GLAXOSMITHKLINE ETHICAL CONDUCT
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Part A
Product Quality Loss at GlaxoSmithKline
In 2012, GlaxoSmithKline (GSK) was charged with unlawful promotion of prescription drugs, intentionally concealing vital safety data, and for supposedly reporting false price for its drug products. The charges leveled against the company were related to the release and marketing of Wellbutrin and Paxil while the safety data issues surrounded the consumption of Avandia (Fox 2013). While GSK paid the highest ever fine by a drug company in the United States, the real focus in this scandal was the loss of quality control within GlaxoSmithKline ranks. At the root of this problem, several factors emerge that contributed towards the drop in quality and ethics in production of drugs at GSK.
Considering that it is a drug company whose products were consumed by humans, the issue of product quality was very significant for the company and other stakeholders. Ordinarily, physicians work as medical professionals who autonomously sought the safest and most affordable drugs without placing much consideration on deadlines, economic value or investment opportunities. However, in GSK, physicians were forced to place deadlines, economic value or investment opportunities as the main priorities when developing drugs. The result was that GSK illegally marketed Paxil as a depression drug for patients below the age of 18 without the approval of the FDA that would have cleared it for pediatric use (Bass 2008). Paxil and Avandia both had their research reports alteredto misrepresent results orskim over negative results. While being quite effective in treating depression, Paxil was discovered to exhibit adverse side effects for instance, birth defects and a propensity to be suicidal (Fox 2013).Laboratory officials working at the GSK facilities admitted that they had fraudulently altered the contents of the research reports during the trail phases and offered wrong testimonies later on during the diagnoses. On the other hand, Avandia also displayed negative side effects including heart attacks; a feature that was not highlighted in the official reports.
Furthermore, in the 2012 GlaxoSmithKline case, the government released information that the company contributed towards arranging, publishing and disseminating a deceptive medical journal article that provided erroneous reports that when tested at the clinic, Paxil exhibited high levels of success in treating depression among underage patients, when in reality, the study failed to show an efficacy (Bass 2008). By allowing deadlines, economic value or investment opportunities to be the main priority, GSK lost sight of their main objective that was to develop life saving drugs and make scientific researches that would shine light on unaddressed medical fields. By having an aggressive economic outlook, GSK experienced a major ethical lapse that resulted in lower product quality (Fox 2013).
Leadership Failure Concerning Ethics at GSK
From the onset, it is evident that the numerous corruption scandals haunting GlaxoSmithKline is enough evidence that the drug multination has been unable to enforce its ethical and compliance controls successfully. The leadership in GSK failed to model the company values of enhancing the health and welfare of people globally and being transparent and sincere in all their operations. Armed with these values, it is very easy to place an argument that the GSK leadership served the interests of the stakeholders before those of the beneficiaries. The leadership failed to uphold the company values in different local and overseas branches leading to scandals at home and in China (Brown 2005).
The leadership strategy in GSK was also responsible for the integrity failures in the company. GSK’s pay-for-promotion policy was the major cause behind the drop in ethical standards and the causative agent in the 2012 $3 billion lawsuit filed against them (Brown 2005). The pay-for-promotion policy was designed to ensure that physicians would be paid to promote GSK pharmaceuticals and medical equipment in local and overseas markets. This policy also ensured that sales staff were reimbursed based on the volume of prescriptions written by physicians. While the pay-for-promotion tactic has been used countless times in marketing, outreach and education sectors, its application within GSK came at a cost to the ethical standards (By & Burnes 2013).
At the helm of operations, Andrew Witty was similarly to blame for allowing the company to lose track of its vision, values and key objectives. By slowly diverging from the main goals, GSK transformed from an international drug manufacturing company into a profit-centered enterprise. Leadership within the company has also failed to comply with stringent directives laid down by other regulatory bodies. In the case concerning the state vs. GSK, it was discovered that the drug company had released a powerful drug without the clearance of the US Food and Drugs Administration (FDA) (Brown 2005; Fox 2013). Such casualness in handling and distributing potentially harmful drugs displayed a flaw in the leadership’s ability to maintain ethical standards within the company. In conclusion, the fact that corruption scandals involving GSK were happening in large scale, it would be prudent to assume that the leadership was aware of the corruption and turned a blind eye towards it. By choosing to distance themselves from scandals, the leadership failed to correct the flaws involving ethics and compliance that existed within their ranks (Fox 2013).
Part B
Executive Summary
GlaxoSmithKline (GSK), a drug manufacturing multinational was recently placed under investigation for supposed bribery in one of their Chinese subsidiaries. It was alleged that some of its higher-ranking executives had engaged in activities that contravened Chinese law, contributing towards the company’s difficulties in a rising controversy concerning its code of conduct and style of operation. Under the leadership of Andrew Witty, GlaxoSmithKline has been able to make impressive growth and influence the lives of numerous societies; the company has also been the center of corruption and unethical practices especially in its overseas establishment (Fox 2013). This application of double standards has raised a lot of concern from ethical groups, company board members and other stakeholders triggering an investigation into the issues.
Introduction
Business ethics as a subject enjoys growing significance especially within corporate and academic circles. The developing society has formed an intricate market that has coerced many corporate bodies to observe regulations and pressures surrounding the exhibition of ethical practices and decisions. Due to these changes, most multinationals have embraced codes of conduct to aid in controlling ethical situations. In a similar vein, many large corporations have been in the limelight because of their participation in unethical practices. GlaxoSmithKline represents one such multinational. The drug company was ensnared in a major criminal suit presented by the Government of China that revealed the corrupt methods implemented by its top officials (Fox 2013). The major issue surrounded the bribery claims that handed out to influential persons that occupied different levels of the Chinese medical system. Four GlaxoSmithKline executives were detained while three other pleaded guilty to the charges. The corruption was made possible through a network of supposed ‘middlemen’ who created the link and made transfers to medical practitioners and other players. Besides painting the company in a bad image, the corruption scandal in China pointed towards a flawed code of conduct particularly in its formulation and implementation (Fox 2013). This issues forms the core of the discussion in the successive sections.
Background of the Scandal
The healthcare sector in China is characterized by high operational costs and bureaucracy. Healthcare expenses and prices for drugs are extremely sensitive matters in the country. Over the years, the country’s regulatory bodies have attempted to enforce price restrictions on pharmaceutical products (Fox 2013). In 2013, the government initiated an industry-wide investigation to establish which drugs presented a financial strain for Chinese citizens. These efforts are a clear indicator that the Chinese healthcare sector was a perfect environment for companies that intended to lower operational costs and maximize profit margins. In such a setting, GlaxoSmithKline became victim to the appeal of bribing medical officers (Fox 2013). The bribing scandal shed light on the apparent lack of controls in the company’s activities in overseas locations that were far from the supervision of the mother company. Part from the bribing charges, GSK was charged with intentionally withholding information on hazardous side effects of its main product, Paxil. Keeping in mind that wrongful marketing of a powerful drug and the successive withholding of valuable medical information were considered grave professional offences globally (Ball 2012).
Most public hospitals depend on income from three primary sources: government allocations, medical establishments, and prescription drugs. The state currently offers approximately 10% of the total finances to public hospitals. Therefore, in order to keep afloat, hospitals were permitted by the state to raise the prices on drugs. This financial approach increased the cost of health care significantly and supported corruption as a solution. Entry into such a lucrative market required that pharmaceutical companies resort to inducing doctors to endorse their drugs. Since GSK as a company had adopted stringent internal regulations, executives in China chose to create fabricated conferences that compensated doctors’ fictional travel expenses (Brown 2005).
GSK Code of Conduct and Its Application
It is evident that having a best practices compliance document did not stop GSK and its affiliates from engaging in corrupt deals. In fact, the facts from previous cases involving the company point towards the fact that GSK has had a long-standing record of poor employee conduct. It was evident that the scandal was not a secluded incident that only affected China (Fox 2013). Instead, it reflected deep-seated flaws that existed within the document. The objective of the analysis is to unearth the weaknesses that provided an environment fit for engaging in corruption. The next section reveals the analysis of the code of conduct with a unique focus on the recent bribery scandal in China (Fox 2013).
GlaxoSmithKline has developed an elaborate and effective code of conduct to assist in guiding the operations of its employees both at the local and international level. The GSK Code of Conduct acts as a wide-ranging principle of the ethical behavior anticipated from all GSK employees in their conduct while representing the company. However, it should be understood that while codes of conduct highlight major aspects of the business, they do not highlight all the expected behavior of staff. Much of the clauses in the document are subjected to interpretation and rulings by higher authorities as well as the management.
Chapter 4 clause 1 of the GSK clearly stipulated that the company was dedicated to providing and maintaining the highest levels of conduct in conducting all its business activities (Ball 2012). The company had adopted a policy that demanded full integrity and honesty in carrying out official businesses. Furthermore, all the business activities had to comply with all relevant legal and constitutional requirements. The actions of the GSK executives in China violated chapter 4 of the company’s code of conduct and provided the Chinese government with a strong basis for a case. However, the employees complied with chapter 4 clause 5 that demanded that all employees were expected to report any report any unethical conduct to the management. GSK was accused by its own Chinese employees of being the mastermind in a criminal venture that involved bribing doctors and officials. In the accusations, questions were raised over the company’s conduct and the accountability within its senior management and whether the GSK’s compliance system was efficient or that the company had made an exception for the Chinese subsidiary to engage in corruption (Nichols 2012).
From the above description of Clause 1, it is clear that corruption, extortion and misappropriation are considered illegal. Furthermore, it was stipulated that third parties were also prohibited from issuing or receiving bribes when conduction official duties with government or private entities (Ball 2012). This particular clause was very clear over the ‘bribing’ issue yet GSK employees in China still engaged in bribing activities. Furthermore, the code of conduct also stated that third parties were to conduct their official duties while complying with fair and aggressive competition and following all pertinent laws. From the description above, it can be deduced that the Chinese healthcare sector was riddled with high levels of corruption, privatization, and favoritism. Therefore, any company interested in investing in the pharmaceutical health sector by following all the applicable regulations would be realizing huge losses since corruption was a common factor in the industry. Consequently, while bribing was the wrong approach towards entering the Chinese markets, GSK employees in China had no other alternative (Nichols 2012). In this case, the GSK code of conduct was inflexible to the prevailing political and economic environment of different subsidiaries in the universe. Rather, the clause discussing marketing conduct for overseas employees was designed as a rigid rule that was to be applied in all its branches without flexibility. Furthermore, the definition of ‘bribing’ was not clear within the GSK code of conduct. It was insensitive to the corporate traditions and practices that existed in other regions of operations such as Asia where gift giving in monetary forms could be considered normal.
The code of conduct went on to stipulate that third parties were expected to adhere to the spirit of competition laws in their respective jurisdictions. In itself, this code of conduct was very misleading, open and vague. By proposing that employees were to adhere to the competition laws in their respective jurisdiction, the intention was that all the regions where GSK located their establishments were having a set of regulations. However, practically, the situation in China reflected an anarchical setting that disregarded all the competition and operational laws of the land (Branco & Delgado 2012). Therefore, within that particular environment, complying with the rules would have been futile. The same argument goes for the section of the clause that demanded all employees to make use offair business practicessuch as precise and straightforward advertising methods. In China, the method of acquiring tenders and contracts within the healthcare sector was left in chaos forcing the GSK staff to resort to unorthodox means (Nichols 2012).
The GSK code of conduct also exhibited another major weakness in its implementation process. The code prescribed that all of its regulations were enforced by the Global Ethics and Compliance team that offered oversight and guidance services. By empowering one entity to perform the work of ensuring all employees comply with the regulations and policies, GSK was setting up to fail (Lipman 2012). It would be next to impossible for one agency to regulate the behavior of all staff particularly in overseas offices. In the same vein, by depending on the internal management controls to discover company risks, problems and occurrences with fitting counteractive actions taken, GSK’s code of conduct focused all the duties in one system. However, despite all these controls and measures installed, it is quite difficult to comprehend why GSK still experienced cases of corruption such as bribery (Olsen 2010). It is quite clear that GSK’s problem was that did not lie in the ineffective controls and measures rather than the company failed to implement and comply with its own protocols.
Ethical Recommendations for GSK
Several institutional and strategic measures and changes need to be implemented in order to avert future ethical dilemmas and reputation damage. However, GSK has also engaged in several efforts to rectify the situation including the development of a compensation program with the objective of eliminating incentives among the staff that promoted aggressive marketing, reinforced transparency and denied funding to doctors. Particularly, GSK announced the resolution to discontinue covering travel expenses for medical officials on regional and overseas conferences by 2015 (Ball 2012). These two major resolutions were expected to change the trend of company fund misappropriation.
Internal Ethics Reporting
Due to the magnitude of most multinationals such as GlaxoSmithKline, internal ethics reporting emerges as a useful approach in handling violations of conduct. The reports can be made via an anonymous e-mail, telephone call or message that would be received by the management and acted upon accordingly (Treviño & Weaver 2004). The main fear among employees concerning internal ethics reporting is the fact that the reaction by other employees might be overly aggressive and negative. To that extent, supervisors have to maintain a strong communication link with the rest of the workers t0o ensure that ethical violations are reported in time (Branco & Delgado 2012). By responding to such calls in a timely manner, workplace issues can be solved quickly and effectively.
Building a Culture of Compliance and Ethics
The notion that a few rogue employees were responsible for the multi-million bribery and corruption schemes that violated a major part of the code of conduct, the FCPA and other regulations set to control such malpractices is misplaced. Companies repeatedly claim that they have embraced the complete set of business ethics and fully comply with the applicable anti-corruption regulations and that only a handful of corrupt employees work against bringing down the company’s image and reputation. For instance, even the mother company, GSK started to separate itself from the Chinese subsidiary as well as the perpetrators who admitted to taking part in bribery and other dishonest practices for the benefit of selling GSK products (Nelson 2006).
The concept of creating a culture of ethics and compliance within the organization has been discussed at length by a quartet of authors in the text ‘Designing Trustworthy Organizations’. Using the text as a reference point, the crux of this approach is to analyses the cause of ethics and compliance violations and the necessary steps taken to develop working compliance and ethics controls as well as relevant examples of companies that have adopted such strategies. The problem within most organizations is that paper compliance solutions take the day as the most significant controls. A well-formulated compliance program that is not implemented satisfactorily, such as when the central management overtly or unreservedly facilitates employees to participate in misdemeanors to realize business goals, will be unsuccessful. GSK represents one of the companies that have a strong compliance program on paper but which has realized major FCPA violations over the years of operation.
In their text, Hurley, Gillespie, Ferrin and Dietz outlined several factors that employees consider when aligning themselves with a particular company. These factors included common values, competence, communication, benevolence and aligned interests. The type of conduct permitted by an organization ultimately determines the personal expectations and assumptions of the employees. The case in the BP Deepwater disaster that was caused by placing profitability over employee and premise safety is an example of such a phenomenon. GSK was also part of the Corporate Integrity Agreement (CIA) contract when the China scandal became public (Nichols 2012).
To create an ethical organizational culture, the compliance professional needs to introduce compliance and ethics into the company. This can involve setting official and informal restrictions, motivation, expectations, values and traditions- all of which have an impact on the conduct of employees and even other affiliates with whom the company engages in business. It is important to note that human resources are influenced by the controls that can promote either diligence or malfeasance (Nelson 2006). The authors proposed a six-step model that could be used to create a culture of compliance and ethics. The first step involves realigning the management and leadership with the company values ensuring that they act with integrity and competence. The next step is introducing a strong ethics culture within the company or amending the current regime to ensure that company values are followed strictly. The company systems should also be aligned to allow ethical conduct. The product and service development and delivery should cover any bribery or corruption opportunities. The formal structure of the company should set clear roles and goals for all the employees. Lastly, the company strategy must reflect the ethical disposition adopted.
Conclusion
The accusations directed against GSK pointed out two significant challenges for aggressive multinationals keen on exploiting China’s expanding healthcare market (Nichols 2012). The first obstacle raised the issue of survival in a setting administered by indistinct rules, anti-market state policies, and domestic competitors routinely taking part in unscrupulous or utter corrupt conduct. The second issue was concerned with the approach to dealing with protectionist measures once especially for successful companies that had grasped a considerable share of the Chinese market. For GSK, the pharmaceutical industry was the most appropriate since there is a high demand for Western drug companies in China (Ferrell & Fraedrich 2005). However, they had the misfortune of operating in a healthcare environment with a non-functional financial approach that compelled legitimate businesses to be unethical lawbreakers. Judging by the massive numbers, the Chinese healthcare system is a market that most European countries cannot fail to acknowledge.
References
Ball, Phillip, 2012, GlaxoSmithKline’s Bribes Are Evidence That Big Pharma Isn’t Working, The Guardian.
Bass, Alison, 2008, Side Effects: A Prosecutor, a Whistleblower, and a Bestselling Antidepressant on Trial, Chapel Hill, N.C.: Algonquin Books of Chapel Hill.
Branco, M. C., & Delgado, C, 2012, Business, social responsibility, and corruption, Journal of Public Affairs, 12, 4, 357-365.
Brown, M. T, 2005, Corporate integrity: Rethinking organizational ethics, and leadership, New York: Cambridge University Press.
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Ferrell, O. C., Fraedrich, J., & Ferrell, L, 2005, Business ethics: Ethical Decision-making and cases, Boston: Houghton Mifflin Co.
Fox, Thomas, 2013, What Hath GSK Wrought? More Compliance Lessons from China, FCPA Compliance and Ethics Blog.
Lipman, F. D, 2012, Whistleblowers: Incentives, disincentives, and protection strategies, Hoboken, N.J: Wiley.
Nelson, B. L, 2006, Law and ethics in global business: How to integrate law and ethics into corporate governance around the world, London: Routledge.
Nichols, P. M, 2012, The Business Case for Complying with Bribery Laws, American Business Law Journal, 49, 2, 325-368.
Olsen, William P, 2010, The Anti-Corruption Handbook: How to Protect Your Business in the Global Marketplace, John Wiley & Sons.
Treviño, L. K., & Weaver, G. R. 2004, Managing ethics in business organizations: Social scientific perspectives, Stanford, Calif: Stanford Business Books.