I have just had the pleasure of spending two weeks on holiday in Costa Rica.  It was my first time abroad since the start of the pandemic and I loved every minute of it.  At WKM, I think we offer a good amount of holiday allowance as it is so important to switch off and relax.  Heading to Central America provided the first proper break I’ve had since we started WKM, where I completely turned everything off and left things in the capable hands of my colleagues.  Having time off allowed me to read a couple of books and watch some interesting things on Netflix.  I would encourage everyone to read Empire of Pain by Patrick Radden Keefe and watch Downfall: The Case Against Boeing on Netflix.  Whilst they are based on different industries, there is a commonality between the two stories. 

Empire of Pain is the story of the Sackler family and the sale of the drug OxyContin through their business, Purdue Pharma.  The Sackler family were worth $14billion according to Forbes in 2016.  You might not be familiar with the name unless you have visited some of the world’s best known museums or universities in the last decade.  The Sackler family have donated significant amounts to have their name attached to exhibitions and wings in museums such as the Metropolitan Museum of Art and Guggenheim in New York, the V&A Museum, Tate Gallery, National Portrait Gallery in London, the Louvre in Paris and the Smithsonian in Washington amongst others.  They’ve also had their name attached to universities and donated to Oxford, Cambridge, Imperial, Glasgow, Edinburgh, Sussex, Harvard, NYU, Yale, Cornell, Columbia, Brown, Tufts, Rockefeller and Tel Aviv.  This level of philanthropy gave the family kudos and respect.  However, as the book highlights these donations were derived from selling the highly addictive opioid, OxyContin. 

The thing that struck me was the difference between the external projection of the family image compared to the way that Purdue Pharma was managed internally.  The lack of corporate governance and disrespect for social welfare in their goal to maximise profit at any cost was appalling.  Yet at the same time, the Sackler name was respected by some of the most prestigious organisations in the world.  They managed to legitimise the prescription of OxyContin despite widespread abuse.  Once patients were addicted, they often needed a bigger hit so moved to other opioids, such as fentanyl and heroin.  In the US, more people died in 2020 from opioids (68,630) than either firearm deaths (45,222) or vehicle traffic deaths ((40,698) source; CDC).  Disney have made a drama based on the Purdue Pharma story called Dopesick, starring Michael Keaton, which I’ve heard is very good but I haven’t got a Disney Plus subscription. 

The book suggests that part of the problem was that Purdue Pharma was owned and run by one family and there was no oversight or challenge to corporate behaviour and culture.  However, the Netflix documentary Downfall: The Case Against Boeing shows that even large corporates run by a board of non-executives can fall foul of poor corporate governance in the goal of maximising profit.  Boeing’s complete lack of appreciation for safety was difficult to comprehend (I’d flown to Costa Rica on a Boeing 777!).  A key focus of the development of the 737 Max series of planes was to ensure that the new plane would not have to go for approval to the regulator (FAA) or require new pilot training, as both issues would take time and be costly.  The frightening result was that the pilots of Lion Air Flight 610 in Indonesia, a year after the launch of the 737 Max, did not know of the new MCAS software as it wasn’t included in any training or operating manuals.  Therefore, when erroneous data caused MCAS to misfunction, the pilots didn’t even know it existed and had no chance to save the plane.  Even if they had known about it, Boeing gave pilots 4 seconds to diagnose and react to turn off MCAS when it went wrong.  The focus of minimising cost and barriers to entry for Boeing were a key driver of developing the 737 Max, which were at the cost of safety.  However, even after the Lion Air crash and Boeing knowing what the cause was, they still didn’t react in the way that you would expect if they had cared about safety.  They publicly primarily blamed pilot error.

The crash of Ethiopian Airlines Flight 302 in March 2019 had similar characteristics to the Lion Air crash about four months prior.  MCAS was again the problem.  Despite most of the world banning the new 737 Max after the crash, the FAA still issued an affirmation of the continued airworthiness only for President Trump to call for the planes to be grounded.  The way that Boeing had developed the plane was purely focused on maximising profit.  However, Boeing’s lack of empathy and care to the families who had lost loved ones in the crashes showed the behaviour and culture of the company was wrong.  Their attitude and transparency in subsequent investigations and hearings showed a similar lack of understanding and care to passengers.  Dennis Muilenburg, the Boeing CEO, was sacked in December 2019 and left the company with about $58m of benefits.

The airline and pharmaceutical industries are two sectors that you would expect safety to be central to every process and management teams would be aware of the potential damage their products could cause.  However, Boeing and Purdue Pharma highlight that this expectation that management teams prioritise safety was misplaced.  It also highlights that regulatory oversight in the two industries placed a lot of trust and faith in company management to ‘do the right thing’.  Good corporate governance is often taken as a given, which is not the case.  Good corporate governance comes from a good culture and the right behaviour and attitude of senior management, irrespective of whether the company is privately or publicly owned.

I would urge everyone to read The Empire of Pain and watch Downfall: The Case Against Boeing.  The stories highlight that you can’t take things for granted and that the emotion of greed is powerful and can drive poor decision making.  When we invest with management teams, we always speak to them to see if we could trust them.  Most corporate management teams are good salespeople so outright fraud is nearly impossible to spot, however you can often get a feeling from speaking to management teams if they have the right sort of traits to manage money.  If you want to learn more about how we manage portfolios, please get in touch with any of the team. 

I would also urge everyone to take a proper break from work every now and again, it’s important and beneficial; you and your work will be better for it.

Thanks for reading.