Corporate Governance – Why it is Necessary
- Posted by admin
- 22 August 2013
Ranbaxy Laboratories, the creator of the cholesterol-lowering drug known as Lipitor, or atorvastatin, has recently announced that its plant in Mohali is not in any trouble with the US FDA after having received a Form 483 which indicates that the practices used to manufacture the drug are not in compliance with FDA regulations.
Manufacturing Has Stopped
As of now, the Mohali plant is no longer manufacturing Lipitor for sale in the United States. This comes after Ranbaxy’s shares dropped to a low that had not been seen in over a year due to the issuance of the Form 483. The company used to hold a 55% share of the country’s market when it comes to statin drugs; however, the recall of 41 lots of 10, 20 and 40mg tablets due to the suspicion that they may contain very small pieces of glass changed all of this. Ranbaxy also states that the Mohali location will resume manufacturing and subsequent shipping of Lipitor to the US in coming months.
The CEO of Ranbaxy Laboratories, downplayed the severity of the receipt of the Form 483 from the US FDA claiming that the form only provided information regarding the FDA’s observations regarding the plant and had no impact on any regulations that apply to the plant. He also noted that the FDA has not conducted any investigation or inspection of the plant in 2013. It is thought that the release of this statement was to boost the confidence of Ranbaxy’s various investors and shareholders.
Poor Corporate Governance
The fact still remains that the Form 483 was issued to the Mohali plant several months ago but this was never disclosed to investors and shareholders until now. The reasoning behind this according to a representative from Baring Private Equity is that companies in India are not required to disclose the receipt of this form. Because of this, Ranbaxy chose to keep this sensitive information to itself rather than disclose it to their investors. Of course, this has backfired significantly as the confidence of consumers—and therefore shareholders and investors—has been significantly compromised due to poor corporate governance.
The Law vs. Good Practices
It is important to note that Ranbaxy has not broken any law; however, this does not mean that failure to disclose such information is a good business decision. Whether or not the law actually requires a company to disclose sensitive information of this nature should not be a concern. Rather, the company should always disclose such sensitive information in order to boost its image with transparency and respectability.
Poor governance is a quick way for any company to lose credibility, not only with the consumers who purchase its products, but also with investors and shareholders. Once this credibility has been lost and the company’s reputation has been impacted, it is difficult—if not impossible—to get this reputation back. This is why good corporate governance is so important in countries around the world regardless of legal requirements.