There’s No Pill for Collective Blindness — CEO Daily, Wednesday, 18th October

October 18, 2017, 11:43 AM UTC

Good morning.

I was in Washington Sunday, and started my day reading The Washington Posts story on how the drug industry won passage of a law in 2016 that weakened the DEA’s ability to stop excessive opioid shipments. It’s an impressive piece of reporting—if a little perplexing, for reasons I’ll get to.

It was followed Sunday night by a coordinated takedown on 60 Minutes, where ex-DEA agent turned whistleblower, Joe Rannazzisi, said the big three drug distribution companies—McKesson, AmerisourceBergen, and Cardinal Health (numbers 5, 11 and 15 on the Fortune 500 list)—were “out of control.” That led President Trump yesterday to scotch his nominee to be drug czar, Rep. Tom Marino, who had championed the legislation. No doubt there was cheering in the Post newsroom. This one is headed for the Pulitzer committee.

Back to the perplexing part: I had lots of questions as I was reading Sunday morning. For instance, why didn’t a single member of Congress oppose the legislation? Or for that matter, why didn’t the DEA or the Obama administration oppose it? Why was Rannazzisi unable to get anyone to take his side? And for that matter, where’s the evidence that DEA enforcement was having any significant effect prior to the change?

The National Review apparently had similar concerns, and dissects them here. And Sen. Orrin Hatch, who was involved in passage of the bill, went on the attack. “Did the entire U.S. Congress decide to shield its eyes to the true sinister intent of this legislation?” he asked rhetorically. “Let’s not pretend that DEA, both Houses of Congress, and the Obama White House all somehow wilted under Rep. Marino’s nefarious influences.”

But here’s the thing: the big three drug distributors do need to take responsibility for clearly abusive shipments of opioids, as Fortune’s Erika Fry demonstrated in this piece on McKesson earlier this year. The Charleston Gazette-Mail won its own Pulitzer this year for an investigation that showed between 2007 and 2012, an eye-popping 750 million pain pills were shipped to the state of West Virginia alone—or 433 pills for every man, woman and child in the state. More than half of those came from the big three. In the age of big data analytics, why do we have to wait for a newspaper investigation—or DEA action—to alert us that something is amiss? Shouldn’t the drug distributors have done more to both spot and police the problem? You bet.

News below.

Alan Murray

Top News

Xi’s the One

Xi Jinping opened the Communist Party Congress that will determine the shape of China’s leadership for the next five years with a promise of deeper economic and financial reform, and greater openness to foreign investors. He also nodded to ongoing corruption problems—especially at state-owned enterprises—and pledged to “cultivate globally competitive world-class firms.” Elsewhere, The Wall Street Journal speculated that Xi may use the Congress to prepare an extension of his own personal rule beyond the next five years, which would represent a dramatic break from the term limits China has observed for the last 25 years. Fortune

IBM Sees a Light at the End of the Tunnel After Going 0 for 22

IBM reported falling revenue for a 22nd straight quarter, but its stock rose 4.5% as it predicted it will break its losing streak in the final three months of the year, thanks to sales of its new mainframe computers and ancillary services. The drop in revenue appears to have bottomed out, falling only 1% to $19.15 billion in the last quarter, while operating profit also beat expectations marginally due to a growing share of Cloud-based revenues in the sales mix. Bloomberg

SEC Says Rio Tinto Lied About Its Money Pit

The SEC charged former Rio Tinto CEO Tom Albanese, and his CFO Guy Elliott, with fraud, alleging that they had misled investors about the scale of losses on a coal project in Mozambique. The charges have been a long time coming. The mine, bought for $3.7 billion in 2011 and sold for only $50 million a few years later, was one of the highest-profile disasters in the mining sector’s bet that China’s demand for all commodities would remain insatiable forever. U.K. regulators meanwhile said yesterday they will fine the company some $35 million for the incident, the largest-ever levied for a breach of listing rules. A separate criminal investigation into Rio’s acquisition of an iron more mine in Guinea is still ongoing. FT, metered access

Teaching GE to Think Like a Startup

In Fortune’s November issue, we are running an excerpt from Eric Ries’s new book The Startup Way. You can find a taster of it in this piece that we ran on yesterday, in which he gives a blow-by-blow account of persuading GE executives to adopt a more entrepreneurial way of thinking. Fortune

Around the Water Cooler

Reckitt: Split It—and Sell It?

Consumer products group Reckitt Benckiser is splitting into two business units, ‘Home & Hygiene’ and ‘Health’, respectively, in an effort to revive flagging sales growth and squeeze more value out of its richly-priced purchase of baby food maker Mead Johnson. The separation is in line with a trend toward greater focus among FMCG conglomerates, and the new health business appears to be a prospective buyer of Pfizer’s consumer health business. CEO Rakesh Kapoor declined to comment on such speculation though. Reuters

Soros Goes All In on Philanthropy

George Soros transferred $18 billion—“the bulk of his wealth”—to his Open Society Foundation, making it one of the world’s largest philanthropic non-profits. Its focus on politically sensitive topics such as economic governance, judicial administration and human rights have caused it to be unpopular in some countries, notably his native Hungary. In eastern Europe in particular, it has been the target of criticism that has often been nakedly anti-Semitic. Fortune

David Dao Officials Disciplined

Two of the officials who were filmed using excessive violence to evict Dr. David Dao from an overbooked United Airlines flight were fired by the Chicago Department of Aviation. Another two were suspended. CNN

Mea Culpa, Sua Culpa, Everybody Culpa

Roy Price resigned as head of Amazon’s movie studio in the wake of allegations of sexual harassment and complicity in covering up the misdemeanors of Harvey Weintsein. In related news, a showrunner made the first public allegations of sexual harassment against Weinstein’s brother and former business partner Bob, while Scott Rosenberg, a screenwriter who enjoyed considerable success under Weinstein’s patronage, wrote an excoriating attack on the movie industry’s decades-long complicity, not sparing himself. Fortune

Summaries by Geoffrey Smith;


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