Corporate Governance and Ethics: GlaxoSmithKline - Case Study Example

?Corporate Governance and Ethics: GSK Case Study Introduction GlaxoSmithKline is one of the largest pharmaceutical companies in the world, currently ranked at fourth in world based on market capitalization and the number of subsidiaries in the world following Pfizer, Novartis and Sarnoff multinationals. It produces a number of pharmaceutical products ranging from biologics, vaccines and drugs targeting neglected diseases in the sub-Saharan Africa. The multinational was formed following merger with other pharmaceutical and related companies like smith Kline Bicham, Glaxo welcome plc in the United Kingdom and smith Beckman Corporation all based in the United Kingdom. The drugs manufactured by the company targets diseases such as asthma, viruses, infectious diseases, diabetes and digestion related complications (Mathew, 2011). The drug Industry controls a significant amount of the global revenue with drugs constituting over 10% of medical cost in the United States. It is also considered as one of the fastest growing segment in the world economy with significant research being conducted with pharmaceutical giants like GlaxoSmithKline international. A number of patents and ethical issues that guide the processes of drug discovery, clinical trials and marketing control the pharmaceutical industry. In this paper, ethical issues that guide the pharmaceutical industry will be analysed with emphasis placed on the practices of GSK and how lapses in the ethical practices has affected its ability to market high quality products. The processes of ensuring ethical practices within pharmaceutical discoveries, marketing and post market surveillance will also be evaluated to identify how GSK failed to prevent future ethical dilemmas. Ethical mistakes and conducts have a number of consequences on the reputation of a company as it affects the attitude of the market towards the company. The paper will also evaluate the impacts of ethical lapse at GSK on the market and how this affected the sales and market control. GlaxoSmithKline scandal also occurred in sections of china and this was revealed following an investigative report released by the Chinese government. This paper will also provide detailed description on why the GSK scandal happened on china and the impacts that the scandal affected the reputation of the company in china (Mathew, 2011). Ethical lapses and their impacts at GSK Ethical issues and litigation affects the position of a firm and the credibility of its products especially if the lawsuit against the company succeeds. A number of ethical lapses at GSK have been attributed to increased litigation claims against the company and these have had significant effects on the quality of their products and the market response. A wide range of criticism have been levelled against GSK for lack of adherence to drug testing and safety issues and this has resulted to a number of litigation measures which have consumed a significant amount of the total revenue generated by the company. Chief among the accusations that have been made against the company include intentional marketing of drugs with detrimental impacts on the health of patients. One of the main ethical misconducts that have had significant impact on the reputation of the company is the production of avandia drug in Cidra Puerto Rico. A report by Cheryl Eckard in 2010 revealed a number of ethical lapses in the production processes at the GSK plant in Cidra, Puerto Rico. Eckard, a quality assurance manager employed by GSK was assigned to assess the manufacturing conditions of the companies processing plant in Puerto Rico. In her report, she indicated the wanting condition of the processing plant and recommended for the halting of the production immediately to allow for a review and upgrading of the plant. However, this recommendation was ignored by the plant supervisor, who allowed for continued production and sales of the drugs despite the dilapidated condition of the plant. Despite her recommendations, which were meant both, improve the production processes in the plant, the company continued to produce and market drugs which according to the report released by Eckard were below the safety standards set by the food and drug agency of the United States. To cover up for the inefficiency, Eckard was sacked and the Puerto Rico manufacturing plant continued with its production processes. She however filed her report with the FDA, a process which led to the unearthing of the weaknesses within the companies production process. Drugs are subjected to significant quality control checks to ensure that any negative health impacts on the patients are reduced significantly. However, these practices by GSK demonstrated a lack of commitment to ensure quality production process that ensures quality and safe pharmaceutical products (Mathew, 2011). Chief among the complaints lodged by Eckard was the production process that was seen as being contaminated to produce quality and safe products. Eckard noted that the plant was using bacteria contaminated water to clean its production facility. The employees were also allowed to handle the sterile production tanks with their bare contaminated hands without much consideration on the safety measures of the company. The machines within the plant were not regularly cleaned and the quality assurance department of the plant was managing no maintenance inventory. The drug concentration was not correctly regulated and this resulted into production of either too weak or strong drugs, which should not have been marketed for quality purposes. This also resulted from medication mix up, a process, which compromised the integrity of the drugs and their safety thus making the drugs unsafe for human consumption. These lapses in quality control measures and the unwillingness of the company’s top management to institute operational changes resulted into the production and marketing of low quality drugs. The drugs involved in these unethical practices included Paxil, Paxil CR, Avandia, Avandamet and Bactroban, an ointment also produced by the Puerto Rico plant. This affected the image and public image of the company not only in Puerto Rico but also in other parts of the world where GSK controls significant drug market (Ahmed and Saied, 2012). Pharmaceutical marketing is also controlled and conducted under the key guidelines set out by the international conference on harmonization. Different pharmaceutical companies are required to provide all medical information regarding the safety of the drug and any post marketing surveillance report on the impacts of the drug to the general population. GSK has however faced a number of significant and influential litigations affecting the marketing and sales practices adopted by the multinational. According to the United States food and drug agency, it is considered illegal for pharmaceutical to market and sell drugs which have not been approved by the agency. GlaxoSmithKline was accused by the United States government of marketing and promoting the use of Wellbutrin despite the food and drug agency recommending for more studies on its effect. The United States criminal department instituted legal action against the vice president of the company for trying to cover up on the unethical practices of the company. The accusation against the company was its intentional marketing of an off-libel drug despite recommendations against such an action. Wellburtin, an antidepressant drug, experienced low sales and consumer response due to the unethical issues that touched on its quality and accreditation process. GSK also began a process of grant issuance to different institutions in the united states that were geared towards enhancing continuing medical education programs. This step was however opposed by the United States senate assembly as it was viewed as a process aimed at marketing the drugs manufactured by the company. These misconducts resulted into a number of lawsuits against the company’s high-ranking executives, a process that significantly affected the ability of the company to increase its market influence and control (Ahmed and Saeed, 2012). Leadership failure at GSK Leadership and ethics play integral roles in the operation s of any business and this influences the image of the company especially for multinationals with significant global influence like GSK. Leaders are thus provided with the mandate to ensure that an organization adopts safe and legal practices that improves both reputation of the company and its position in the market. Any lapses in the ethical behaviour of an organization can be blamed on the people in a company but the final bearers of the burden are the leaders who are provided with overriding roles as compared to other employees. In this case study, a number of ethical misconducts of GlaxoSmithKline has been analysed to illustrate the impacts of such practices on the company (Cousins, 2009). As illustrated in the report provided by Eckard to the United States food and drug agency, the lapse in leadership resulted to the litigation measures that were taken against the company following the Puerto Rico incident. Having forwarded a detailed report to the multinational, Eckard expected the organization to make the right steps and halt production of drugs in the plant. This was in line with the recommendations made by her following her analysis of the situation at the production plant that compromised the quality of the drugs produced. The company planned a cover up and this was evident by its decision to relieve Eckard of her duties in a process aimed at killing her report. This demonstrated the lack of commitment by the company’s leadership to promote ethical practices and conducts within the organisation. Eckard, as the quality controls manager however demonstrated high level of commitment to procedure and the laid down regulations that guided the process of drug production. As a result, she felt obliged not to let this wrong action and inaction in the company to continue an act she felt would affect the health of the drug users and harms millions more (Schulte, 2012). Post market surveillance plays a critical role in pharmaceutical drug development and marketing as it provides critical details that guide companies on the steps to take on a drug that has passed the clinical trials stage. Such information should be acted upon by the leadership of the pharmaceutical companies, based on their position as the decision makers in the company. In 2007, a post market surveillance study conducted on Avandia, a drug manufactured and marketed by the company as diabetic medication revealed that it increased the susceptibility of the patients to heart attack. This report recommended for the withdrawal of the drug from the market as more studies on its harmful effect were being conducted. However, the company’s leadership failed to demonstrate their commitments to ethical practices when they failed to withdraw the drug from the market, leading to significant damage on diabetic patients. The company had also initially conducted tastes on the toxicity of the drug and identified its effects on patients. However, this observation was ignored as the company argued that the risk presented by the drug was insignificant as compared to the expected benefits (Herrera, Rodriguez and Lijane, 2007). This decision was taken based on the financial impacts that it may have had on the company. The company therefore acted based on the financial lose that they may have had and not the health risks of the action. Leadership ethics is guided by the desire to serve the interest of the consumers and to ensure that their welfare is well taken care of. Based on this principle, the leadership of GlaxoSmithKline should have withdrawn the drug without considering the financial implications that such an action may have had on the business. The actions of the company’s leaderships were therefore guided by the desire to maintain the financial benefits as opposed to the considerations on the harmful impacts (Herrera, Rodriguez and Lijane, 2007). The marketing of off libel drugs in the United States resulted into litigation measures, not on the company in general but the leadership of the company. The vice-president was personally accused of planning a cover up for the unethical practice of the company that resulted into the marketing of drugs that had not been authorized by the food and drugs agency. United States department of justice for lying to the food and drug agency that the company did not market Wellbutrin drug charged Lauren Stevens. Even though Steven was acquitted, the integrity of the GSK leadership was jeopardized and this affected the image of the company in the international and domestic market (Schulte, 2012). Bribery as an ethical issue in international business Bribery is defined as the process of using material gifts and monetary incentives to alter or influence the behaviour of the recipient and thus make a decision that favours you. Acts of bribery have been considered in different faces of both local and international businesses and this act has been considered as unethical practice for eliminates the presence of flat playing field in which companies can compete favourably. Business ethics is concerned with the conduct of business to ensure the creation of a favourable playing field that allows all players an equal chance to market and sell their products. Acts that alter the natural processes of doing business to favour one particular company or individual are thus considered unethical and unwanted in the market. Bribery is used to influence the decision made by people in authority and such decisions for example in procurement may affect the ability of other market players to competed favourably (Johnson, 2001). International companies and multinationals that enter foreign new markets are faced with the dilemma of making significant decisions, which affects the ability to make any impact in the market. This presents them to a number of tempting situations, which may encourage the adoption of unethical practices like bribery to enable the company, make significant inroads into the foreign market. Ethical issues touching on bribery are at times difficult to prosecute and judge correctly as some cultures have a soft spot for the practice and thus do not consider it as misconduct. This makes bribery in the international trade a tricky situation as companies that have their background from countries that accept bribes may find it difficult operating in countries that don’t. In countries like the United States, bribery is illegal and can result to legal actions which may have significant impacts on an organisation’s image. In some countries however, it can be practically impossible for organizations to survive and do business competitively without giving bribes (Schulte, 2012). The policy brief of 2009 highlighted the moral and political concerns that arise from bribery in international business. Bribery is a moral issue because it affects the governance of organizations and companies in international business. It affects international competition and distorts the market making it impossible for other companies to compete favourably. International bribery also undermines environmental reforms and prevents the implementation of any steps adopted by international organization to uphold human rights and safety especially in pharmaceutical industries. Public officials that take bribes to award international bribes affects international competition and thus reduces the possibility of quality services. Such practices within the pharmaceutical industry compromises the safety of drug users as any measures adopted to ensure their safety can bypass using bribes. Bribes thus have significant effects on the quality of goods produced and the impacts that such goods have on the life of the final consumers. International trade targets a large number of people distributed all around the world. For pharmaceutical companies, any distribution of drugs which have not be certified can translate to the endangering the lives of many people in different parts of the world. This makes bribery an ethically and morally wrong practice especially in the international market (Mercalo, 2012). In July this year, the Chinese government initiated a program that targeted multinationals in the country and their ethical behaviours. A report was released that indicated a number of companies were involved in unethical activities that compromised fairness and competition. Different multinationals including GlaxoSmithKline were included in the report for adopting anticompetitive behaviours in the country that made it impossible for other companies in the country to compete favourable. A number of reasons have been availed to explain why the corruption and bribery claims against GSK had to occur. The Chinese GSK scandal mainly occurred because of the internal weaknesses and processes within the country’s health care system. At this time of the scandal, china was rolling up an extensive health care reform program as part of its economic modernization plans (Johnson, 2001). However, this program resulted into underfunding of the health care system, a scenario that resulted into shoddy deals and bribery claims involving Glaxo. The country also possessed a number of poor host practices which included the extensive use of the backdoor system of payment by doctors for the acquisition of pharmaceutical products to enable the doctors prescribe the medication to their patients. It is thus possible to conclude that GSK had to engage in ethically immoral business activities to continue doing business in china as a process of cultural relativism and the adoption of practices that were common in the country (Herrera, Rodriguez and Lijane, 2007). In the process of mitigating, the approaches that should be adopted by Glaxo to help reduce the increased number of ethical issues involving it, the culture and environment of international business must also be appreciated and well understood. Multinationals are presented with a challenge of maintaining operations in a foreign economy with unclear government policies, unclear rules and local market players habitually engaging in bribery and corruption to win a share of the market. Any approaches adopted towards eradication of the ethical challenges facing the company must also conduct a critical evaluation of the environment and adopt ethical practices despite the nature of the business environment (Mercalo, 2012). Unethical practices in businesses begin by simple actions or inaction by a few members of a company’s executive team and such actions or inactions have the potential of destroying the position and reputation of the company beyond repair (GSK, 2010). This is also true for multinationals that engage in unethical behaviours in order to win over the competition that is rife in international trade. In order to reduce the claims of bribery and corruption against the company, GSK can adopt a number of approaches, which will improve its public image and position in the international market. False communication is one of the factors that increase the possibility of increased incidences of unethical behaviours in organization. Once an MNC has been accused of engaging in practices that are considered illegal, the organization management resort to falsifying the information and initiating cover up schemes to avoid being held liable. This is evident in a number of ethical malpractice cases involving GSK as I have outlined in other sections of the paper. When Eckard’s report indicated that the production plant in Puerto Rico was dilapidated and needed to be closed to allow for refurbishment, the management of the company engaged in a number of approaches to cover up this report, including false communication. The company thus falsified the report that was released by the quality control auditor and even fired her in order to avoid implementing the report. GSK should thus adopt an open policy that involves accepting liability in situations where it is evident that the weak internal structures are responsible for the ethical lapse reported. Reports provided on post market surveillance should be implemented and made available to the public in order to prevent further health risks that may arise from continued use of a drug. Such a step will enable the company to regain the trust of the consumers and enable them to use the products of the company without worrying about quality concerns (Cousins, 2009). One of the main unethical business behaviours that were levelled against GSK in china was intentional collusion with local pharmaceutical companies to influence the local market prices in order to gain undue competitive advantage. Colluding to fix prices in the international market is also considered as an act of bribery and is thus considered unethical as it is uncompetitive practice. To help eradicate such a scenario for the company, GSK should ensure that entry into any foreign market occurs after clear scrutiny of the business practices within the market and to perform a thorough assessment of how it plans to engage in such a culture without adopting unethical approaches. Cultural relativism has been mentioned whenever discussion of bribery and corruption in international market arises. This is because international business environment and practices significantly affect the approaches adopted by a foreign company that seeks to enter the market and win a significant share of the market. Adopting such practices should however follow a detailed assessment of how they will affect the position of the company in other foreign markets and thus its reputation (Cousins, 2009). To market some of its drugs that are still considered as off libel by the regulatory agencies, GSK have been accused of colluding with doctors and hospitals who prescribe such drugs en masse thus increasing the market needs and demand. Such actions are normally followed by increased production and marketing of such drugs despite lack of proper certification (GSK, 2010). This scenario occurred with the diabetic drug Avandia, produced by the company. Regulatory mechanisms in the pharmaceutical industries were developed to protect the end consumers from unscrupulous pharmaceutical companies who market dangerous drugs thus causing harm to the patients. Food and drug agencies of the United States and the European drug agencies have gained significant reputation and consumers currently monitor their response and opinion on a drug before buying them. GSK should therefore seek to abide to the decisions of the regulatory bodies in ensuring that they produce high quality drugs that little side effects to the users (Ahmed and Saeed, 2012). Controlling unethical behaviour should also begin with understanding the reasons as to why such practices have been rife in the company. reports of unethical practices in the company are wide, ranging from Puerto Rico poor production processes to marketing of an off libel drug in the united states and engaging in corruption and bribery in china. An internal audit that will provide the weaknesses of the company and reasons as to why unethical behaviours in the company are rife will be essential. Different employs engage in unethical behaviours for different reasons and such actions impacts significantly on the business’ image. As attributed to cultural relativism, unethical practices in countries like china arises due to the feeling that this is the common business practice and is thus legal. Some executives also engage in unethical behaviours with the belief that such actions are in the best interest of the business. If the company intends to improve its image in international market and still perform well despite the high competition, it must be able to stand firm against unethical behaviours and adopt proper and ethical ways of doing business and production (Ahmed and Saeed, 2012). According to GSK report released recently on how the company intends to fight increased claims of bribery and corruption, a number of avenues were listed that results into increased cases of unethical behaviour. The company appreciated that in the process of introducing drugs to the market, it interacts with different government agencies during registration, patent, clinical trials and even manufacturing licences. These stages have been filled with a number of claims on corrupt practices and the company has introduced a number of measures to curb this vice. They have also identified the different forms of corruption and how such practices have affected their public image (GSK, 2010). These ranges from the use of gifts and incentives, third parties to negotiate for unethical deals and improper employment and termination procedures. The company has thus made a commitment to ensure that it develops a zero tolerance to corruption practices to ensure that it redeems it public image. References Ahmed, R., and Saeed, A., 2012, Ethical and non-ethical pharmaceutical marketing practices: case study at Karachi city, interdisciplinary journal of contemporary research in business, 3(11), 456-475. Cousins, C., 2009, pharmaceutical marketing: the unethical reform of an industry, Gatton student research publication, university of Kentucky. GSK, 2010, living values: the GSK anti-bribery and corruption (ABAC) program. [Online] Available at: http://www.gsk.com/content/dam/gsk/globals/documents/pdf/AntiCorruption-Booklet.pdf [Accessed 30/09/2013] Herrera, A., Rodriguez, P. and Lijane, L., 2007, bribery and the nature of corruption, Michigan: Michigan state university. Johnson, C., 2001, meeting the ethical challenge of leadership, thousand Oaks, CA: Sage Publications. Mathew, A., 2011, GSK value drive flips sale rep bonus incentives, journal of marketing and media, 46(3), 8-8. Mercalo, D., 2012, GlaxoSmithKline: guilty in largest health fraud settlement in US history, [Online] Available at: http://articles.mercola.com/sites/articles/archive/2012/07/16/glaxosmithkline-plead-guilty.aspx [Accessed 30/09/2013] Schulte, R., 2012, Cheryl Eckard: model of ethics and whistleblower tactics at GlaxoSmithKline, Marietta college. Read More