The Negative Impacts Of Bayer’s Pharmaceutical & Agrochemical Products
This was the sentiment echoed across the globe in 2016 when pharmaceutical giant Bayer proposed a takeover bid of the notorious agro-chemical titan Monsanto. With the purchase finalized and confirmed by regulators in 2018, Bayer has now ditched the Monsanto brand in order to escape the publicity associated with “the world’s most evil corporation.” Bayer is a for-profit corporation based in Leverkusen, Germany. Bayer itself is the 5th largest pharmaceutical company in the world and with Monsanto, the two companies now combine for over $42 billion USD in 2017 revenue alone. The last few decades have left Bayer and Monsanto with a slew of lawsuits, all due to a lack of investment toward holistic shared value.
Identifying and Analyzing Stakeholder Concerns
Due to the global ubiquity of Bayer’s pharmaceutical and agrochemical products, the negative impacts of its operations have been far-reaching. The stakeholders that have been negatively impacted the most are the consumers of the products, the communities in which these products are being used, and the environment and ecosystem in which pesticides are being irresponsibly dispersed. To analyze the stakeholder characteristics and concerns, let’s dive into the specific cases of each.“Pregnancy test’s alleged link to birth defects to be reviewed by UK regulator”, “Papers Indicate That Bayer Knew Of Dangers of Its Cholesterol Drug”, “Bayer division 'knowingly sold' HIV-infected protein”.
These newspaper headlines indicate a key concern for consumers that Bayer will produce and market dangerous and deadly products, the consequences of which are often not felt until decades later. In the 1970’s and 1980’s Bayer sold blood-clotting agents targeted toward Hemophiliacs. These proteins were found to contain HIV and Hepatitis and infected 10,000 individuals in the United States alone. Months after the product's withdrawal from European and North American markets, the product was knowingly sold with HIV in Asia and Latin America. Another instance of this blatant endangerment of customers is when Bayer continued to sell the popular drug Baycol months after executives knew that there were major problems associated with the drug.
Bayer was smacked with over 9,400 lawsuits associated with muscle degeneration issues associated with Baycol product side-effects. Bayer’s lobbying budget of over $7 million USD and it’s massive in-house litigation team is often able to stave off the majority of lawsuits solely due to the company’s vast resources. This leaves consumers concerned over whether or not they can trust the products they’re purchasing in life-or-death concerned medical situations.
Another set of stakeholders that is deeply concerned are the communities in which certain Bayer products are used and/or are present. A California jury awarded $289 million USD to a plaintiff exposed to the pesticides RoundUp and RangerPro in a landmark case that brought forward over 8,000 new cases against Bayer in 2018 alone. This ruling came on the heels of a report detailing that RoundUp and other Bayer pesticides had shown up in two-thirds of tested commercial oat samples at twice the guideline amount. The negative externalities of these products are seated in their carcinogenic nature and are causing long-term health problems to unsuspecting individuals.
The largest key stakeholder is the environment and the individuals whose livelihood relies on the well being of the said environment. A 2018 study published by the National Academy of Sciences in America is yet another study linking glyphosates (found in RoundUp) to the rapid decline in bee populations. Three-quarters of the global crops require pollination in order to grow properly. Without sufficient bee populations, ecosystem regulating services would be completely thrown out the window. For example, US bee populations have gone down by 40 to 50 percent in the past decade, which is causing serious shortages and lower crop yields in California.
These environmental externalities will lead to a collapse of agriculture if trends continue, which is a cause of great concern to farmers and conservationists alike. However, the final key stakeholder that Bayer values above all is the shareholder. All of the proposed solutions must legally put the shareholder first. However, Bayer’s reckless abandon of shared value principles has ultimately led to shareholders becoming dissatisfied, and stock prices have fallen for 3 consecutive quarters.
Opportunities & Solutions
Bayer’s history of disregarding substantiated claims against their products has landed them in thousands of ongoing lawsuits. This has also lead to the company cultivating a brand image that has turned away potential investors and driven the company’s stock price to av5 year low. Bayer must move away from fighting against global trends towards creating shared value and shift its focus towards providing meaningful solutions to stakeholder concerns if it seeks to remain competitive in the future. Considering Bayer’s history of selling pharmaceuticals causing severe chronic illness to thousands, and the ensuing cover-ups from Bayer management; Bayer must redefine its value chain by strengthening the research and development of products.
The lawsuits and ramifications of the blood-clotting and Baycol scandals explained earlier cost Bayer over $1.86 billion USD in settlements, and over $3 billion USD in product loss. These two scandals could have been avoided by fulfilling more extensive investigation and research into the products beforehand. Partnering with an organization such as the World Health Organization (WHO) in order to facilitate transparent drug developments and trials would create shared value for both external stakeholders and Bayer itself.
The increased transparency and assurance of external oversight would boost investor confidence while utilizing the resources of an international organization that has already expressed interest in supporting drug oversight. In turn, the increase in testing would mitigate the risk of another large scandal and subsequently lower the number of drug-related lawsuits. In the medium to long-term, this initiative to redefine aspects of Bayer’s value chain would significantly cut costs but increase investor confidence.
Next the company needs to address the concerns over widespread public exposure to pesticides leading to cancer and other long-term health impacts. The European Union has already passed a motion banning RoundUp and other similar pesticides starting in the year 2022 due to Bayer’s inability to keep the pesticide contained to the crops themselves. Although altering the chemical compound itself in order to eliminate these health risks may not be possible, it is possible to alter the way in which the RoundUp gets to the targeted plant. Bayer must reconceive how the product is administered and tailor it to the limitation of human exposure.
Currently, the product is applied through aerosol spray both industrially and in small-scale gardens; this method leads to pesticides being inhaled by users and the surrounding community. Instead, the company can provide a option that would spray out the pesticide as foam, eliminating the ability for the pesticide to integrate with the air and still providing significant utility. This solution is unfortunately a small compromise between shareholder interests and protecting the health of the public. Sales of RoundUp make up the vast bulk of the business and the elimination of this product would most likely lead to insolvency.
In turn, this solution wouldn’t require Bayer to change their public stance that RoundUp is not a carcinogen. If Bayer were to admit that RoundUp is a carcinogen then the legal battles Bayer is already drowning in would have increased legitimacy, not to mention the public pressure for politicians to ban the pesticide around the world. Although this solution does not truly eliminate stakeholder concerns, it allows Bayer to lose very little in terms of cost or strategic positioning, while allowing it to limit gross public exposure to the chemical.
Lastly, Bayer’s approach to its environmental impact could be the most impactful in creating shared value for both parties. Bayer’s agro-chemical division (formerly Monsanto) relies on pesticide and pesticide-resistant seeds to fuel its $14.6 billion USD business model. A continued decline in the bee population would lead to a large decrease in food production, especially in corn and soy, two crops that make up 60% of sales for that division. In turn, Bayer can strategically foster local cluster development within the agricultural hubs that it has a vested interest in.
Bayer can use its vast resources to invest in and create a large network of beehive farms. Bayer could then use this network to sell pollination services to farms with a shortage of natural bee presence. This is already happening in America on a very small scale, however, the bees have to come from across the country and from a number of different vendors. This has been utilized in order to satiate California’s need for twice the number of bees currently within the state, although even with these efforts California has still suffered a severe almond shortage causing global prices to skyrocket.
This solution would require an upfront investment, however, it would fuel and sustain Bayer’s main agro-chemical sales, while introducing a new revenue stream. At the same time, this will provide marketability and better brand perception by helping alleviate concerns regarding declining bee populations. Bayer is faced with a massive product liability case, due to the precedent set by the California cancer ruling. If Bayer had integrated shared value principles into its value proposition to customers as few as a decades ago, these massive liabilities would not exist. However, looking forward, Bayer can adopt these solutions in order to increase investor confidence and therefore raise the plummeting stock price, increase positive public perception, limit public health risks, and potentially create profitable new revenue streams in the process.
