H1N1 and the Limits of Corporate Social Responsibility

The current issue of The Economist looks at how the idea of "corporate social responsibility" is faring in the downturn. The answer is mixed: Corporate giving is down, but companies and their customers seem to be keeping up their interest in sustainability.

Take candy makers Mars and Cadbury: Both have committed to making their cocoa production environmentally sustainable by 2020. Why? Because they're worried about environmental degradation ruining their cocoa supplies over the coming decade. Wal-Mart meanwhile recently announced to 1,000+ of its Chinese suppliers that it would be holding them to higher environmental standards, higher expenses notwithstanding. The reason: They calculated that if these suppliers cut down on their packaging, Wal-Mart could knock out more than enough transportation-related costs to compensate. At the same time, consumers continue to keep up the CSR pressure: Marks & Spencer research indicates that 40% of us still have a clear preference for ethically sourced products, as long as we don't have to pay too much of a premium.

If, like Wal-Mart, companies can make sustainable sourcing and fair trading cost-neutral while winning with consumers on the CSR front, why not go for it?

But in some industries, the big CSR issues aren't so easily resolved. INSEAD recently released a timely case study in point, examining initiatives the Swiss pharmaceutical company Roche has taken to ensure that sufficient quantities of its influenza drug Tamiflu will be available in the event of a worldwide flu pandemic. As the World Health Organization assesses once more whether to raise the alert level on the swine flu / H1N1 outbreak to phase 6 -- a formal pandemic -- the INSEAD case study helps put trickier CSR situations like Roche's into relief.

Tamiflu is one of a few antiviral drugs that's effective against H1N1. If a flu this nasty were not only to go pandemic but kill tens of millions, and public opinion were to determine, rightly or wrongly, that Roche was in a position to prevent these deaths yet didn't, the fallout could do the company in.

Since the late '90s, though, Roche has invested in developing the (until now hypothetically) necessary stockpiles -- setting up a worldwide manufacturing network at its own expense, granting sub-licences to companies in China and India, sharing technical knowledge with another firm in South Africa, and encouraging underdeveloped countries to manufacture generic versions of Tamiflu (which you can do in those markets without violating Roche patents). On the WHO's request, Roche deployed a rapid-response stockpile of three million treatment courses of Tamiflu, over and above the two million already held in reserve by the WHO itself, and has since upped the supply.

Not too shabby, for a big pharma company. But the deeper issue is what longer-term CSR obligations Roche's Tamiflu patent should imply. After all, as INSEAD professor of operations management and one of the authors of the case study, Luk Van Wassenhove, puts it, "Companies are not philanthropic entities."

Is it appropriately up to Roche to make Tamiflu available cheaper or for free to poor populations? Tougher still, how should the company think about prioritizing the drug's distribution? The easy answer is, hand it over to the WHO. But the reality is, there's no effective supply chain in place for delivering a drug like Tamiflu in low- and middle-income countries -- meaning that once a flu strain starts spreading fast enough, there's no way to do "rapid-response" distribution, regardless of what you call your stockpile.

Roche can invest a decade and hundreds of millions in building up an emergency supply of the drug, but without new ways of distributing it, it won't get to those who need it when they need it. So the question is, how much corporate responsibility can society demand from a firm like Roche apart from demanding that governments and other non-corporate interests reciprocate?