ImClone Systems: Management Ethics Case

Subject: Business Ethics
Pages: 8
Words: 2227
Reading time:
8 min
Study level: PhD


Business ethics is an essential element of the organization structure and culture that aid in the tactics of making conclusions. The concentration of planning and decision making in the business is creating the strategies to meet the interest and purposes of the business for proper organization and profit maximization. The requirement in most of the arrangement for effective management is devising ethical charges and giving guiding to the associates to stand by these charges.

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The Ethical Issues in the Case of (Martha Stewart)

Martha Stewart’s business realm was spread across four key businesses covering eight central content spheres – home, cookery and amusing, gardening, crafts, holidays, weddings and infant care.

On December 27, 2001, Martha Stewart sold 3928 shares of Imclone, a biotechnology company. It would have been a custom transaction had it not been concluded a day before the US Food and Drug Administration refused endorsement for Erbitux, a drug created by the company to struggle colorectal cancer. (Martha Inc, 2005)

Researchers stated that Martha Stewart’s broker, Peter Bacanovic (Bacanovic; worked with Merrill Lynch and earlier at Imclone), who was also the agent for Imclone’s CEO, Sam Waksal, and his two daughters, called Martha Stewart on December 27 to tell her that he “thinks Imclone is going to start trading down.” The call was replied by Martha Stewart’s secretary. Martha Stewart was then on her way to Mexico on her business jet.

She was said to have called Bacanovic and later Sam Waksal from her cell phone, and finally sold her allocates. Waksal, was said to have regarded that the FDA was not aiming to endorse of the drug submission and tipped off family associates to sell their shares. He and his family allegedly dumped a lot of company supply that December

Analysts feel that Martha Stewart would do well to expand MSO’s academic capital and try to create the brand less dependent on her, so that Martha Stewart turns to be to represent a way of life, and not an existing individuality. (Wajda, 2004)

Human resources must steadily be changed into structural or purchaser benefits. According to Brady, “MSO should create on its attempts to widen the brand beyond Martha Stewart, the woman”. MSO is already applying efforts in this sphere. The magazines are now being issued without unnecessary importance on Martha Stewart’s name. The TV shows have also started featuring other specialists in various grounds, reducing their reliance on Martha Stewart. Nevertheless, the imperfection on her name is likely to linger. As Dr. Ken Siegel, a managerial psychologist stated, “Even if she is lawfully absolved, her image as the mistress of homeliness is essentially discolored. It is a disagreement of the marketplace image of unlock, warm and familial”.

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Standard of Ethics for Primary Executive and Senior Financial Officers entails general rules for conducting the business of ImClone Systems Incorporated dependable with the uppermost averages of business ethics, and is aimed to succeed as a “code of ethics” within the connotation of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules disseminated thereunder. (Goode, 2004)

This standard applies to the Chief Executive Officer, Chief Financial Officer and those other primary financial bureaucrats as such Exhibit A may be amended and added from time to time as suitable.

This Standard is created to deter offense and to encourage:

  • Sincere and decent conduct, entailing the ethical treatment of actual or evident disagreements of interest among personal and qualified contacts;
  • Full, reasonable, correct, appropriate, and comprehensible revelation in reports and documents that the Company files with, or proposes to, the Securities and Exchange Commission (the “SEC”), and in any other public contacts performed by the Company;
  • observance with appropriate governmental regulations and directives;
  • Prompt interior reporting of infringements of the Code to an suitable person or individuals classified in the standards; and
  • Answerability for devotion to the Code. (Hoffman, Kamm, 2000)

The Corpse of Directors of the Company also has assumed a Code of Business Conduct and Ethics (the “Company Code”) appropriate to all workers, officers, directors and advisors of the Company. The Principal Officers also are bound by the stipulations set forth in the Company Code relating to principled conduct, disagreements of interest and fulfillment with law.

The main concentration of the corporation was the expansion of the productions that could be applied for the conduct of cancer and other narrated disarrays. It was not until the Food and Drug management rejected the submission for the company to provide the Erbitux that the corporation started exploding in the stock exchange market. Dr. Waksal jointly with his family who had hardly invested in the corporation sold good segment of their divides prior to the result of FDA made public. It was also stated that Martha Steward had already ruled her broker to sell her distributes if the rate decreases to 60 percent. By accident, she sold her divides before the FDA made their choice public. This was the bond of quarrel and confirmation against her.

Ethics of Fair Trade

Dr. Waksal remarked on the Company’s current corporate regulation proposals, stating that as the countryside of commercial ascendancy has modified, so has ImClone Systems’ obligation to realizing policy modifications above and beyond those necessitated in the regions of company governance, responsibility and business behavior.

Over the past thirteen months, ImClone Systems’ senior regulation and its Board of Directors have worked assiduously to put in place regulations and processes that will rule the organization and processes of the Company in a conscientious and ethical method. Dr. Waksal further stated, These modifications entail adopting a standard of business behavior and ethics, a development in lots of managers that must file their stock contracts with the SEC under Section 16 of the Securities Act of 1934, the expansion or modification of contracts for board commissions, and the construction of a Disclosure Committee accused with reviewing public discoveries and ensuring the suitability of those disclosures. (Austin, 2002)

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Fiduciary or Shareholder Ethic

The trust of the investors to these two corporations was not honored when the top officials concluded to dumped their stocks without regarding the interest of the investors. It should be stated that once the insider has been hired into the corporate, he or she should be held the interest of the fiduciary first without violating their trust. This was not the case in the biotech corporation.

Insider commerce is the beneficial owners of the more than 10 percent of the corporation shares. The commerce made by these beneficial without the notice to the public are termed as fraudulent. Dr. Waksal and, his family and close friends bridged this ethics by selling their stock secretly before the FDA made stated their conclusion. This is regarded as violation the duty of fiduciary that they owe to the investors.

ImClone Accounting Ethics

This ethics demands that the managerial offices of the corporation should be free and fair in handling the business transaction as stated by the accounting moral regulations. An informed decision should be made with the involvement of all the key investors of the business concerning any changes that is due to be created in the company. The sale of the portions by Dr. Waksal and his group was not conducted in an efficient and transparent manner. There was a lot of fiduciary and security fraud in the way they control the vend of shares.

ImClone attained a peak market estimation of $5.5 billion in December 6, 2001 – up from $1.5 billion a year – earlier on the market’s skill of Erbitux’s estimation and on the expectation that not even bureaucrats would blithely paid no attention that value. They did. (Austin, 2002)

FDA dealt a harsh blow to ImClone investors by rejecting even to regard Erbitux. The firm’s value has been harshly dependent on the unbeaten launch of the drug. In doing this the FDA has not revealed that Erbitux is dangerous; it has not even rejected that the drug has confirmed to be effective in clinical experiments. In fact, the FDA’s bureaucrat-priests have granted that Erbitux is triumphant – but, they sniff, not beneficial adequately:

Although Erbitux proved beneficial in extending some patients’ lives, the FDA decided the single-arm trial was inadequate and refused to even consider the drug. Now, the company faces the prospect of re-doing the trials, which would add years and millions of dollars to the support of the process.

Erbitux has the capability to enormously assist cancer patients. Even if the FDA had regarded Erbitux – and even if it had offered evidence that the drug was unsafe or reasoned some harmful side-effects – there would have been no justification for preventing probable consumers from knowingly and willingly taking the hazards (and potentially getting the profits) linked with the drug.

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Corporate Governance Ethic

It is essential to realize that good control is significant to the viability and progress of the corporation. A good leader realizes his or her role in an official manner and abides by the regulation and policy of the company. The type of leadership portrayed by Dr. Waksal and his joint family members and the close friends is disgusting and deceptive of the highest order. Inspite of knowing that selling their stock in the company without common notice was wrong, Dr. Waksal went ahead and dumped his shares in the corporation.

He also published a directive that regulates him not to run at a loss in case the stocks exchange of the firm will be going down. Moreover, we saw him advising his close relatives and friend to do the same as what he did to his stock. It is expected, that Dr. Waksal to have taken a posture action of advising and informing the community on the impending troubles that they were about to go through and seek for an immediate step that was necessary to stop such a big loss.

Unfairness towards Martha Stewart

The unfairness of “insider trading” rules and the FDA’s regulatory rules – which are grounded on ignorance and superstition no less than were the rules against “witchcraft” – is portrayed in the ImClone case. ImClone is a mid-sized bio-tech company that has applied the latest innovations in the sphere of biology to make technologies to resolve real world medical issues. ImClone’s brainchild and key production is Erbitux, a drug intended at making chemotherapy more efficient. In accordance to BusinessWeek: ImClone’s Erbitux is intended at making chemotherapy more efficient. These new drugs offer a significant shift in cancer healing.

For much of the last 30 years, the expands have been incremental. Radiation and the tried-and-true chemo therapies each possess their own toxic side consequences. Lately, nevertheless, oncologists have created ways to “sensitize” a growth, making chemo or radiation more efficient at shrinking a cancerous mass while decreasing damage to healthy cells. Erbitux is one of four or five drugs aiming a protein called epidermal increase factor receptor, which exists on the surface of cancer cells and acts a role in their increase. (Martha Inc, 2005)

Attention of Media

As lawyer James Ostrowski clarifies, Martha Stewart is really being blamed of interloper trading. comparatively perceptive participators of the press graciously explain this federal deception as a “novel” or “creative” hypothesis of insider commerce.

A vigorous empowerment agenda directed at a highly obserable and unpopular law breach is surely an effectual means of magnetizing political maintenance for bigger budgets. Given the considerable media notice aimed toward insider trading hearings. It offered a rather attractive matter for such a strategy.

Stewart’s Sentence

Martha Stewart was accused in 2004 after the breakdown of some efforts of applications. About 1500 letters written in her maintenance were got by the judge and in accordance to the judge Stewart had more families and companions whom she was related with and assisted in one way to another. In accordance to the verdict, Stewart was stated guilty of four matters, that is, justice obstruction, conspiracy, and giving false declaration in two junctures.

However she was not stated guilty of the safety fraud which according to the judge was the most and worse violation. As contrasted to Dr. Waksal who was accused for a period of 7 years, Martha Stewart was accused for only a minimum of 10 months, that is, 5 in prison and 5 at home imprisonment. Though there was no considerable confirmation to prove that Stewart was not guilty, her verdict was not excessive contrasted to her accusation.


From this case study on the insider trade case, we can say that management ethics are the key elements in an organization that govern and coordinate the activities of the organization. It is important that every company makes an informed ethical policy and directs the workers to follow and abide by these ethics as stipulated by the policy. The strategy and the quality of a good leader as portrayed by Martha Stewart is one of the pre-requisite for any successful company.

The department of human resource in all organizations should train their workers on business and management ethical behavior with the main assumption that these workers get into the company when they are not aware of any ethics and standard of the company. Lastly leaders should be very careful and attentive when making decisions. They should not rush into a solution even if they are confronted by serious problems. It is important that the executives work collaboratively in solving matters that concern the company.


Austin, E. (2002). Saving the Home from Martha Stewart. Washington Monthly, 31, 9.

Byron, C. M. (2004). Martha Inc: The Incredible Story of Martha Stewart Living Omnimedia. New York: Wiley.

Goode, S. (1999). The Deconstruction of Martha Stewart. Insight on the News, 15, 4.

Hoffman, W. M., Kamm, J. B., Frederick, R. E., & Petry, E. S. (Eds.). (2000). Emerging Global Business Ethics. Westport, CT: Quorum Books.

Martha Inc.: The Incredible Story of Martha Stewart Living Omnimedia. (2005). The Atlantic Monthly, 290, 158-65.

Wajda, S. T. (2004). From Catharine Beecher to Martha Stewart: A Cultural History of Domestic Advice. The Historian, 66(2), 355.