THE BLOG
09/29/2015 06:24 pm ET Updated Sep 29, 2016

Two Capitalist Tales: A Kickstart and a Kick in the Head

These are two tales about capitalism at its best and at its worst. These are true stories because even Hollywood at its brashest could not write fictional scripts better than these to depict the duality of capitalism.

On Monday, September 21, The New York Time's ran two contrasting articles on the front page of its business section. An above-the fold article was titled "Once a Neglected Treatment, Now Expensive Specialty Drug." A below-the-fold article was titled "Kickstarter Focuses Its Mission on Altruism Over Profit."

Given its content, a subtitle for the above-the-fold article could have been "Company Focuses its Mission on Profit Over Patients' Needs." That company is not called Kick in the Head. But it might as well be. It is a start-up business named Turing Pharmaceutical (Turing).

The article reported that in August Turing acquired a 62 year old drug called Daraprim that is the standard of care for treating "a life threatening parasitic infection." Turing immediately raised the price of the drug from $13.50 to $750 a tablet (more than a 5000% increase). According to the Times, this would raise the "annual cost of treatment for some patients to hundreds of thousands of dollars.'

The article appropriately noted that increasing the price of a pharmaceutical after the acquisition of a drug that is a "mainstay of treatment" is not unique. It cited a couple of other recent examples of this practice by other companies.

What made this case unusual is the start-up nature of this venture and the history of Turing's 32-year old CEO, Martin Shkreli. In his 20s, Shkreli started a hedge fund and "drew attention for urging the Food and Drug Administration not to approve certain drugs made by companies whose stock he was shorting. In 2011, he started Retrophin, which "also acquired old neglected drugs and sharply raised their prices."
Shkreli responded to the concern over Turing's raising the price of Daraprim by stating the additional profits would be used for research to improve treatment for those with parasitic infections.

He proclaimed, "This isn't the greedy drug company trying to gouge patients, it is us trying to stay in business." He went on to assert, "This is still one of the smallest pharmaceutical products in the world. It really doesn't make sense to get any criticism for this."

Many in the medical profession, the public and the media disagreed with Mr. Shkreli's assessment and were highly critical of the price increase move. His reaction was to tweet out a line from an Eminem song "And it seems like the media immediately points a finger at me. So, I point one back at them but not the index or the pinky."

The standard retort to that type of gesture when it was flashed back in the neighborhood was to ask "Is that your I.Q.?" By most accounts, Mr. Shkreli is an intelligent young man. So, in this instance, a more proper interpretation could be that Shkreli believes that only one person in the United States matters -- and that person is him.

Shkreli has now closed his twitter account But, a collection of his other twitter transmissions assembled by Katie Halper definitely reinforce and support that interpretation.

Shkreli's kick in the head, take no prisoners, winner take all approach provides one lesson in the type of leadership promoted by and in capitalism. It is the version espoused and practiced by Michael Douglas as Gordon Gecko in the popular 1987 movie, Wall Street, in which he announced "Greed is good."

The approach practiced by Perry Chen and Yancy Strickler, co-founders of the online crowdfunding website Kickstarter, provides a starkly different leadership approach and lesson. Messrs. Chen and Strickler are 40 and 38 years old respectively.

Thus, they are fairly close to Mr. Shkreli in age. But, in terms of business practices and human values they are light years apart.

The below-the-fold article in The New York Times of September 21 was written because Chen and Strickler had just announced they were reincorporating their firm as "a public benefit corporation." The New York Times reports, "public benefit corporations are a relatively new designation....Under the designation, companies must do something that would aid the public (such as Kickstarter's mission to 'help bring creative projects to life') and include that goal in their corporate charter."

According to Mr. Strickler, Kickstarter chose the public benefit corporation route because, 'We don't ever want to sell or go public. That would push the company to make choices that we don't think are in the best interest of the company."

What makes this decision so extraordinary is that the goal of many technology start-up companies like Kickstarter are to become "unicorns" -- businesses that are valued at $1billion or more - and then to go public making their founders and owners exceedingly wealthy.

Unicorns appear to have no appeal for Chen or Strickler. Or, if they do, they are the stuff of legends and antiquity and not of modern-day financial finagling.

One might assume that Kickstarter was not a successful business or that its business model is not viable or scalable and that is why its founders didn't go for all the gold that might be there at the end of an IPO rainbow. This does not seem to be the case, however.

Kickstarter was founded in 2009 and has already had a number of successes such as helping to finance the movie Veronica Mars and the Pebble smartwatch. Chen and Strickler state that their business has been profitable for years and has had profits "in the $5 million to $10 million range for the past three years." They plan to share that wealth going forward by letting employees exercise their option grants for up to 10 years, even if they leave the company, and beginning to pay dividends to employees and shareholders within the next few years.

According to The New York Times, Mr. Chen and Mr. Strickler said that their ultimate hope was that becoming a public benefit corporation would set an example for the next generation of entrepreneurs."

There you have it. Two capitalist tales and two quite different examples.

They illustrate that capitalism itself is neutral. A business can generate profits. Those profits can be reasonable or obscene. They can be horded or shared. They can be a force for making society better or worse.

It is leaders through their decisions and behaviors who chart the direction for a business and determine its trajectory. This is true for all organizations and institutions.

There are a few entities that are evil by design and intent. Most are not. It is the imprint that leaders make on them that define who and what they are.

This is the message that Pope Francis is bringing to the Catholic Church, the world and most recently the United States. This is the message that he brought to the Floor of Congress in celebrating the potential of that once-esteemed body and not its lackluster performance as of late. This is the message that he brought to the Bishops in Philadelphia calling out sexual abuse of the innocent by some of their pastoral colleagues as a problem that must be solved.

This is the message for our times.

There are many capitalist tales to be told in the United States in the 21st century. They can bring hope or despair. They can bring joy or misery. They can bring mercy or neglect.

What they bring will depend on our business leaders and what they preach -- but more importantly, what they practice. Some will practice kicks in the head -- others kick starts. With God's grace and human kindness, the kick starts will prevail.