Corporate Responsibility and Governance in GlaxoSmithKline - Case Study Example

Module Organisation being reviewed: GlaxoSmithKline Table of Contents Corporate Governance s 3 Governance Issues encountered by GSK 5 Bribery case in GSK China 5 Increased pay package of the Chief of GSK 7 CSR Practices by GSK 8 Environmental Stewardship 9 Community Improvement Programs 9 Social Activities 10 CSR Practices influenced by National Institutional Environment 10 Recommendations 12 References 14 Corporate Governance Codes Corporate governance refers to certain codes that are significant for a company for its successful operation. These codes are employed for controlling and directing a company’s operation. This code plays a vital role in the society as it creates wealth, generates employment, pay the taxes and provide considerable investment returns (GlaxoSmithKline plc, 2015a). It is observed that some of the biggest company in the world possess the market capitalization, which is higher than the gross domestic product (GDP) of the economy. The accountability of these companies is reflected in words of Executive Officer of International Corporate Governance Network, Anne Simpson; corporate governance activities aim at meeting the private interest and also the public goods. The shareholders rely on the effective governance of the investment, which are made by the investors to earn some extra income. Effective governance also aims at funding pensions and insurance and also protects the savings. The company underpins its interest and that of the shareholders for maintaining accountability and transparency. This is significant for contributing and maintains the prosperity of public interest upon which the social welfare is dependent (GlaxoSmithKline plc, 2015a). GlaxoSmithKline Plc (GSK) is a science-led healthcare company that aims at providing life saving drugs globally. The company execute research for developing new range of innovative products concerning the vaccines, consumer healthcare and pharmaceutical areas (GlaxoSmithKline plc, 2015a). The company operates in 150 countries, 84 sites of manufacturing products and large research and development centres in the USA, UK, China, Spain and Belgium (GlaxoSmithKline plc, 2015a). GSK makes medicines for treating a number of chronic and acute diseases. The portfolio consists of both patent and non-patent medicines. GSK had aimed at developing best practices and guidelines known as corporate governance over a period of time. It is observed that over the past few decades many countries have given recommendations for developing corporate governance codes. The codes, which are associated with the stock exchange, are mandatory but the rest are not mandated by law (GlaxoSmithKline plc, 2015b). The information relate to financial situation, governance, ownership, performance should be disclosed prominently in the governance report. Hence, this ensures public understating regarding the company’s structure and also its policies. GlaxoSmithKline Consumer Healthcare Limited, which is an associate of the company is established for adopting the best corporate governance practices in the world (GlaxoSmithKline plc, 2015c). The corporate governance codes ensure that the company attain high levels of transparency, business prosperity and accountability for attaining ultimate goal of realizing long term relationship with the shareholders after considering the interest of the stakeholders, which is wealth creation (GlaxoSmithKline plc, 2015c). GSK operates in high standard of corporate governance. The governance structure of GSK underpins the capability of delivering strategies for growing diversified business. It also aims at providing products that deliver appropriate value and abridge operating model of the same (GlaxoSmithKline plc, 2015c). GSK provides detailed information regarding its Board committee and non-board committee so as to maintain delivery of transparent and appropriate information to the shareholders. The company also provides codes that are relevant to global compliance, contact details of the operation in the US and UK and ethical conduct (GlaxoSmithKline plc, 2015b). The corporate governance of the company is based on the mentioned philosophy: 1) The management act as trustee of capital of the shareholders but not as owners. 2) The company should adhere with the law and maintain 100% compliance with the applicable laws that are related to the land. It believes the standards should be complied in such a manner that it should go beyond the law. 3) The management should ensure high degree of disclosure in order to maintain transparent functioning. 4) GSK also aims at communicating its internal functioning in the public so that the investors are interested with their operation (GlaxoSmithKline plc, 2015b). Hence, it can be noted that GSK adheres to the corporate governance codes that are formulated for their successful operation. Governance Issues encountered by GSK Corporate governance issue have become prominent in the recent few years as companies have undertaken illegal means to generate money and property for their personal gain. Though GSK maintains clear corporate governance codes which provides transparent information regarding its operation to the stakeholders, but it has failed to adhere to the codes in a number of events. These events were very expensive to them as they had to pay lump sum amount of fine from their internal resources (GlaxoSmithKline plc, 2015a). Two such events are critically evaluated along with its results henceforth. Bribery case in GSK China During September 2014, GSK had encountered allegation owing to bribery, which was offered for the company’s personal gain. The Changsha Intermediate People’s Court in Hunan Province ruled on 19th September, 2014 for offering properties or money to the non-government personnel for obtaining improper commercial gains (GlaxoSmithKline plc, 2015d). Hence, they are accused for bribing the non-government personnel. The verdict was given only after the investigation was carried out by Ministry of Public Security in China during June 2013. The GSK had to pay a fine of £ 297 million to Government of China (GlaxoSmithKline plc, 2015d). These funds will be given from the existing resources that are available to the company. The associated charges and costs of restructuring were included in the financial report of third quarter of 2014 (GlaxoSmithKline plc, 2015d). This illegal activity of GSK has clearly breached the governance of GSK and its compliance procedure. This is opposing to the standards and value that are expected from the GSK employees. The company had also published a statement to the Chinese government, which aims at apologising for their activities (GlaxoSmithKline plc, 2015d). GSK had taken relevant steps for mitigating the seriousness of the situation. This includes various changes that are adopted for its employees. The changes are made in the incentive programs of the sales forces (the company decoupled the sales target from the compensation) (GlaxoSmithKline plc, 2015d). It has also reduced and changed the engagement activities with the healthcare professionals and expanded the processes for monitoring and reviewing the payment of invoices (GlaxoSmithKline plc, 2015d). It was really a disappointing event for GSK as it is regarded as the best research based pharmaceutical company in the world. Its main aim is to improve life of human by ensuring that they feel better and live long (GlaxoSmithKline plc, 2015d). Apart from the above mentioned reason, the sales executives of GSK China were also alleged to pay an amount of 3 billion yuan to the doctors for encouraging them to use company drugs (Fletcher, 2014). Other allegations also included sex tape that was related to the former head of division in China, Mark Reilly and his girlfriend. The tape was emailed to about 13 company executives during 2014 along with the founder of the company (Fletcher, 2014). The above mentioned scandals not only affected the internal balance of the management but also knocked down the sales growth by 4% in the emerging markets (Fletcher, 2014). Moreover, several other news of bribery was also heard to take place in the company, which operates in Iraq, Poland, Jordan and Lebanon; here the sales force was accused to bribe the doctors for wiring their drugs in the prescriptions (Plumridge, 2014). The penalty that was charged to GSK was smaller than the expectation of the analysts in pharmaceutical industry. In view of the above incidents, the investors sent the share of the company up to 1% in the London trading (Plumridge, 2014). However, according to Sheppard Mullin, the managing partner of a law firm had exclaimed that further review of several companies remained so as to decipher the illegal activities of the drug industry in China. He said that China is about to take the policy of zero-tolerance approach against corruption allegations. The head of the China division, Reilly, had received three years of imprisonment, which was suspended for four years and after the sentence he would be expelled from the country (Plumridge, 2014). Apart from China, GSK has to encounter corporate governance issue in the US and the UK. The investigations into the operation of GSK have resulted into further penalties for the companies. The above mentioned have resulted in decrease of sales of the company in the US and China. This has affected share price movement of the company to a great extent. The shareholders lost confidence on the company when it was alleged for the briberies. However, they were comfortable with the fact that the company was fined with huge amount of cash (Jourdan, 2014). Increased pay package of the Chief of GSK During 2003, the shareholders were seen to criticise the pay package of the previous Chief executive of GSK, Jeam-Pierre Garnier and others (Timmons, 2003). The executive pay plans were decided based on the votes from the shareholders. Hence, this was reflected in the voting results, which was against the pay package of Jean. The criticism was severe because the chief received $23.7 million as the bonus salary and stock. However, his pension was also increased (Timmons, 2003; Treanor, 2012, UK: GlaxoSmithKline chiefs pay package more than doubles to £6.7m). Thus, it infuriated the shareholders as he was paid a total of $ 4 million during 2002 (including stock and salary) (Timmons, 2003; Treanor, 2012; Staton, 2012). Since then, the executives of every company had been under severe scrutiny and criticised for receiving excessive pay package. After the vote of the shareholders was counted, it was observed that majority were interested in forming a new investor protection law where they will decide the pay package of the executives. The law enabled the shareholders to get details of the executive pay and this also gave the authority to the shareholders to reject the compensation committee recommendation of the board (Timmons, 2003; Treanor, 2012). CSR Practices by GSK Ethics in a company is concerned with the values and norms, which judge an activity whether it is correct or not. Corporate Social Responsibility (CSR) tries to express those values after applying several policies and programs (Dahlsrud, 2008; McWilliams, Siegel & Wright, 2006). GSK is regarded as the largest pharmaceutical giant, which had its operation worldwide. It has maintained a good code of conduct that is developed by the company in order to operate in the industry. GSK had maintained an ethical business but there are few issues, which were very expensive to the company as it was fined heavily (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). The main objective of GSK is to improve the human life by ensuring a better and longer life. In order to fulfil its objective, the company has adapted a business model and formulated strategies that will deliver sustainable performance with the help if expanding access and innovation (GlaxoSmithKline plc, 2015e). The company has undertaken many projects, which forms the part of CSR activities that are established for fulfilling its objectives in the long run. Environmental Stewardship GSK had understood that existence of any harmful chemical, which are released from its units can be severe to the environment. Hence, it had done extensive experiments to eradicate the problem and make new commitments to the environment (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). Hence, the company assures the population that their products do not harm the terrestrial as well as aqua life. GSK had gained excessive knowledge regarding the biological and chemical compounds and hence, it has the opportunity to innovate new products, which will not affect the environment. It also performs assessment programs for evaluating the pharmaceutical risk that are present in the regulatory system (GlaxoSmithKline plc, 2015f). Community Improvement Programs GSK had undertaken various projects that will enhance the quality of life in a community, where they are operating. In India, the company had undertaken several rural development programs by educating the youths and making them fit for working in companies. Apart from education, they are also trained to use computer, which will enable them to stay in touch with the modern word (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). They are also offered knowledge regarding agriculture, which will help them to assist their family in farming. The company offered anti-parasitic treatment to school children in rural areas so that the children can fight against the impact of intestinal worms (GlaxoSmithKline plc, 2015f). Social Activities GSK had engaged itself in many social activities across the world. The company has developed community colleges for imparting knowledge to the youth and train them to build their own future. GSK has even build school for educating the children. New vaccines are invented so that the children can fight against any sort of harmful diseases. It has also made donation for improving the condition of village (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). The company promotes the products with the help of advertisements in the flyers, posters, billboards, newsletters. GSK also undertook CSR practices and partnership for promotion (GlaxoSmithKline plc, 2015f). CSR Practices influenced by National Institutional Environment GSK is regarded as one of those companies, which has proper code of conduct and undertakes acceptable and suitable CSR activities across the globe. In order to save the environment from the harmful effect of chemical that are released from the company units, GSK had developed plans for eradicating the same (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). It explores a broad range of options in innovating new medicines hence the release of chemicals are frequent, which has the power to harm the environment. In order to eradicate the same, the company has concentrated on inventing such products, which does not release any harmful gas or chemicals. This calls for saving the environment and its people from getting contaminated with harmful chemicals (GlaxoSmithKline plc, 2015f). GSK produces millions of products for population across the world to fight against deadly and harmful diseases, which aims at improving the quality of human and inspire them to live longer. The company operates in three main areas such as vaccines, pharmaceutical and consumer healthcare. It aims at increasing growth by implementing strategies that will reduce the risk and perform efficiently in the long run (GlaxoSmithKline plc, 2015f). GSK has taken responsible steps for working in the national environment and keep the society safe. It also devises strategies for enhancing the quality of sale and marketing activities and improves the relationship with the suppliers (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). GSK has developed a definite code of conduct for its employees so as to deliver an honest business to the nation. The code defines that the employees must act honestly so as to protect the public status of the company and its relation with the suppliers, competitors and customers. The employees should raise their voice against any illegal conduct taking place in the company (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). The company should evaluate and examine the main reasons for dispute and devise appropriate strategies for overcoming them and also keep the action confidential. The employees are free from actual and potential clashes of interest as they do their business efficiently (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). A conflict may arise if a relative of the employee is recruited for the same reporting line. The company ensures that their reputation is not built up by any gifts or favour; rather the employees are expected to do their job efficiently. GSK appoints a spokesperson, who will manage external audiences such as investors or media in order to reduce any risk against reputation of the company (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). GSK offers primary health care services to villages across the country and also provide support to prenatal, neonatal and postnatal care services for child and mother living in the rural areas. They are frequently suffering from reproductive and health care problems. There are several community colleges that offer free education to the youths as well as children so as to build their career (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). The youths are prepared in such a manner that they have the capability to make their own future. During 2012, GSK had invested about £3.5 billion for undertaking global developmental projects (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). GSK had researched 50 drugs, which target diabetic and cancer patients. It had already manufactured 3 billion albendazole tablets and offered them to the patients for fighting against intestinal worms and filariasis. It is also looking forward to make one billion tablets for developing a bright future (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). There are several training programs for the community workers who belong to less developed areas and it has even promised to invest about 20% of profit of GSK to the least developed countries for developing them. GSK had introduced Synflorix vaccines in Pakisthan after investing about £ 4.8 million (GlaxoSmithKline plc, 2015f; GlaxoSmithKline plc, 2015e). Recommendations The recent corporate governance issues encountered by GSK have affected its public image severely. It has also encountered decline in sales figure as the customers and investors has lost confidence on the operation of the company. Hence, the company need to re-establish its image in the community so as to survive in the global competitive market. The company should solve the internal dispute of the management before it rectifies any other issue as human resources are the main drivers of the business. The recommended steps for improving the business of GSK are as follows: 1) Recruit the best employees through proper selection process. 2) Develop a strong human resource department that will help in resolving the issues related to any dispute. The managers should be efficient enough to train the employees in such a manner that the latter can avoid serious issues related to their job. They are also trained to be loyal to the customers and maintain integrity and honesty. The employees are trained to safeguard the public image of the company so that they do not encounter any issues, which may distort its reputation. 3) The company should also make relevant changes in the sales and marketing strategies so as to cater the needs of larger part of the population. Apart from the above mentioned steps, GSK should also take care of the issues that are arising in the different parts of the world so as to encounter a steady increase in sales revenue. References Dahlsrud, A. (2008). How corporate social responsibility is defined: an analysis of 37 definitions. Corporate social responsibility and environmental management15(1), 1-13. Fletcher, N. (2014). Glaxosmithkline To Pay £297m Fine Over China Bribery Network. Retrieved from http://www.theguardian.com/business/2014/sep/19/glaxosmithkline-pays-297m-fine-china-bribery GlaxoSmithKline plc. (2015a). What do we do. Retrieved from http://www.gsk.com/en-gb/about-us/what-we-do/ GlaxoSmithKline plc. (2015b). Governance. Retrieved from http://www.gsk.com/en-gb/about-us/governance/ GlaxoSmithKline plc. (2015c). Corporate Governance. Retrieved from http://www.gsk-ch.in/CorporateGovernance.aspx GlaxoSmithKline plc. (2015d). GSK China Investigation Outcome. Retrieved from http://www.gsk.com/en-gb/media/press-releases/2014/gsk-china-investigation-outcome/ GlaxoSmithKline plc. (2015e). Responsibility. Retrieved from http://www.gsk.com/en-gb/responsibility/ GlaxoSmithKline plc. (2015f). Responsibility Reports And Data. Retrieved from http://www.gsk.com/en-gb/responsibility/responsibility-reports-and-data/reporting-archive-and-resources/ Jourdan, A. (2014). China Hands Drugmaker GSK Record $489 Million Fine For Paying Bribes. Retrieved from http://www.reuters.com/article/2014/09/19/us-gsk-china-idUSKBN0HE0TC20140919 McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Corporate social responsibility: Strategic implications. Journal of management studies 43(1), 1-18. Plumridge, H. (2014). GlaxoSmithKline Found Guilty of Bribery in China. Retrieved from http://www.wsj.com/articles/glaxosmithkline-found-guilty-of-bribery-in-china-1411114817 Staton, T. (2012). After big hike in 2011, GSK CEOs pay set to jump again. Retrieved from http://www.fiercepharma.com/story/after-big-hike-2011-gsk-ceos-pay-set-jump-again/2012-03-13 Timmons, H. (2003). Revolt Against Pay Plan for Chief. Retrieved from https://www.google.co.in/?gfe_rd=cr&ei=tehOVZ6ANPDH8Ae1gYHQCQ&gws_rd=ssl#q=incraesed+pay+package+of+Chief+of+GSK Treanor, J. (2012). Glaxosmithkline Chiefs Pay Package More Than Doubles To £6.7m. Retrieved from http://www.theguardian.com/business/2012/mar/12/glaxosmithkline-chief-pay-andrew-witty Treanor, J. (2012). UK: GlaxoSmithKline chiefs pay package more than doubles to £6.7m. Retrieved from http://corpwatch.org/article.php?id=15683 Read More