The Top Line

November 30, 2012 8:01 pm

‘Tis the season to be wary as gifts roll in

It’s that time of year again.

The time of year when the in-trays of procurement managers, regulators, not to mention doctors and journalists, fill up with unsolicited gifts from companies.

It’s not just at Christmas that there’s a deluge of freebies. Business gifts are rife – politicians get them from lobbyists, retailers get them from suppliers. The pharmaceutical industry in the US, according to one estimate, spends between $8,000 and $15,000 a year on “marketing” to each physician in the country, often in the form of luxurious dinners or trips away.

There is, of course, some legal and regulatory control of freebies. In the US the Honest Leadership and Open Government Act of 2007 has been one reason why pharma companies, in particular, have faced escalating fines and criminal sentences related to questionable marketing. In 2009 Pfizer paid a record-breaking fine of $2.3bn for aggressive marketing practices.

In the UK gift-giving – when it crosses the line in the sand – falls under the 2010 Bribery Act. The line in the sand, though, is rather blurry – what constitutes bribery rather than corporate entertaining is a “know it when we see it” issue for the Serious Fraud Office.

It is sometimes puzzling why companies give presents to journalists. A lot of the gifts are not very nice (diaries) or, if they are nice (expensive bottle of wine) have, in the FT’s case, to be handed over to be raffled off for charity.

But recent research adds to the case that companies are no fools for, year in year out, spending their sharepayers’ money this way. Indeed people seemed to be more influenced by getting a present than you would suspect.

There is a great deal of evidence that gifts induce co-operation. Research shows that, even though subjects are well aware that a gift is given to influence their behaviour, they nevertheless reciprocate.

And it doesn’t take a large gift, or one paid for directly by the giver, to do the trick. Research published this week* by Berkeley’s Ulrike Malmendier and Klaus Schmidt of the University of Munich shows that subjects respond to small gifts, even if their incomes are large. And the effect seems actually to be significantly stronger when the gift comes at the expense of a third party – so is not paid for personally by the giver, but by, say, the shareholders in the company making the gift.

All of which suggests that companies giving gifts to those they want to influence in their favour is highly effective and that the guidelines governing their use should be concomitantly strict.

Some gifts it is clearly wrong to accept. David Cameron admitted earlier this year that he had ridden a retired police horse, lent by the Metropolitan Police to Rebekah Brooks, former editor of the News of the World. He had spent days denying having done so, aware that the horse had come to represent the cosy relationship between senior politicians, News International and the police.

But in a week when the Leveson report has reminded journalists once again about the standards of behaviour the press should adhere to, we would all do well to remember that gifts create obligations. And beware the bearers of them.

* You Owe Me, discussion paper no. 9230, Ulrike Malmendier and Klaus Schmidt, Centre for Economic Policy Research

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