists in protecting the needs of multiple stakeholders such as customers, local society, and much more.

The recommendations as to how corporate governance systems could be improved in both Australia and the US.

Due to the effectiveness of corporate governance, there is a need to improve its performance. As a way of improving, there is a need to increase diversity (Aguilera, Judge, and Terjesen, 2018). Diversity is a crucial performance aspect that prevents the board from embracing individual interests in the running of the company (Samra, 2016). Deploying competent board members provide the skills and knowledge that influence the performance of the corporate governance system (McCahery, Sautner, and Starks, 2016). Governments should encourage the application of timely information, which continuously provides shareholders with data on how an organization is performing (Dimopoulos and Wagner, 2016). Furthermore, it is crucial for the board to have a prioritised risk management approach. The approach controls all activities that an organisation engages, thus controlling risks activities that could undermine its performance. Additionally, it is crucial to engage a continuous evaluation process (McCahery, Sautner, and Starks, 2016). By evaluating the board's performance, it is easier to detect any form of error that may occur, thus controlling an organization from running at a risk or loss (McCahery, Sautner, and Starks, 2016). Furthermore, evaluation may assist in understanding the weaknesses and strength associated with the board thus, deploying new ways to improve the performance.