Corporate Governance & Ethics of GlaxoSmithKline Company - Case Study Example

Corporate Governance & Ethics of GlaxoSmithKline Company Student’s Name: Institution: Date: Corporate Governance & Ethics of GlaxoSmithKline Company Introduction Business ethics can be viewed as a form of applied ethics whose aim is to instill a sense in employees of the company on the ways to undertake business responsibly (Lodhia and Jacobs, 2013). On the other hand, corporate governance can be referred to as a wide range of policies as well as practices that stockholders, board of directors, managers use in fulfilling their responsibilities to investors and stakeholders and manage themselves (Groucutt, Leadley & Forsyth, 2004). It is in light of this analysis that various misconduct and ethical aspects will be reviewed in relation of GlaxoSmithKline (GSK) bribery and misconduct allegations. Part A Ethical Lapses Impacting on Product Quality GSK has been involved in some ethical lapses which have compromised the quality of its products. Its antidepressant drug, Paxil has been found to contain severe side effects which have a detrimental effect on the lives of users. This shows that the firm failed to take note of various chemical components in the drug that were harmful to human health before releasing it to be sold to consumers in the market. Depressive disorders, birth defects and addictions, are some of the effects caused by the drug to patients. One of the psychiatrists who developed the drug, Maria Palazzo was incarcerated for three months for her falsifying research results which inaccurately portrayed the drug to be safe for human consumption (Groucutt, Leadley & Forsyth, 2004). The failure by GSK to put in place effective safety measures which were supposed to measure the quality of drugs before they were released to the market for consumption is also one of its major ethical violations. The firm’s diabetes drug induced heart and respiratory complications in patients even though it had been taken through different stages of quality and safety analysis. Previously, company executives had failed to take note of a research analysis that revealed serious flaws in the product design of the drug. This showed that they were only interested in increasing the firm’s sale revenues without taking time to carry out find out the real effects of the drug on patients. This reveals a culture of apathy and disregard for due process by the firm’s managers (Cosgrave, 2013). All these acts of corporate malfeasance were injurious to the firm’s image because they took place within a short time of each other. Consequently, the firm’s marketing practices have portrayed its image negatively despite its efforts to restructure its operations to take advantage of new opportunities in the market. The firm’s decision to go ahead and promote drugs in the market without FDA’s approval and certification showed its lack of respect for government regulations. This showed that the firm was not willing to allow external regulators to find out different malpractices that were taking place in its internal operations. As a result, customers who purchased Wellbutrin drug sold by the firm were not able to understand how to consume it, to solve specific health problems they were facing (Cosgrave, 2013). This confirms that the management was not ready to jeopardize its market position by seeking regulatory approval from the FDA. The lack of honesty in market promotions is a key ethical issue that shows GSK’s hunger to increase sale revenues from various consumers in the market. The firm’s intent in organizing various seminars and grants came into question because these forums were used by its executives to increase sales of various products it manufactured. Corporate misconduct pertaining to educational programs has been harmful to the firm’s reputation, because it was perceived as only interested increasing its profits in the industry (Cosgrave, 2013). Consequently, the reputation of its staff and distributors has also been sullied by these allegations. Another problem the firm has had to contend with is low quality product manufacturing processes in some of its plants. The firm’s manufacturing division in Puerto Rico knowingly released unsafe drugs to the market without any regard for the health of potential consumers. The raw materials used for the production of drugs have also been found to have pathogens because employees did not take adequate safeguards during handling of highly sensitive drug products. This shows a lackadaisical attitude towards drug manufacturing in the firm which had a negative consequence of product quality (Shobert, 2013). In addition to this, the firm’s management had failed to safeguard its internal product development processes from external contamination which showed they had little regard for patients’ interests (Shobert, 2013). The management team in the firm was not in touch with what was going on in other sections and this showed that they were incompetent in their roles. A poor organizational structure and lack of respect for authority made workers to engage in unethical practices which constantly put the operations of the firm in jeopardy. Cheryl Eckard, the firm’s quality control manager at the Puerto Rican plant was not taken seriously by the firm’s management even when she pointed out major flaws in quality and safety protocols. As a result, these unethical practices have made the firm to pay out a lot of fines for unethical practices and this has resulted in huge financial losses (Shobert, 2013). Reasons That Caused Failure by GSK Leaders to Prevent Unethical Practices GSK leaders before and after the merger with GSK were distracted from their responsibilities in the firm. They were embroiled in a power struggle which had a negative consequence of the firm’s operations in the market (GlaxoSmithKline Company, 2012). The organisational environment that existed before and after the merger discouraged senior company executives from realigning the firm’s vision and internal corporate culture. As a result, various segments of the firm were in constant competition with each other because they had different interests that were not favourable for long term organisational performance. The firm’s leaders were more interested in increasing the firm’s market share due to increased competition from other firms such as Pfizer, without taking time to find out the consequences of their actions (Shobert, 2013). The company systems of operations were not concerned with imparting moral values from the firm’s leadership to its lower subordinate structures and this had a negative effect on the firm’s operations. The firm’s leaders did not adopt collective ethical values which they would have implemented to improve the quality of products the firm sold to its consumers (Shobert, 2013). As a result, did not find it necessary to adhere to relevant quality practices to strengthen the firm’s operations in the industry. The moral code was weakened by the actions of leaders who were neither willing nor prepared to account for their actions to shareholders. As a result, employees did not have good role models to look up to as they performed different activities within the firm. The failure by key decision makers to understand the trends and practices which were impacting on pharmaceutical industries showed that they were out of touch with the reality. They were not aware that consumers had become more emboldened and were willing to speak out against any injustice committed against them (Shobert, 2013). Managers were not knowledgeable about the firm’s legal and ethical responsibilities to customers in diverse market locations and they sanctioned unsafe products which were sold to patients. This also goes on to show that the firm did not gather information from different aspects of operations to find out which areas needed quality improvements. As a result, this shows that internal management processes in the firm were poorly coordinated by senior managers who lacked the qualities needed to bring about positive transformations (Shobert, 2013). Lower cadre employees in the firm were not well supervised and this made them become incompetent in their duties. Moreover, the company had a poor complaints resolution system which made it difficult for senior managers to find out various malpractices that impacted negatively on performance. Even though the firm had strict codes of conduct which all employees were expected to abide by, a poor enforcement culture encouraged some workers to engage in poor organisational practices (Shobert, 2013). Monitoring and quality control were not used effectively to rein in on dishonest researchers who developed ineffective drugs for consumption. As a result, they were left to develop and sell drugs whose effects on users had not been assessed effectively. The firm failed to communicate to all employees what was expected of them and how they were supposed to achieve its goals. As a result, the firm lacked openness and transparency, which would have enabled managers to condition different workplace systems to come up with excellence in its operations (GlaxoSmithKline Company, 2012). The inability by different departments in the firm to work closely and share information for organisational improvement proved to be a major problem in the long run. Positive change management policies were not introduced to guide various department heads on how to make their departments competitive to ensure they were adequately prepared to deal with various challenges the firm was facing in the industry. As a result, managers did not have a collective organisational vision to push their departments forward and this made them lose touch with the reality in the industry. The firm’s managers also failed to understand the importance of GSK having a good reputation in the market. They did not have effective plans that would have been used by the firm to improve the quality of its long term operations in the industry. Moreover, they failed to anticipate legal challenges which the firm was likely to be exposed to if it did not conform to high standards of practice in its operations (GlaxoSmithKline Company, 2012). Risk management systems in the firm were weak and they did not offer adequate safeguards to protect the firm from various integrity issues it was experiencing. All these leadership problems caused the firm to pay large sums of money to settle different lawsuits that were brought against it. Part B Weaknesses in GSK’s Code of Conduct Corporate governance is a critical ingredient in ensuring sustained a positive reputation among the public, consumers, government, shareholders and other stakeholders at large (Gillan, 2006). Adherence to laid down procedures anchored on various philosophical principles of ethics and legal frameworks anchored on the realisation that the ultimate aim of a business is not only to address shareholder’s value, but to act responsibly (Lodhia and Jacobs, 2013, p.596). Failure in such instances leads to litigations, fines and reduced reputation or public image which is a critical aspect in brand equity and overall marketing (Williams and Adams, 2013, p.456). Upholding procedures be it internal parameters laid by the firm and external ones laid by various regulatory authority contributes towards institutional and individual accountability (Mulgan, 2000, p.555). Nevertheless, firms such as GSK have experienced or are experiencing investigation towards their conduct in terms of integrity issues such as bribery and inflation of prices in China. The issue of concern that have placed the British multinational corporation is based on the allegation that the firm through its employees engaged in bribery (Cosgrave, 2013; Reuters, 2013). Such accusation are a pointer towards weaknesses or omission in the code of conduct or how it might have been administered and thus, abetting in the situation occurring. The ultimate focus of this section is to determine whether there is plausibility that in the wake recent bribery and misconduct allegations in China, there are weaknesses or omissions in the code of conduct or how it was administered could have contributed to the scenario. Now, let examine the two contentions in a systematic manner. It can be clearly argued that there is no deliberate act of omission in GSK code of conduct. The rationale for stating boldly such proposition is anchored on the fact that their code of conduct addresses ethical, legal and sustainability issues as premised in the organisational values such as abiding to a country’s law which include bribery; adhering to standards such as human rights & protecting diversity; ensure protection of patients & consumers; deliver quality products; conduct ethical research; obliging employees to act with integrity in all aspects of operations and clamour to operate with transparency (GlaxoSmithKline Company, 2012). However, it is evident that there are some weaknesses in the formulation in relation to how they are domesticated or fined tuned to local scenarios and how it is administered. It is not disputable that GSK is Multinational Corporation. Anchored on this realisation, GSK should take cognisance of the fact that countries differs in terms of their national culture/ social system, legislation frameworks and governance frameworks. For instance, china has social system anchored on guanxi and this is likely to affect how they interact with foreign multinational enterprises (Wilson & Brennan, 2010, p.653). to support the above proposition, the line of thinking will be framed along deontological aspirations of doing good; non-consequentialist aspirations anchored on virtue ethics of Kantian; and justice perspectives such as distributive, procedural & interactional (Farrell, Fraedrich & Farrell. 2011). The governance framework within the public health sector in China calls for a proactive engagement beyond mere statements as the health sector in China is significant different with those in western countries. Shobert (2013) observes that there are three corruption issues that opens floodgate for corruption which were necessitated by the cut back on funding by national and provincial governments and the urge by hospitals to address this financial shortfall. These include back door payments so as to induce doctors to prescribe their drugs, hongbao which a direct bribe to doctor and over prescription of drugs so that firms can generate revenue. For instance, societal approach and deontological aspirations calls for enhancing social welfare of the society and having moral obligations towards the society (Iamandi, 2007, p.6). However, while formulating the code of conduct, GSK did not take cognisance of this fact in relation to Chinese context and this allowed sales executives and directors to engage in malpractices such as bribery. In a nutshell, the argument is that the code of conduct has not been fine tuned or aligned to the health governance framework which operates under reality that bribery and fraud is part of the sophisticated part of China’s public health sector. It is like they were not able to see the warning tall tale signs that would have obliged them to spruce up the code of conduct to be in sync with China’s regulatory framework. Indeed the weakness of the code of conduct is further tested based on the reality that this creates an opportunity for sales executives to engage in unethical behaviours in the pursuit for overcoming sales target. Moreover, the admission by Andrew Witty that “looks as if individuals have worked outside our systems” (Pratley, 2013) is a self confession that maybe the code of conduct, control and audit systems are not robustly fine tuned for high risk markets such as China and thus, exhibition of such deviant and criminal behaviour. Supporting the argument that there is problem how it was administered is still anchored on the CEOs admission of individuals working outside their system. How can a CEO pretend that he is unaware that his employees were paying bribes? A good internal control and monitoring system should be able to display such glaring discrepancies yet drug companies have embraced a paradigm shift from developing new drugs aggressive marketing which can likely necessitate such behaviour. further, how can such company not be aware and be proactive in implementing the code of conduct to later yet this is one company that has suffered multiple fines for paying drugs and unlawful promotion of drugs in developed markets such as USA (Holland, 2013). This shows GSK gave the issue a thin façade or lip service in the hope that they will walk away or it will be submerged under water. Preventing ethical dilemmas and reputational damage The second question to be addressed is how ethical dilemmas and reputational damage can be prevented in future as a way forward. Ultimately, the overall encapsulating way forward should be anchored on a strong ethical corporate governance that punishes vices such as bribery and unethical marketing practices while rewarding virtues such as adherence to organisational values that enhances transparency, institutional and individual accountability of employees (Ackroyd & Crowdy, 1990, p.7 & 8). The plausibility of this argument is rooted on the fact that organisational culture impacts on corporate governance since it socialises employees by aligning them to the paradigm that business does not only exist to make profit, but also to meet other stakeholders expectations and failure to do so results into legal, social and economic consequence (Kochan et al., 2003, p.4). The concern that emerges is that under the domain of strong culture that socialises employees in a certain directions, what ingredients or considerations should be included? The first ingredient that should be incorporated in the new culture so as to curtail the dilemmas, negative reputation is the development of ethical marketing practices that do not condone irresponsible marketing, but one which is in tandem with law, professional obligations, philosophical reasoning and moral expectations (Groucutt, Leadley & Forsyth, 2004, p.64). The rationale for the above is anchored on the fact that charges GSK has faced in USA and China relates to aggressive unethical marketing that seeks to implement undue tendencies that are not ethical, legal or pro competitive practices in medical and personal wellbeing field. This indeed can be directly translated that GSK enjoys the misery that patients undergo instead of marketing their products with dignity as much as possible. Ethical consumers can boycott products that do not meet expectation and on the other hand government can impose fines or a total ban if dissatisfied with the practice of an enterprise (Irving, Harrison & Rayner, 2002, p.2-3). Thus it is the onus of GSK to internalise and integrate ethical marketing practices even in scenarios where the employees might be tempted to engage in the same by creating a distinction between aggressive marketing and irresponsible marketing. The second aspect is to curtail or drastically reduce opportunity to engage in malpractices such as bribery as an institution through ethics programmes that makes an institution an epitome of institutional morals. Farrell, Fraedrich & Ferrell (2011) observes that this can only be attained through efforts that discourage unethical behaviours while encouraging ethical ones through reward and punishments. Such aspects include formal codes, policies and rules. However, since the paper established that these are in existence, the existing gap as outlined earlier is of synchronisation of code of conduct with local scenarios so as to avoid lapses and functional performance gap owing to the fact that countries operate in different economic, political and social context. For instance, it is not that bribery occurred in China and US because there were no formal rules, it occurred because of opportunities created as result of not fining tuning punishments within the context of the two countries thereby encouraging bribery of doctors, unethical research and inflation of prices. The other sub domain would be to review the leadership and leadership style present within the organisation. Leadership constitutes a critical factor in influencing employees so to conform into a given expectation. This then leads to a given overall organisational behaviour since it is the leadership that offers direction in terms values, commitment, consistent implementation and monitoring among others (Goffee & Jones, 2005, p.1 & 2). Yet this can be stated as the exact opposite. GSK has suffered from numerous suits and outside court settlements in US and China yet top level management is seen not to have felt the impact. The cornerstone of this statement is justified by the fact that Andrew Witty admitting that “looks as if individuals have worked outside our systems” (Pratley, 2013). The question is how vulnerable does he want the firm to continue being in relation to people working outside their external system yet the firm is suffering fines and negative reputation therefore affecting brand equity. Nevertheless, this is a contradiction since Farrell, Fraedrich & Ferrell (2011) observes that ethical leaders have passion and agitation to do things in the right manner. The last is to constantly engage in ethical audits without being prompted by authorities. This should be a field for continuous improvement done of set time limit and on an ad hoc basis (Farrell, Fraedrich & Ferrell, 2011). The reasoning behind this proposition is rooted in the premise that had the company engaged in regular audits as a means of control, the functional and technical lapses resulting from malpractices such as bribery would have been known instead of outsiders – governments/ regulatory authority – getting to know. This would empower the organisation to engage in disclosures that document measures partaken to curtail issues such as unethical & irresponsible marketing and have a platform to measure conformity just the way financial probity and disclosure are conducted annually. Conclusion In conclusion, companies need to strongly develop clear policies and codes of conduct on how to prevent bribery and misconduct issues. It can be said that GSK had a weakness in its Code of Conduct. This is despite making great improvement in its social responsibility and business conduct like having an Employee Guide to Business Conduct and Corporate Ethics and Compliance intranet for employees. It can be stated that its values have not fully been implemented. There is also no transparency on how the Company accounts for such misconducts. There is a need for a strong and fully implemented code of conduct at GSK to ensure reduced bribery and misconduct. Furthermore, corporate compliance officers and programs have not fully respected the spirit of the law to the letter hence leading to rise of such allegations. In preventing such ethical dilemmas and reputational damage in the future, there is a need for GSK to review its code of conduct again and ensure they are clear. They should also reinforce its compliance procedures in the company. 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