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Even our trusted doctors have a price? March 21, 2007

Posted by Meg in agency theory, Business-Society Issues, pharmaceutical, Public Interest.

A set of records from the state of Minnesota show that certain pharmaceutical companies are paying high profile doctors and making substantial donations to clinics throughout the United States. This information became apparent due to a Minnesota law stating that drug companies must disclose all payments made to doctors. Patient advocacy groups are concerned about this revelation and the influence that various drug companies may, in fact, have over doctors.

Since 2005, drug companies have paid health care workers $57 million in the state of Minnesota alone. Most doctors, however, assure the public that these payments do not influence their treatment of patients, but are merely to give marketing talks. Some even state that close ties between doctors and drug companies enable those in the medical field to be more educated about various prescription drugs and more able to advise their patients on whether or not and how to use these drugs in a healthy way.

Research exists, however, to indicate that doctors with a close relationship to various drug companies often prescribe more modern (as well as expensive) drugs that may not be in the best interest of patients. Due to public scrutiny of various pharmaceutical companies and the FDA as well as reasonable evidence indicating that numerous medications are over-prescribed, these records may concern more patients who wonder whether their doctor’s advice is in the patient’s best interest or the doctor’s.


Agency Theory, Home Depot, and Stakeholders January 24, 2007

Posted by Jordi in agency theory, Retail, Stakeholder management.

There was a lot of media coverage of former Home Depot CEO Nardelli being paid too much in his severance package. Today, Home Depot announced that they would pay the new CEO “only” $8.9 million. And, 89% of this is based on performance.

Home Depot, under fire by critics who charged that it overpaid former Chief Executive Robert Nardelli, on Wednesday said the 2007 compensation package of its new CEO was valued at $8.9 million, with 89 percent of that at risk based on company performance.

This seems like a fine example of the agency problem discussed in Chapter 2. The former CEO’s compensation of $210 million (in severance!) was because he had an information advantage in terms of evaluating his performance. Who was on that board, anyway? Did it have outside directors? Traditional arguments will say that this is what the “market will bear.” One flaw I see with that argument is that market theory assumes equal information. Because the former CEO’s pay was divorced from the actual market performance of the company, he took advantage of the agency problem.

Home Depot, now, as an organization, has to deal with some irate stakehodlers. To induce their contributions, it has modified its policies.

What role did institutional investors like CalPERS play in this?