GlaxoSmithKline Management - Case Study Example

GlaxoSmithKline Name Course Tutor Date Executive Summary This report tracks the history of GSK from its time of merger to its current position. The company has been under stressing conditions with allegations of bribery and anti-competition in foreign country China. This paper provides a brief introduction of Glaxo and SmithKline Beecham companies and the eventual merger. The paper also highlights the initial problem that has led to the recent downturn of the company. The paper points out the difference in management styles between the two companies before and after the merger. The paper is dived into two parts. The first part summarizes the ethical issues affecting GSK and provides possible recommendations. The second part is about the case study of scandals of GSK in China and how it is likely to deal with the situation. At the end, the paper gives a conclusive summary of the possible recommendations and how GSK can redeem itself and bounce back to the same profitable drug firm that it is known for. Introduction GlaxoSmithKline Company is a company that has undergone so many transformation to become one of world worst rated drug company. This is because of the changes that have occurred due to poor leadership. A brief history between Glaxo and SmithKline Beecham will help in highlighting where the problem occurred. It is important that we understand this company was a merger between Glaxo and SmithKline Beecham something that was done without proper consultation. Just at the end of the 20th century most drug producing companies were forced into mergers in order to help cope with the rising demand for health care. Amongst the reasons for these mergers were the rampant cases of pandemic diseases like AIDS that required drug producing firms to be well equipped in terms of research and development, training and developing of new strains of drugs to cope with the health challenges. The rising technology and the resistivity to drugs by most pests and diseases also led to these mergers. Moreover, most governments were pushing drug companies into developing drugs that were cheaper in order to combat most pandemics like AIDS. For this reason, most companies entered into merger in order to reduce costs of production and meet their customers’ needs at the lowest cost possible. This also made the drug regulating bodies to slacken their rules allowing most countries like India to produce their own drugs at the least cost. This led to production of very low quality drugs. Part A For these two companies the merger talks began in 1998. Leschly who was the CEO of SmithKline Beecham was likely to be the next CEO after the merger. However, this did not happen because there was a difference in terms of management between the two CEO’s of these two companies. It is believed that Leschly’s mode of management was strict and based on culture and performance while that of Syke, who was the CEO of Glaxo, was based on belief in science and traditional as well. This is the epicenter of the conflict and the major reason behind the fall of GlaxoSmithKline. It is the difference in management styles that the merger did not take place as intended and only occurred after Leschly retired. This is the major reason behind the huge losses this company has been having. It is also worth noting that after the retirement of Leschly, the merger took place very fast and not even Syke was named the CEO after the merger. A new person who did not have any idea about the two companies’ management styles was named the CEO after the merger. The other problem that affects GSK Company to date is the failure to streamline the working conditions and taskforce engaged in production of drugs. It is for this reason that the new CEO Jean Paul Garnier faced a rocky situation which included criticism from shareholders and consumers. Many managers agree that ethics improves organizational performance and ultimately achievement of the organizational success and goals. Other managers insist on doing the right thing by including honesty, trust, diligence, responsibility, accountability, and hard work as their core values regardless of the organization’s self-interest. While approaching the ethical issue in the organization, it is important to note that the problem can be individual or communal. An organization is responsible for its own moral responsibility. However, the problem is normally an individual responsibility. It is also important to note that not all companies and organizations always aim at making profits and interest for their stakeholders. In addition to this, we realize that organizational life and our normal lives are not much different since our lives incorporate our day-to-day activities. Because the drug regulating bodies slackened their rules regarding the quality of drugs produced by companies, GSK took advantage and started producing products that were of very low quality. Moreover, the company was under intensive pressure to make profits something that mounted from the competition from small companies warrantied to produce drugs that were under patent. This case was heard in South Africa and no legal action was taken. These are some of the reasons that have made most drug producing companies to overrule some of the regulations and produce low qualities drugs in order to fight competition. Despite this, management plays a vital role in promoting good ethical behavior at work because all the stakeholders of the organization are under a code of ethics that directs and shape their behavior (Jack Friday, 2013). Management is also responsible for setting and transmitting of policies to all the employees hence helping in sustaining good ethics in an organization. Companies and their managers will use all kind of excuses in order to try meeting their short-term goals. Many employees have compromised different situations within their companies for fear of losing their jobs. Most of the companies have engaged in illegal ways of attaining profits for fear of losing the company’s image and profits within the company (Bornstein, 2004). For example, Former WorldCom CEO Bernard Ebbers faced charges with fraud and conspiracy for a scandal that amounted to $11 billion (Conrad, 2003). John Rigas and his Son Timothy Rigas both of Adelphia are guilty of fraud, cheating, and conspiracy of billions of dollars from investors. Former Qwest CEO Joseph Nacchio and six other executives faced charges of fraud and concealing millions of dollars from their sources. Several pharmaceutical companies including SmithKline and Merck removed their drugs from the market for being unsafe for public use in some cases. The list of many conspirators and illegal activities of many companies is endless. A good manager will be able to identify unethical issues through such examples. However, good ethical behavior includes responsibility for the companies’ goals and visions and protection of the company’s property at all the times. In order to sustain the company’s moral ethics it is important for the mangers to conduct several trainings, which help in building the cultural value within the company. This would be the first step taken by the new manager after the merger. This would have helped in realigning the traditional and scientific management difference in the two companies. Moreover, the new CEO was under obligation to create a new culture after the merger something that did not occur hence the failure. The new CEO was supposed to engage the staff with constant training as a way of ensuring ethical standards is maintained. Trainings have several advantages. They help in constant reminding of the managers and the employees of their general-purpose and functions within the company. They also help keep track on the organizational strategic plans. The trainings help in constant evaluation of performance within the company. The trainings also help in updating the employees, managers and stakeholders on the status of the company’s progress. The quarterly meetings and the annual general meetings also help in creating faith in investors hence can attract other investors. The weekly trainings also create a chance where the managers and top officials can approve some specific recommendations about the company. The trainings help in avoiding confusion and conflicts that may arise within the company. Through these trainings, the company is able to build a substantial organizational culture that avoids illegal activities. In order to deal with ethical issues within the organizations is it important that the company employs fair ways of recruitment and selection of employees processes. Many employers do not encourage external training for fear of competition and extra costs on their companies. It is therefore important that organizations provide their own systematic training within their own given timeline. Providing employees with proper training in communication is very essential in ensuring successful running of the business. Training within the organization has a direct correlation to performance within an organization. Behaviorists argue that proper training on ethical value helps in reducing malpractices within an organization. Despite criticizing GSK Company, it is important that we also acknowledge the failure of drug regulating bodies in their failure to ensure that counterfeit drugs are not in circulation. These bodies need to tighten their rules and punish all offenders of the law in order to avoid cases of counterfeits and low quality drugs in the market. GSK needs redemption in terms of leadership. It is ideal that the company goes back to the drawing board and appoint a new director who is competent enough to incorporate culture and ethics into the company and redeem the company returning it to its glory days. The new CEO also requires forming an organization structure that highlights properly the core values, mission and vision of the company in order to instill the culture of performance. Moreover, the company needs to deal with ethical issues within the company before airing their dirty linen in the public. This means that the company requires punishing by firing and prosecuting all their staff who are engaged in unethical issues. Moreover, the company must work hard in terms of promotion and marketing of their new products in order to win their customers back. Another recommendation that might be of help is the rebranding process. The company has a poor reputation worldwide. For this reason, rebranding is a good strategy of winning new customers and as well as informing their customers of the fresh changes within the company. Part B Leadership has been the problem again when it comes to the scandals in China regarding GSK. In June 2nd 2012, the company was on the spotlight again and was forced to pay a fine of $3 bn after it emerged that the company was selling unfit drugs. This is also the largest drug scandal in the world. Just recently, four GSK staff in China were detained after it emerged that the four were engaged in fraud. According to the BBC News, the four had been channeling the money to a traveling agency to influence and bribe doctors to prescribe their company’s drugs. It is imperative to hear this and although you cannot control how doctors prescribe these drugs it became a big scandal when it was discovered. We must not forget that China is also one of the countries that enjoyed the slackness of the drug rules and started producing their own drugs at the lowest possible cost. On the other hand this matter has been treated as a political issue with key figures from the Communist party under attack. It is believed that the late Communist Party General secretary Hu Yaobang was under the move to bring down multinational companies and protect their local companies from competition. Because of the kind of competition, it has emerged that GSK officials have been engaged ways in which they can promote and increase their sale. Despite the allegations, it was confirmed that GSK is just a fraudulent and scandalous company. GSK has been on the spot on how it is doing its business. The orientation has changed. The company tries so much to promote their drugs to the customers as well as selling the lowest quality drugs at the highest possible price. This does not happen directly in fact, one stone is used to kill three birds. It is like a person entering a hotel and then orders the most expensive meal. The person who orders is not similar to the person who eats. In addition to this, the person who pays the bill is also different. This is how GSK officials are operating in China. The company officials are bribing doctors to prescribe the most expensive drugs from their company to their customers. The patient will be treated and given drugs and either a health care insurance company or the state will be forced to foot the expensive bill. This is how scandalous this issue has been. We must also not forget that China is enjoying the numbers when it comes to population and huge chunks of money are made from such scams. Interestingly, the doctors are more comfortable in prescribing drugs that they have not verified their potential. However, it was realized during the investigations that Chinese doctors operating in China are paid so low and this is why they rely heavily on bribes to make their way out. There is nothing new in this scandal since GSK has been engaged in so many scandals since 1991. So far the company has been the biggest offender in the US paying a total of $ 7.6 billion with $ 3 paid within a single year in 2013. Moreover, it is not only GSK that is actively involved in this kind of scam. In total so far since 1991, the total amount of fines paid to the US government by drug companies is $ 29 billion in US alone (Adam Jourdan, 2013). The current CEO Witty must be so Witty in engaging in scandals. He denied this allegations and claiming that his company was under attack. When the investigations were conducted, it was revealed that not only were doctors and physicians bribed but also were engaged in high price entertainment activities. Most of the Doctors in China flew to Hawaii for vacations while pretending to be attending seminars and talks. In addition to this, the doctors also attended Madonna Concerts where millions of dollars had been paid for them with the allegation that they are on speaking tours. Despite failing so much there have been accusations on Witty on how much he carries home as bonus every year. When the scandals emerged, Witty was on the spot as to whether he was still entitled to carry home huge bonuses after leading the company and shareholders into huge fines. He declined to answer these questions and said the matter would be handled by the board. Theories of the trait: In this case the subject postulates that a leader is described based on the traits one processes. These traits are moreover a bank of attributes which are dispensed continually without ever being exhausted. They are described based on the attributes that can be accorded to man, some of which include charisma, zest, among others. Moreover, Holland identifies six personalities’ types and proposes that the fit between personality type and occupational environment determines satisfaction and turnover (Rick Tang, 2013). The six traits include realistic, investigative, social, conventional, artistic and enterprising. These characteristics are what GSK Company requires in order to avoid these kinds of unethical behaviors. Investigations by The Guardian Newspaper also revealed that prices of products from GSK products were also fixed and unreasonably high for retail prices for patients. It is believed that this is the reason which prompted China to burst the operation after suspecting the prices of GSK products were so high that the retail patients could not afford. GSK is now facing threats of being charged by China for Anti-Unfair Competition as well as bribery charges (Nils Pratley, 2013). Witty the CEO of GSK has failed in this regard because any multinational stemming from US and UK are usually under strict regulations. For this reason, the CEO was under obligation to ensure that robust internal audits and controls in addition to checks and control are in place in order to avoid such scandals. This is necessary because some foreign countries have weak laws which are not so vigorous and hence may not effectively control such misconducts like bribery and anti-competition practices like in the case of GSK. It is very ironical that Witty the CEO is refuting these allegations yet all multinationals operating in China are under anti-bribery and extraterritorial jurisdiction which regulates their conducts from parent companies. For this reason, it is vague to argue that a large multinational like GSK lacked robust systems and processes in place to check the functionality of its operation. Personally I believe that GSK cannot lack such systems. For this reason, the GSK systems just failed to comply with the legal requirements of operating in a foreign country. The Telegraph newspaper reports show that almost 3 billion Yuan were paid as bribes in order to promote GSK products. This is not a little money and what we are left wondering is how much has GSK made in sales of its products if such huge amounts have been offered as bribes. We must also not forget that China is fighting to be a superpower and it will do anything to avoid any dominance of a foreign country in terms of business. It is believed that the GSK profits irritated the China prompting them to conduct serious investigations on how GSK attained such profits. This is according to Prof Kerry Brown from Harvard University on her interview with The South China Morning Post news (Tom Holland, 2013). In addition to this, the Don also added that most of multinational and foreign countries have ventured into China due to its population and are aware of good returns from the country. For this reason, China has tightened its rules as a way of avoiding foreign dominance in addition to avoiding exploitation. China is also one of the world’s country with the best technology in addition to having a good manufacturing know how with quality management in terms of labor with quality logistic management. It is for this reason that most multinationals have targeted the country. For example, a report from BBC News showed that 73% of US companies that operates in China made good profits last year. This is also in tandem with a research conducted with American Chamber of Commerce in China. Moreover, 40% of these countries were able to record higher profits than their global average. This just informs us of how business in hot in China. It is for this reason that the 1500 McDonalds outlets in China outperform other McDonalds in the world (Mike Spectre, 2013). Currently the case of GSK is under investigation. Being a large multinational with huge investment and cash the company has three choices to respond to the allegations. Most analysts are giving the following options. One is accepting the allegations and dealing with the problem head to head. The other possibility is to deny the legal liability and fortress itself while the company can also negotiate and settle with the Chinese authorities but without admitting the allegations as a way of preserving its legal position from civil lawsuits especially from foreign countries. In my opinion and experience in law from so many examples it is advisable that GSK deny these charges and fortress itself. The worst will be to accept these allegations. This will lead to automatic fall and breaking of the company. Customers loyal to this company will withdraw their services as well as shareholders. For this reason I believe that GSK can redeem itself by denying these allegations. According to Prof Brown, a company that deals with its problems when it is just prompting is likely to solve them quicker. A company that takes long without solving its problems will always fail in solving them especially with the age of internet. Bigger problems will always arise on the way if a case takes longer time. While tracking the last 30 years in China it is evident that the country is keeping a clean track record and is reforming. For this reason, it is likely to act tenaciously with GSK. For this reason, GSK must put his house in order if it will want to continue conducting its operations in the profitable country China. GSK is now under obligation to instill corporate responsibility and ensure ethics is their key issue. Conclusion The case in China is a good example that there were weaknesses and omissions in the code of conduct of GSK in China hence the allegations of bribery and anti-competition. A big multinational like GSK cannot afford to miss policy and regulations aimed and auditing and preventing irregularity in foreign countries. This is the major area in which GSK has failed. The company failed to regulate its operations in China. Some of the ways in which this company can avoid future unethical dilemmas include placing strict rules governing ethical conducts of all its employees. Regulations and jurisdictions should also be firmly instilled in order to avoid such cases. Bibliography Adam Jourdan, K. T. (2013, September 18). GlaxoChinaGate contd. Analysis - Bribery scandal dents Big Pharma sales in China, GSK hardest hit . Retrieved 2014, from PharmaGossip: http://pharmagossip.blogspot.com/2013/09/glaxochinagate-contd-analysis-bribery.html Bornstein, D. (2004). Social Entrepreneurs and the new world. Oxford: Oxford Press. Conrad, C. (2003). The Corporate meltdown. Management Communication Quarterly, Vol 17 Issue 1 5-19. Jack Friday. (2013, August 23). GlaxoChinaGate contd. - Behind the China Bribery Scandals. Retrieved 2013, from PharmaGossip: http://pharmagossip.blogspot.com/2013/08/glaxochinagate-contd-behind-china.html Mike Spectre. (2013, October 23). GlaxoSmithKline sales plunge in China after scandal. Retrieved 2013, from BBC Business News: http://www.bbc.co.uk/news/business-24637195 Nils Pratley. (2013, July 2013). GlaxoSmithKline should have seen the warning signs in China. Retrieved 2013, from The Guardian: http://www.theguardian.com/business/blog/2013/jul/24/glaxosmithkline-china-andrew-witty-corruption Rick Tang. (2013, September 8). GlaxoChinaGate contd. - Rick Tang explains China's GSK probe motivated solely by wish to curb corruption. Retrieved 2013, from PharmaGossip: http://pharmagossip.blogspot.com/2013/09/glaxochinagate-contd-rick-tang-explains.html Tom Holland. (2013, August 2013). Nothing uniquely Chinese about Glaxo bribery case. Retrieved 2013, from South China Morning Post: http://www.scmp.com/business/companies/article/1293460/nothing-uniquely-chinese-about-glaxo-bribery-case Read More