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This is Wall Street Week. I'm David Weston bringing you stories of capitalism this week. How HHS Secretary Kennedy's FDA criticism hearkens back to its approval of OxyContin and the enormous losses from opioid addiction. Plus what it takes to keep a company on track or get it back on track when it's wandered off. The tale of two very different companies, the Mars Company and global power giant Ennel,
and their particular take on stakeholder capitalism. This is a story about regulation, not too much of it, but instead too little and when it matters most. The new sector of Health and Human Services, Robert F. Kennedy Junior, has accused the Food and Drug Administration of being too cozy with the pharmaceutical industry.
No, you want a present, who's going to end the corruption at the federal agencies?
Our FDA.
In a closed door staff meeting this month, Secretary Kennedy called the FDA a sack puppet, echoing his claim that the agency has been captured by the industry it's supposed to regulate.
Look, these are the companies that gave us the opioid epidemic. They pressured FDA to lie, and they got their way.
A report in Bloomberg BusinessWeek examines how the FDA violated its own rules in green lighting broad marketing of opioid painkillers, sparking the epidemic, leading to years of litigation and ending in Purdue Farmer's seven point four billion dollar bankruptcy plan. Doctor Andrew Kolodney of Brandeis University is medical director for the Opioid Policy Research Collaborative.
If you think about FDA's failure with regard to opioids, it's probably the worst regulatory failure leading to a public health catastrophe in history.
Since nineteen ninety nine, opioid overdoses have claimed over eight hundred thousand American lives. Fentnyl makes headlines now, but the addiction crisis began when FDA approvals led the way to aggressive prescribing for chronic pain. Patients still pay the price. One in thirty two on long term high dose opioids loses their life within two and a half years, and nearly five million are addicted, many just following the doctor's orders.
Estimates of economic loss rise to two point seven trillion dollars in twenty twenty three alone.
The FDA, if it had been following the law, it would have required Purdue to demonstrate that OxyContin was safe and effective for long term. Unfortunately, it never did that, and it allowed produce pharma to promote OxyContin for conditions where opioids are more likely to harm a patient than help them.
Could it happen again.
It absolutely can happen again, and it's been happening. We're seeing FDA put products onto the market despite the concerns of FDA's own external advisory committees that products are not necessarily effective or safe for the conditions that they're being marketed.
The opioid crisis may be the most well known case of regulatory failure in pharmaceuticals, but it's not the only one. Controversy has followed a wave of costly new therapies, including treatments for genetic diseases, cancer, and Alzheimer's.
Because we haven't tried to study or learn from this mistake, we're ready for the next public health crisis to result from improper marketing of a drug that's not safe and effective.
To understand how we got here, it helps to look at the climate at the FDA in the nineteen eighties, a time when AIDS activists and palliative care doctors began pushing for faster drug approvals.
We are simply asking the FDA to do it quicker.
In the fight for the FDA to release all these are possible treatments.
Frank Vacci reviewed opioid applications at the FDA back then, including Produe's first new opioid MS content.
People were going to be on this drug for some time, basically until they died.
He says. Purdue exploited that political moment bypassing FDA directives and launching their opioid without submitting clinical data.
When the company came in and told us what they had done at the actually marketed this product, I was shocked. I was actually star there is a pathway to do this, and they completely ignored it, and they ignored it with a certain amount of arrogance. Also, I mean they actually told us they weren't going to take the drug off
the market. To take the product off the market, which the FDA could have done, would have made FDA the bad guy here that they're essentially denying pain control to people who are dying they had the FDA over.
A barrel emotion trumped standards, and the firm persuaded the agency to defer its plans for action on humanitarian grounds. Purdue was permitted to make a late application for what it was already doing. That late application was exceedingly weak.
There was nothing in there that actually substantiated the duration of effectiveness.
The usual regulatory and scientific requirements need not apply.
I thought the MS Cotton issue was set a bad precedent, frankly, that companies could then do very little or no thing at all, and then market in opioid products. Once precedent is set, then you have a hard time reversing it.
The next opioid on Vacci's desk, a fentanyl patch called dura Jesik, was rejected under the standard. The studies failed, but higher ups created a new fast tracked division and sent the application to a reviewer named Curtis Wright, who approved it. Richard Doblin, president of the Multidisciplinary Association for Psychedelic Studies, got to know right in the nineteen nineties, and what.
I got to understand about Curtis is that he was, when I worked with him, very focused on unmet medical need and that he was not as focused on all of the bureaucratic niceties. You could say that the law required for these two double blind, placeble controlled studies to approve drugs.
At the time, Doblin was researching the division called the Pilot Drug Evaluation Staff for his Harvard doctorate, interviewing officials and spending time inside the agency. He says, Wright was handed a quote license to kill bureaucracy.
So he was a bit of a maverick, a bit of a cowboy, and so he was willing to move things forward through the FDA regulatory system in ways that some of the old guard were not that happy with, and some of those decisions turned into disasters. What he did with opiates was a bit reckless, but this was this experiment to try to see what would be the outcomes if they remove layers of review.
In a pledge to both chronic pain patients and the drug industry, Wright told a conference in nineteen ninety three his narcotics team would do everything that is humanly possible to make it as easy as possible to get these products to market. He was already working with Purdue on OxyContin.
And one of the things that Pilot drug also did that Curtis ro was really instrumental with is having a different perspective on who the pharmaceutical companies were instead of seeing them as the enemy, and that we don't trust them and they're trying to get drugs through just so they can make money, and we need to put up all these obstacles and all these rigorous data gathering things
that they have to do. One of the key innovations I would say that has lasted that Pilot drug put into place was to see a partnership between the regulators and the industry.
Purdue worked closely with Wright. According to a Justice Department investigation, the drug baker behind OxyContin rented a room nearby and spent days helping him write reviews of the clinical study reports and the integrated summaries of efficacy and safety. Meanwhile, the old guard at FDA had been raising concerns. They said the Pilot division lacked objectivity, ignored regulations, and wasn't scientifically rigorous. The agency shut down the division, but OxyContin
was already moving toward approval. A year after Wright left the FDA, Purdue hired him.
The opioid epidemic happened because the Food and Drug Administration dropped the regulatory standards necessary to approve drugs, and with that put opioids on the market labeled for chronic high dose when they were never effective.
Edwin Thompson is president of PMRS, a drug manufacturer based outside Philadelphia.
Whether a drug's effective or not isn't a matter of opinion. It is a matter of data. And if you don't have substantial evidence of efficacy, if you don't have adequate and well controlled trials with statistical evidence, the drug's not effective. It's just that simple.
Thompson began his career in opioids at Johnson and Johnson back in the nineteen seventies. In the nineties, he dealt with the FDA's Pilot Drug Division, where he says he first saw politics start to outweigh science. In his view, it happened with OxyContin and is still happening today.
There are patient populations and diseases that are unsuitably treated. Without question, we all accept them. But approving and labeling drugs as being effective for that patient population when there's no data to support it, there's no substantial evidence of efficacy to support it does more harm than good. It's really wrong, and you can see the consequences. The harm of this epidemic over thirty years is overwhelming.
The greatest epidemic that the America has ever seen.
It's the basic problem that we have the FDA, the law, what the law says, or how the law is being enforced.
The problem is how the law being enforced. We have a good law. The failure was not a failure of the law. The law is good. The law requires well controlled trials that demonstrate safety and efficacy. The problem here was that the FDA did not enforce that law.
The system works, it doesn't have to be bureaucratic, but it's got to be applied, and it's got to be applied scientifically and without bias, and it has to be applied with real methodology as well. And so there were a number of breakdowns in the opioid approval process, starting back with MS Cotton and how the drug ever got approved and when it shouldn't have rad on up to oxycotton and even immediate release oxycodone. Those approvals defy explanation
at the FDA. They're just a series of compounded mistakes on compounded mistakes, and there was no one to be able to step in and to stop them from going forward, and certainly to reverse them as well.
And so.
Where we are today is we haven't made any progress in stopping the opioid epidemic, and we've not made any progress in stopping to approve ineffective drugs at the Food and Drug Administration.
Up next. Every week seems to bring another story of a successful company losing its way. But what about those that don't, or that having strayed, find their way back to what made them great to begin with. We look at the Mars Company and n AL, two major global companies, and what they share in the way they do their business.
You're listening to Bloomberg Wall Street Week with Data Weston from Bloomberg Radio. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is a story about heritage. How a company's heritage can help it succeed, return it to success, or put it at risk when it is left behind.
Without the unabsolute reputation, the safety and consistency, you simply can't compete.
And that's why everybody's worried about Boeing.
Boeing is just the most recent and glaring example of a once great company stumbling in its case by losing its core edge in engineering.
I'm an aerospace engineering Back in the day, I actually work for Boeing. That's where you went if you wanted to work on airplanes.
You couldn't go anyplace else.
You really couldn't.
That's not the case today.
Ron Epstein is a former Boeing engineer who now covers aerospace and defense for Bank of America. He watched as his former employer lost its way. It's far from the only one, but there are also companies that over many years, kept their momentum or even regained it after a stumble or two.
IBM turns one hundred and fourteen this year, one hundred and forty in the technology industry. Think about companies that have lasted a century in the technology industry. They're hard to find because of the nature of technology.
Sam Palmersano spent much of his career at IBM, rising to become chairman and CEO. He attributes IBM's long term success to a deep commitment to innovation.
The Watsons defined that it was about the future and about innovation, and that that's where you should drive. You should drive innovation.
Hello the business School at Yale University has created a program to study what separates the companies that succeed over the long term from those that don't. Some may find the results surprising. They take a back to that notion that has become known as stakeholder capitalism, although many of the CEOs don't find it new at all.
We've interviewed more than one hundred and seventy five chief executive officers as to the practice of this concept of stakeholder capitalism.
John Iwada spent thirty five years at IBM, where he worked closely on innovation and strategy with Sam Palmisano. He is now an Executive Fellow at the Yale School of Management.
One of the things we learned in these interviews is that most of the CEOs felt this wasn't really a departure or anything new, and some of them said this is sound business practice, or it's a return to sound business practice, especially if you think about the long term leading a corporation or an enterprise for the long term.
There are short term pressures or expectations that sometimes getting the way of making investments or decisions that may not pay off for many quarters or even years, So you have to think about that. You may think about non financial commitments to employees, to society, and those are not standardized, those are not accepted measurements and metrics, and so those are soft or squishy, and other factors that come into play here.
I want to learn from his CEO interviews of the challenges leaders face in trying to bring together disparate parts of the company and disparate interested parties, and the key role of purpose in weaving it all together.
CEOs, like every executive comes up through a business or through a professional career in a vertical finance or R and D or sales, and when they get into the CEO chair. Satia Nadella Microsoft set it some years ago in an interview, is then you realize just how multi constituent or how many stakeholders the enterprise actually has. You have shareholders, you have governments, of course, you have customers and employees, you have suppliers, and you have to have
these relationships with all of these constituents. The question is do you manage them piecemeal or do we think of this more holistically. A lot of the CEOs described sometimes they use air quotes. This management system almost an operating system for the company that is based on common definitions of the firm. Some of them say, there are three questions that you have to ask and answer why, what and how? Why do we exist? Which turns into the purpose of the company. What do we do which is
the strategy of the company? And how and that's the culture? And how are we going to show up?
A well known company that has put purpose and values at the core of its operation since it's founding. Is the Mars Company in business since nineteen eleven.
Mars is more than one hundred years old, very successful for a long time. And as we began to talk to management at Mars and members of the Mars family, we learned that they were going through what we would refer to as a founding moment. And why because for much of Mars' history, members of the Mars family led
the company and worked in the company. But the reality today in the future is very few members of the Mars family, perhaps no members of the Mars family will be in management or even work in the company.
The principles and the values are at the heart of who we are.
Victoria Mars is the great granddaughter of founder frank Seymars. She has been on the board for nearly twenty years, three of them as chair.
My grandfather had very strong principles and values, and these principles and values I grew up with without actually knowing that I was growing up with them. So when we talk about the Mars Principles, we're really talking about the
family values that have existed since the beginning. And as the company got larger and it was more and more difficult for the family, specifically at that point my father and my uncle to be around all the associates, to be able to talk about the values and to be able to talk about how we do business, they decided it was time to write them down. The five principles
that were actually written down and defined in the early eighties. Quality, responsibility, efficiency, mutuality and freedom have been our principles since the beginning and they are the foundation of everything we do within the business.
Times change and businesses evolve, something the Mars Company has certainly done. But as much as the Mars Principles maybe updated every few years, the fundamentals do not change.
So they haven't changed. They've just been updated to be relevant. Management helps us and supports us and clearly obviously implements them in our business, but any changes to them, any tweaks to them, anything from the colors to the script to the words, belongs to the family.
A company having principles is one thing. Putting them to use in everyday decisions, not to mention big strategic decisions is something else. Entirely.
It's not a checklist, but it comes up in conversations when we make decisions. And I think that are two things. One is this aligned with the purpose of what we're trying to deliver here, whether it is overall from Mars. You know, the kind of company that we are trying to deliver today is well set up for the world we want tomorrow.
Klass our guard is the Mars Chief financial officer and like all members of management, not a member of the Mars family.
Five principles come up, certainly as a fact check. You know, this doesn't feel like in line with the five principles? Well why not? And you know, and sometimes they're not all equal in every decision. Are we really delivering quality? Are we really directed by the consumer? Or is this mutual to the stakeholders around us When we may make decisions around renegotiating certain things or whatever, you know, we are we true to the stakeholders around us.
The Mars principles underlie the values of the family, but the family also believes it makes the company more successful.
Overall, the principles and the values help us be proud of this company. We do believe that utilizing these principles helps our associates make the right decision, the decisions that create the concept of a win win We are all going to seed together versus let me win and let me see you fail. So I really do believe that utilizing these principles has helped us be successful in business. It helps us recruit good people and keep good people.
It helps us earn trust with government, It helps us earn trust with our associates, It helps us earn trust with communities where we work. So to us, yes, it does make a difference and helps us be successful.
The Mars Company is, at its base, a family company, a global, highly successful one, but nonetheless a family endeavor, which may give it advantages in pursuing its principle based business strategy, but they can also come with some challenges.
There no doubt many public companies with a long history that also has a very great story to tell. We believe we have our own story and our unique vision for the future, while respecting that long term success is also built on continuing to have healthy short term performance,
if you want to call it. That is an ingredient that live well in our context with the way management is set up, with the commitment also of our owners to take a long term view and you know, leave a lot of capital for reinvestment in the company and set some objectives, both financial and non financial objectives that really enables us to do the things that we're doing.
When people used to ask me and say, you know, what is your biggest fear, what is your biggest worry, my response usually is it's not the business. The business really can function very well on its own. It's managing a family. So part of being able to be a family business, to continue to be a family business, requires a lot of energy and effort into working with the family. We have been having annual family meetings for over twenty years.
Our family is continuously there because we're connected to this business. We're joined at the hit by this business. So having the family functioning well and having the family and being able to manage through conflicts that come up, which of course will come up in every family, and being able to work towards a common outcome and common goals takes a lot of work.
The Mars family continues to work hard at pursuing the goals and values it has established since the beginning of the last century. But could a similar approach succeed in a publicly traded company in a very different business. And that's where we turn next to the second biggest power company in the world and how it moved forward by returning to its basic purpose.
You're listening to Bloomberg Wall Street Week with Data Weston from Bloomberg Radio.
The Mars Company has enjoyed a very long and successful history as a family company, pursuing the family's values even as it expanded around the world and into new businesses. But the Yale Project learned from its one hundred and seventy five CEO interviews that Mars shares some approaches with large, publicly traded companies in very different industries. One of them is the Italian power giant Ennel, whose CEO redirected it for a new age by taking it back to its simple roots.
Headquartered in Italy as a global energy generation and transmission company, Francesco Staracci became CEO I think it was in twenty fourteen, and he inherited a company that was troubled, particularly from a stakeholder perspective. You know, from investor standpoint, the stock
was languishing, the company was heavily in debt. They were in this chronic cycle of making mass of capital investments in building new power plants that wouldn't come online in some cases for ten years, and by the time the plant was operational, it was obsolete, and they had these big right offs and so forth. So not got good for the investor. At the other end, they had difficult community relationships all over the world. I think he said, we were at war constantly with communities where we put
plants in they didn't want us there. And for forty years or more, you know, we had these difficult relationships with communities.
Like other CEOs looking to move their companies forward, Staracci studied a future of his business, and like so many others, concluded it laid in technological changes in the very business of power.
The company was already a pretty large I mean, it was big, and it was heavily in debted because of the expansion we had in the preceding years. It had let's say, a cash conversion problem, so there was a lot of revenues that didn't really come up with a lot of cash, and growth was a little bit stalling. It was a company that had to deal mostly with managing that given the size it had. The issue was
we needed to restart growth. But more than that, we needed to, let's say, give clarity about the sustainability of future revenues to the debt markets. You know that that in itself, you know, the size of a debt is a function of the size of the revenues that you can generate to serve the debt. So there was a little bit of an issue at what was the future
of the company going to be. So we had to actually decide what was the trajectory of the company, sell it to our shareholders and also to of course the whole market in a way that it was understand and the ball solid, robust enough to withstand potential shocks, and of course more generative of cash flow. Basically, that was the issue we had to deal with and that clearly had to do with the time and how much time did we have to do that, and also what kind
of pockets of value creation we have left. We had in the company that were not that didn't we didn't really tap well enough.
As you determine the trajectory for growth and for a revenue going forward, how did you find the trajectory that you settled upon.
Basically, we said, where is the technology going? You know, because you can you can ignore technology for a while. It's okay, but at the end of the day, it always catch up with you. So where is the utility sector in the industry that is with it? Where is it going? And what forces are changing these technologies? And we saw at that time we had seen it before
with any in power. I should say that there was a major change in the technology of generating electricity, namely that renewables were becoming competitive, had become already by twenty fourteen competitive with termageneration by enlarge in many parts of the world, and we were not active enough in that space. And that space was going to be where value was going to be created in a major way in the next few years. So we said, how do we catch this train, how do we jump on it, and what can we do?
And was that driven by a revenue stream that you saw out there because of technological change?
I think the revolutionary thing about renewables at that time, the people didn't understand. I think we were maybe the first, the first that understood it consciously and not inconsciously. You know, we actually got and studied and really came with a conclusion that shifting our generation from thermogeneration to renewables, we would increase double the abitam margin, so the amount of
money we would make with the same kilobat hour. And that was a major aha moment if you want, We said, okay, well let's do it, because there's no time to get to be lost here. And to do that, we had to basically completely change our operating model at developing plans and at thinking about generation going forward.
For Staraci, identifying renewables as the growth opportunity for Anna was the first step. But to get there with the growth it promised required the company to move fast, faster than it had ever done in the past.
Imagine, this is an industry that worked before with a time horizon of five to ten years. So you started investing in something and that whatever it was, a power plant or anything else, it would start generating revenues five or ten years after. And we said we shortened that
to three year maximum. Okay, that was a major shock for most people, and those that were impacted were basically the development people, you know, and we said, scrap all the stuff that does not stay in this three year time horizon, and that accelerated a lot the circulation of the capital, I mean, Capita started working a lot earlier than before, and that gave us the momentum we needed
to really kick start the whole thing. I should say it took six months to explain over and over more than one time in this logic, but after that everybody got it, and I would say in a few years we were working at two years not three, so with further strength short in that time. That was a major change.
After some initial resistance, and all employees embraced the new direction because of the opportunities it presented them. But ironically, Staracchi sees this new direction as really a return to the basics of what gave rise to the company in the first place.
The pushback was basically a different one was the fact that we had say, a very limited number of very large investments with which we thought we would continue to grow the company, and applying these three years' role, we would cut the investment size a lot, so the renewable energy projects had smaller, much smaller sizes. So people said, how can we grow because this project are so small, And the answer we gave them is, well, you have
to multiply the number of projects. So instead of having say twenty projects, you're going to have two hundred or maybe four hundred. And that was a major shock because to manage two or three hundred projects at the same time was something a company had never done before. I think at the end it was exciting for people. They needed something and they loved at the fact that they could go at it numerous times, many more times than they ever dreamed.
And every corporation has a culture. Did the culture change under your leadership?
No, it did not. Actually, what happened is that we needed to declutter the cultural space in a way. So, you know, utilities have a very deep culture and very simple one, all of them. I mean, they're all the same. You know, the semantics are important. A utility is useful to people, that's why it exists. And most of the utilities were formed in the past to electrify a space that didn't have electricity. So people got pride in bringing
light to places that didn't have it. That is, the culture of utility is useful to people, to people or businesses, but in a way to society. The rest of the stuff that over the decades were thrown at utilities is noise. So what we had to do is the clatter, all this noise, throw it away and say, guys, we are here for one very simple purpose or not. And everybody agreed to that, and that, I can tell you was
surprisingly identical across geographies. There was zero difference from Russia to the US, from Latin America to Africa, including Europe, it was exactly the same feedback. Everybody said, that's us exactly, we want this. So it was super easy. I just had to eliminate a lot of say, substrata and stuff that were thrown at the utility over the years.
So in a sense, you were not fighting with your heritage, you were returning to it exactly.
We had to go back to it. You know, we had a purpose statement and that was like five sentences glued together and you can read through them. Who wanted to add something and nobody said no, it's so much. So it was a super complex stuff and we just said you know this doesn't matter. What are we for here? I mean, we are useful to society. That's our purpose. So we created a very nice purpose line that was a cent open power. We empower sustainable progress. That's it,
and everybody immediately identified in that. So we didn't really have to invent anything. We had to remove stuff.
The term stakeholder capitalism has become somewhat controversial, a potential distraction from the basics of running a for profit business. But whether you're a global power like no or a global family business like Mars or the one hundred and forty year old IBM, those who actually run the businesses find it to be pretty basic.
Most people run the companies understand that the way you create offit ability, which funds your future investment, is through your innovation and your product lines and your customer service whatever it happens to be. That's how you do it now. Quite honestly, David, because I am old that I am cynical, the CEO should have been doing this anyway. That's what a lot of us were just doing.
And even some of the most troubled businesses are embracing some form of this stakeholder capitalism as the relatively new CEO of Boeing, Kelly Ortwerg, recently told Congress.
Boeing made serious missteps in recent years, and it's unacceptable. In response, we've made sweeping changes to the people, processes, and overall structure of our company. While there's still work ahead, these profound changes are underpinned by deep commitment from all of us to the safety of our products and services.
That does it for us. Here at Wall Street Week, I'm David Weston. This is Bloomberg. See you next week for more stories of capitalism. T