Merck Costs and benefits for MerckEconomic $20-40 m. Uncertainty of success Third World cannot afford No buyers- give away for free Adverse reactions can impact animal version Reputation Caring Alleviate suffering Organizational Scientists help people, not make money Morale issues Strategic Spillovers in research Entry easier

Merck Merck culture What’s most important resource? Scientists Why do they work hard? Prisoner’s dilemma

Merck B Development cost $20-30 m m. per year x 15 years Product liability costs Moral hazard Underinvestment by countries => reduced incentive to invest in drug development Giving away free Countries may feel entitled to free in the future May come across as PR and insincere But the goodwill needs to be appropriated by the firm, doesn’t it? Should the decision to give away free be publicized?

Merck C,D Core competence problems Brand will be affected by underperformance of clinics Liability issues compounded Monopolization and conflict of interest issues => greater government regulation on pricing Conflict with other drug companies Forward Integration into Distribution Committee of world scientists to certify and assist local programs for distribution Alternative to drug distribution

Summary The decision fit Merck’s corporate mission and culture Alleviation of human suffering Enlightened self- interest Goodwill from governments and people How much to invest? 5% or 50% Beware of your core competence being diluted Forward integration into distribution

Strategic CSR Identify intersection points between company and society Impact on society Dependence on society Select social issues Shared value Anglo American and AIDS Improve labor force productivity Small number and large impact projects Nestle Integration into milk collection and refrigeration Vets, agronomists, etc. Result: standards of living rose For Nestle: stable supply of high-quality commodities, elimination of middleman costs, and increased product demand Prius Volvo Safety Whole Foods