Corporate leaders destroyed by their own greed

It’s been a bad run for caring capitalism. An unvarnished display this week was the monstrous rapaciousness unleashed when captains of industry lack any sense of social responsibility or personal morality.

First there was business boy wonder Martin Shkreli’s inadvertent self-immolation, metaphorically speaking. Then there was the slow motion crash of Volkswagen, the world’s second biggest motorcar manufacturer, a pile-up which in time will be cited as a textbook example of how to destroy an iconic international brand.

Shkreli, the son of working-class East European immigrants to the United States, is a business genius. He launched his own hedge fund at the tender age of 23 and recently snapped up the rights to Daraprim, an anti-malarial drug also used as an anti-parasitic to treat those whose immune systems have been compromised by chemotherapy or HIV.

Daraprim costs about a dollar a tablet to produce and was selling for $13.50. Since there is no generic substitute for Daraprim, the situation was perfect for Shkreli to exploit his monopolistic advantage to hike the price by more than 5 000%, to $750 a tablet.

As the morally tone deaf business titan phrased it on Bloomberg TV, “We needed to turn a profit on this drug. The companies before us were actually giving it away almost.”

The other ethically challenged businessman of the week is Martin Winterkorn, chief executive of Volkswagen. Or should we now call it Vokopswagen?

Winterkorn has presided over the most sustained act of corporate chicanery uncovered in a long time.

It has come out that the German motor manufacturer has since 2009 evaded US environmental regulations by installing some canny software that switched on the power- and fuel-sapping engine emission mechanisms only when the car was being tested. For the rest of the time the almost half million “clean diesel” VWs on American roads were actually spewing pollution unchecked.

The ruse was exposed by independent investigators who were puzzled at the discrepancy between the performances of VW diesel cars in the laboratory as opposed to when they were actually on-the-road. They discovered some VW diesels were emitting 35 times the legal limit of pollution.

In response, the US Environmental Protection Agency (EPA) ordered VW to fix what was the assumed to be a mere technical glitch. When VW could not do so, the EPA — often derided as toothless — showed its mettle. It started doing its own testing, as well as grilling VW employees. The existence of the fiendishly clever computer code was soon exposed.

VW has been ordered to fix the vehicles — an expensive modification that will hammer VW financially — and EPA fines will be in the region of $16 billion, which equates to double the retail price for each car affected. Criminal charges are likely to follow.

This is by no means the end of VW’s woes. It now transpires that another 11 million VWs, mostly in Europe, were also fitted with the law-breaking software, which means that there are fines looming in multiple jurisdictions.

The financial damage to VW is already substantial. Its share price has dropped by a third and it faces class-action suits in the US, on top of the billions already imposed in fines.

Winterkorn has gone. While protesting that he did not know of the wrongdoing, he after a few days bowed to the inevitable and resigned. Other top-level exits are sure to follow, since a deception of this scale and sophistication clearly must have been approved at executive level.

The upside of these two incidents is that they demonstrate that while legal regulatory mechanisms can fail, the public can, if sufficiently outraged, exact even harsher sanctions than the law.

While Shkreli was legally entitled to increase the price of his drug, the American public anger expressed on social media has taken its toll. He is now backpedalling energetically.

And while the fines will be dent VW’s bodywork, far more serious is the loss of consumer confidence. It is difficult to see VW’s North American operation surviving the sales slump that will inevitably follow the revelations of the past few days.

Of course, whatever the failures of caring capitalism, they are nothing compared to the failures of smug socialism. Shkreli backed down and Winterkorn had to resign. Compare that with one Hlaudi Motsoeneng, chief operating officer of that government mouthpiece, the SA Broadcasting Corporation. Motsoeneng lied about his qualifications and has run the SABC like a personal fiefdom. Instead of being shown the door, his board has just given the nod to a 31% salary increase, amounting to an extra R1 million.

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