Behaviouronomics: Serpico Effect

When it’s easy to cheat and steal in a system, the psychological forces of incentive caused bias and social proof tendency feed each other and result in a very dangerous phenomenon where the system becomes hostile towards the honest participants.

In 2004, a US-trained young research executive joined an Indian generic drug company. In the first few months of his employment, Dinesh Thakur was not only appalled but utterly shocked to learn about the widespread unethical practices in the company. Upon further investigation, he was flabbergasted to discover the extent to which the firm, Ranbaxy Laboratories, had provided false data to the World Health Organization (WHO).

Ranbaxy had been seeking prequalification — which enables pharmaceutical companies to sell their products to WHO member countries — for drugs used by HIV patients in South Africa. The U.S. was the largest buyer of these drugs…[Thakur] discovered a company culture that not only tolerated fraud, but also apparently celebrated and encouraged it among its employees. He found that the company was playing fast and loose with its testing of drugs. The company had taken shortcuts, never tested their products before they released them to the market and fabricated data in its clinics to prove they would work in patients. (Source:Fighting a culture of fraud)

Ranbaxy board ignored Thakur’s findings and was asked to leave the company. However, the story doesn’t end there. Thakur decided to do something about this problem. He reported it to U.S. FDA (Food & Drug Administration). It took eight long years for FDA to investigate the fraud. In 2013, Ranbaxy pleaded guilty to the charges and was fined $500 million. Thakur collected $48 million for his whistle-blower role.

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