Purdue Pharma has given up the ghost. The company faced $2.2 trillion in state and consumer claims, as well as $18 billion in sanctions from the federal government.
The company will be reborn, but as what?
Balrogs v Trial Lawyers
Yes, Middle Earth has its wizard-killing Balrogs. But what creatures, for bloodthirsty, flesh-ripping rage, can top U.S. plaintiffs’ lawyers and federal prosecutors?
What’s new and interesting here is not Purdue Pharma’s death — small potatoes compared to Enron — but the company’s rebirth.
Tolkien fans may recall that, after falling in his battle with the Balrog, the wizard Gandalf the Grey is reborn as Gandalf the White.
Gandalf 2.0 is not only whiter and brighter than his previous incarnation but more powerful and pure. He is what his former wizarding boss, Saruman the White, was meant to be.
Temptation and Fall
Saruman the White has, alas, broken bad. His lust for the One Ring of Power has corrupted his initial desire to protect the people of Middle Earth; ultimately, he wants only to rule them.
The movie version of the Lord of the Rings shows this moral downfall by turning Saruman into a factory owner with some serious workplace-safety and environmental issues.
Rebirth or Just Rebranding?
What does this have to do with Purdue Pharma?
Well, through the magic of the U.S. bankruptcy code and state law, Purdue Pharma is, cleansed of its sins and claims, to been reborn as a public benefit corporation (“PBC”).
Unlike regular for-profit corporations, a public benefit corporation has among its end goals the promotion of some wholesome cause.
PBC Board members must seek not just profits but “the best interests of those materially affected by the company’s conduct, and the specific public benefit outlined in the company’s charter.”
For Purdue, what might this benefit be? The company’s chairman has suggested using profits from non-opioid sales to provide free, or at low cost, millions of doses of lifesaving opioid addiction treatment and overdose reversal medicines.
Temptation and Fall 2.0
Two issues arise. First, how transformative can this rebirth be if largely the same set of people remain in place? Gandalf the Less Grey? Gandalf the Off-White?
Second, what should we make of the public-benefit-company model, especially as a tool of federal prosecutors?
Giving Boards of Directors divergent goals (profit v. public benefit) makes it harder to hold Directors accountable. This invites corruption and waste.
Moreover, transformation into a public benefit company as part of a plea agreement transfers wealth. This transfer takes place without legislative approval in the form of taxation and appropriation. That violates fundamental separation of powers.
The One Ring of Power in Tolkien’s stories symbolizes power’s Faustian allure. Those tempted to use the One Ring for good become corrupted by it and instead do evil.
The most self-aware heroes in Tolkien have the sense not to even touch the One Ring.
That hasn’t happened with Purdue Pharma.
We’ll see how the story turns out.