FAMILY ENTERPRISE IN THE SPOTLIGHT: KEY TAKEAWAYS FROM THE SACKLER FAMILY ENTERPRISE STORY

By Patricia Angus

Introduction: Prior to the COVID-19 pandemic, the opioid crisis was considered by many to be the greatest public health threat to the well-being of Americans. As the crisis evolved, it became increasingly tied to the name of one family: Sackler. Over time, numerous Sackler family members were sued, the family name was tainted, and major charitable organizations turned their backs on some of their most generous donors. Much has been written about the crisis and the Sackler fam- ily’s role in it. Thousands of lawsuits have been filed against the family. There is no shortage of information on this story. Yet, there has been little discussion of the implications of this experience for other family enterprises. What can business-owning families learn from the Sackler story, even as the story evolves?

Brief Background

he Sackler family enterprise story has Over the past century, there are a few pivotal been widely reported. A blockbuster moments in the history of the Sacklers’ fam- T New Yorker article provides both ily, businesses and philanthropy. Sophie and chronology and criticism. Books including Isaac Sackler arrived in the US as immigrants the just-released Pharma include extensive from Eastern Europe in the early 20th century. background, especially as it relates to the de- They settled down in Brooklyn, where they velopment of Oxy-Contin, the painkiller at raised three sons – Arthur, Mortimer, and the center of the crisis. Artists and activists Raymond – and owned a grocery store. Their have led protests, hosted performance art ex- sons all pursued medical degrees, focusing on hibitions, and pursued a formal effort to raise psychiatry. Arthur became known for trans- awareness and seek redress from Sackler in- forming medical advertising, especially the volvement. The family has been highlighted promotion of valium in the post-WWII years. in Forbes lists of billionaire families, among The three brothers went into business to- numerous other public profiles online and in gether in the early 1950’s, taking a small print. There is also extensive coverage of the pharmaceutical company and growing it ex- countless lawsuits that have been filed and ponentially in the ensuing decades. are pending. Following a brief review of some historical highlights, this article poses Mortimer and Raymond took the lead in the four key questions with related takeaways. business, especially after the purchase of the company that would become . Upon Arthur’s death in 1987, his estate sold Historical Highlights his company shares to the rest of the family. In the mid-1990’s, Purdue Pharma intro- duced OxyContin as a “miracle” drug that

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would provide pain relief through a time re- questions that help pinpoint the key takea- lease formula that was positioned as being ways to date. less addictive than its competitors. Ray- Question 1: Were all Sacklers at fault? mond’s son, , led the com- pany for a period of time, but for the most The question of “fault” is quite complicated part executive leadership positions were held in this situation. Even though lawsuits in- by non-family professionals. Multiple family cluded family members who had no day-to- members from both branches held positions day involvement in the business, it’s not en- on the board of directors. tirely clear that they all had actual knowledge of the business’s activities. Further, it’s un- The company first came under scrutiny in likely that any Sackler family member could 2007 when a lawsuit was filed against it for have singlehandedly stopped or changed the the promotion and misuse of OxyContin. At business practices that caused the crisis. that point, the company and several top exec- However, there is one fairly clear distinction utives paid civil fines. The company then ob- that the press has been reluctant to draw, and tained FDA approval of a re-formulation of which has impacted all descendants of the OxyContin that was purported to be less ad- original three brothers. And that is the fact dictive. Richard and other family members that that, after Arthur’s death, his descend- on the board received extensive communica- ants were no longer owners of the company tions from company staff about sales and as it developed and marketed OxyContin. marketing strategies related to the drug. While many observers and pundits will cast There is evidence that company executives guilt upon Arthur for his medical marketing were alarmed about the widespread mis-use practices, it seems quite overreaching to con- of OxyContin as the opioid crisis became sider his heirs responsible for actions that oc- more public. In one HBO documentary, Pur- curred after their ownership ended. Indeed, due Pharma was specifically highlighted as a Arthur’s daughter, , has leading cause of the crisis. Despite public called Purdue Pharma’s role in the opioid cri- scrutiny and staff discomfort, the board sis "morally abhorrent." A few articles have placed continued pressure on the company to made note of the distinction, but they are in increase sales and profits. By 2016, the opi- the minority. oid crisis was widely acknowledged to be a Takeaway 1: It doesn’t matter whether fam- public health issue in the US. By 2017, law- ily members were actually aware or involved suits were filed against the company, and this in what was going on in this case. The courts time the suits included Sackler family mem- – and the court of public opinion – did not bers by name. Media coverage was relent- hesitate to cast aspersion across all descend- lessly focused on the role of the Sacklers. The ants of Sophie and Isaac Sackler. This is a family eventually sought to settle the law- cautionary tale. All members of a family that suits. In September 2019, Purdue Pharma de- owns a business must be aware and under- clared bankruptcy. stand the actions and behaviors of the busi- ness and of other family members. Each must assess whether the ethics practiced by Key Takeaways others match their own value system. And if What can families, particularly those who not, they must determine what they can do to manage and govern their businesses, learn make changes. For it is clear that you can be from the Sackler story? There are several key

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deemed to be at fault through no fault of your own. Question 3: Why were some of the family’s Question 2: Why were family members who philanthropic donations rejected or returned? were not active in the business sued for the Charitable organizations, especially large company’s activities? cultural institutions, rely heavily on the tax Despite the assumption that “family busi- advantaged contributions of major donors nesses” are run by family members, most such as the Sackler family. There have long Sacklers, including those on the board, had been assertions that these good deeds are at- very little involvement in day-to-day busi- tempts by families to “greenwash” their ne- ness operations. Top executive positions farious activities. Indeed, some family donors were filled with non-family members for explicitly use their donations as an attempt to quite some time before the crisis hit. This un-do some of the harm done by ancestors. should have provided protection for the fam- But, until recently, charitable recipients have ily under the long-held legal principle of the rarely rejected a donation based on a donor’s “corporate veil.” This legal concept main- behavior. The Sackler story shows that this is tains that a corporate entity is to be consid- no longer the case. In an age of 24/7 media, ered separate from its owners and board. Un- the court of public opinion has been brought der this theory, so long as proper corporate to bear on the non-profit sector. The treat- governance formalities are followed, a com- ment of the Sackler family today is only a pany can be sued but its owners and board harbinger of the type of scrutiny that may be cannot. There are limits to this protection, applied in the future. however, and any owner or board member Takeaway 3: The relationship between do- should be aware of that. Board members are nors and charitable organizations is increas- not supposed to be directing day-to-day oper- ingly being held to a higher moral and ethical ations. And if they are considered to have standard, and not just in the US. Source of known, or if they should have known, of ac- funds matters for the charitable recipient, as tivities that violate civil or criminal laws, the much for legal as for public relations pur- protection disappears. That’s what happened poses. Think about how you make your for- here. The allegations point to knowledge and tune if you intend to use it contribute to good involvement of family members, especially causes later. those on the board, that actually went beyond the usual “one step removed” knowledge of Question 4: How did we get here? non-managing owners and board members. So, how did Sackler family members who Takeaway 2: If you’re on the board of a fam- weren’t even involved in the business be- ily business you must understand your legal come the subject of public ire? How did fam- responsibilities and protections. Clear ily member owners and board members be- boundaries should be drawn between day-to- come so involved or knowledgeable about day business vs the roles of owners and board day-to-day business that they risked losing members. Further, the corporate veil should one of the most fundamental legal protections not be assumed to provide protection. As a available – the corporate veil? And how did practical matter, it is best to have the com- the philanthropic world turn against some of pany you own live up to the values and prac- its most generous donors? There are no sim- tices that you stand behind. ple answers to these questions, which go far beyond the Sackler family enterprise story.

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Takeaway 4: As a member of a family enter- prise, you’ll need to look to the past (includ- Patricia Angus Esq. ing family and business history) and future as is an adjunct professor and Managing Director you consider your role and potential implica- of the Columbia Business School Family tions of the actions of others. Clear values, Business Program. She is the CEO and founder of Angus Advisory Group LLC. transparent governance, respect for rules, and open communication are more important than ever. They’ll protect you, your family, the en- 1 terprise, and perhaps most importantly, soci- The author wishes to acknowledge research assistance ety. from Mayra Afzal, School of Inter- national & Public Affairs ’20.

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