GSK… Rotten To The Core

GlaxoSmithKline: Drugged Up On China’s Culture of Corruption?

Thursday 12th September 2013 in CommentLead articles

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Can GSK's practices in China be linked back to their HQ in Brentford? Sir Andrew Witty says no. Photo: Maxwell Hamilton.

GSK insist practices in China cannot be linked to Brentford HQ. Photo: Maxwell Hamilton.

It has not been a good couple of years for GlaxoSmithKline (GSK) on the publicity front.

2012 began with GSK paying a hefty fine in Argentina for ‘experimenting with human beings’ during vaccine trials which allegedly led to the death of 14 babies. Another settlement in July broke the record as the largest payment by a drug company in the biggest healthcare fraud case in U.S. history (a settlement totalling $3 billion).

Now, a scandal in China promises lengthy procedures, heavy press coverage, and potentially huge fines. Prompted by investigations from the Chinese, authorities claim that GSK has been using hundreds of middlemen and travel agencies to bribe doctors and officials since 2007. The money involved has been estimated at 3 billion yuan, in addition to sexual favours in exchange for the prescription of the company’s drugs, an increase in market share and higher selling prices.

Yet GSK have made it clear that the wrongdoing was not part of any corporate strategy – “The issues identified would be a clear breach of our corporate values and we have zero tolerance for any behaviour of this nature”. Instead, they have shifted the blame onto individual executives who they state “acted outside of our processes… to both defraud the company and the Chinese healthcare system”.

We have zero tolerance for any behaviour of this nature – GSK

Meanwhile, four senior executives have been arrested and appear to have confessed. The Chief Executive of GSK andChancellor of University of Nottingham, Sir Andrew Witty, described the allegations as “shameful” and was “personally deeply disappointed”.

Contrary to this, the Chinese police believe that GSK had a structured bribery programme. The Xinhua news agency asserted: “…it is becoming clear that it is organised by GSK China rather than drug salespeople’s individual behaviour”.

With the revelation that the company had set targets for annual sales growth at 25% (approximately 7% higher than the average growth rate for the industry), a general manager for GSK admitted that this could not be reached in the absence of ‘dubious corporate behaviour’. Nonetheless, this might not be strong enough proof that salespeople were forced into illegal practices.

Confirmation of these suspected corrupt practices implies serious consequences – such as charges under UK/US anti-bribery laws. Indeed, it has recently been reported that US authorities have opened investigations on GSK for violations of their anti-bribery laws. Despite being a British company, GSK’s listing on the US stock exchange gives them jurisdiction over the issue.

Amongst all this, some have raised the question: why did Chinese authorities choose GSK? Such corruption is common practice in Chinese pharmaceutical companies, partly due to low salaries for doctors. The Chinese authorities appear to be holding onto the affair tightly, leading to speculations of political motives.

These speculations have arisen from the company’s links with Betsy Li Heng, a former director of GSK’s corporate affairs. Li’s two brothers, Hu Deping and Hu Dehua, have long been advocating political reform – going so far as to criticise President Xi. This is almost unheard of amongst Chinese officials and intellectuals, and the scandal could be a warning for them not to overstep the mark.

China’s anti-corruption rules ultimately have yet to override traditional business practice. But times are changing; continuing protests across China over corruption and its slowing economic growth has left tensions bubbling. Declining social stability is a major fear for the government, yet clamping down on corruption is a complicated matter.

Distinguishing between money spent on corruption with money spent on developing relationships (‘guanxi’) can be difficult, as it is a significant part of the way business is done in China.

As relationship building involves banqueting, President Xi has reduced the number of dishes allowed in official banquets; a sign that he is serious in pushing forward his anti-corruption measures. For China, this may just be the beginning of a long and thorny path towards a more respected and regulated business environment.

Lucinda Chow

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