Sustainability is not just how a company manages its impact on natural resources, but also how its governance processes preserves its value for stakeholders. A recent case in point is the firestorm of Mylan Pharmaceuticals and its steep increase in the price of one of its flagship products, the Epi-pen. The Epi-pen is used to quickly administer a drug to a person experiencing anaphylactic shock, a life-threatening reaction to allergens.
Many children use of Epi-pens. When back-to-school time rolled around this year, many parents were stupefied by the dramatic rise in the cost for this life-saving device for their children. Because of the way insurance coverage worked for this drug for many people, Epi-pen users or their parents bore the brunt of the increase.
The fervor was so great that an investigation was launched and it was found that Mylan’s compensation. The company’s CEO spent quite a bit of time defending her company’s pricing. However, the compensation incentives implemented by the company are perceived to be main driver of the crisis. to The CEO of the company recently testified to Congress.
The stock has lost about one-fifth of its value since then. Was the short-term profit worth it? I don’t think any shareholders except for the executives would agree. What is the cost of Mylan’s lost reputation? Likely much greater than the drop in stock price. Mylan will have a much more difficult time getting market acceptance for a new drug. What doctor is going to want to prescribe their patients a drug from a company known for price gouging?
Sustainability Accounting Standards Board standards include governance as one of the five components that are embedded in the standards. SASB standards provide companies with a cost-effective, proven way to demonstrate to investors that their sustainability practices add value to their company. The SASB standard for Pharmaceutical companies includes an accounting metric for the company’s practices on price increases. If Mylan had used this metric as a guideline its governance and pricing decisions, there is a good chance its stakeholders would not have suffered the loss in value they are now.