Valeant's Secret Division - Business Ethics Essay Example

Valeant is a drug company that most investors eyed due to its hot stocks. They felt like giants in the entire drug industry and found no need to develop or conduct market research. As a result, they decided to purchase rival companies to reduce competition which was an unpopular decision in the drug industry. It was accused of using Philidor pharmaceuticals to artificially inflate its sales. Ties between Valeant and Philidor were informal leaving investors in the dark. There were allegations that top officials in the two pharmaceutical companies had struck a deal for personal gain.

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Fraud was not the only mistake they committed but also breaking laws to the extent that Valeant employees worked at Philidor. As a result, investors lost confidence in the greedy company. Little did they know that the scandal was worse than expected. The two companies had struck a secret deal worth $100 million ("Valeant Pharmaceuticals Scandal," n.d.). A special committee was formed to investigate the scandal. Andy Davenport, the CEO of Philidor, obtained $40 million and kicked. The executive made this decision out of greed and self-interest. However, Valeant claimed that Philidor only contributed to 7% of its total sales. Once the scandal was revealed, Valeant suffered a great hit with a 75% decrease in shares. Danvenport was arrested and charged with fraud leading to a further 5.5% decrease in shares.

The fall of Valeant began when it started making losses as a result of accumulated debts. Besides, they sold some of their drugs at prices higher than the market price. It is then that the Southern Investigative Reporting Foundation exposed the relationship between Valeant and Philidor. The fraud has impacted negatively on Valeant's stocks that have crashed by 90% since the scandal was revealed.

Scandals are making news headlines daily in most countries (Markham, 2015). Therefore, it is necessary for organizations to conduct regular audit exercises to ensure there is a strike between assets and liabilities (Mintz & Morris, 2011). For a company to make sales, there must be purchases, labor costs and manufacturing costs. Thus, there should be a clear record of all merchandises. For instance, if Valeant pharmaceuticals had clear records of merchandises, it would be easy to reveal the corporate scandal which cost the entire organization.

Errors in financial statements can be identified early enough if a regular fraud editing process is conducted in all organizations. Through this process, areas at high risk of fraud can be identified, and as a result, there would be minimal cases of theft.

A company that is selling products and providing services is expected to incur direct and indirect costs in the process. However, the company should cater to manufacturing and operational costs and earn profit through sales. In most organizations, profits are consistent over a given period. So, if there are considerable differences in the amount of profit earned in a given period, a company should identify the main cause of variation as soon as possible. Nevertheless, not all changes in profit margins signify theft or fraud. Differences may arise from increased competition or high product prices. Companies can eradicate fraud by comparing their performance with similar organizations. Also, they can conduct regular analysis, cash flow, percentage, and ratio analysis, of financial statements.

References

Markham, J. W. (2015). A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform. Hoboken: Taylor and Francis.

Mintz, S. M., & Morris, R. E. (Eds.). (2011). Ethical obligations and decision making in accounting: Text and cases. New York, NY: McGraw-Hill/Irwin.

Valeant Pharmaceuticals Scandal. (n.d.). The SAGE Encyclopedia of Business Ethics and Society. doi:10.4135/9781483381503.n1225