For a company that has put ethics at the centre of its business, it was a catastrophic conclusion to ten months of rumour. The former head of GlaxoSmithKline’s Chinese operations has now been accused by police of corruption and running a ‘massive network’ that bribed doctors and hospitals on an epic scale.
Police have recommended that three directors of the Chinese business should be prosecuted, including the former head of operations, British-born Mark Reilly.
The culmination of the Chinese investigation follows hard on the heels of a rash of new allegations of bribery that surfaced in April.
First, GSK was accused of bribing doctors to prescribe its drugs in Poland. Then, days later, it faced further allegations of using illegal inducements in Jordan and Lebanon to persuade doctors to prescribe its products. GSK is also under scrutiny in Iraq, bringing the tally of investigations it is facing to four within a year.
Furthermore, it is only two years since the global drugmaker pleaded guilty to criminal charges over drug marketing in the US and agreed to pay $3 billion to settle the case – the largest healthcare fraud settlement ever.
Now, GSK could provide the UK’s Serious Fraud Office (SFO) with its first successful prosecution under the beefed-up 2010 Bribery Act, which is supposed to be the toughest anti-corruption law in the world.
Nathan Peacey, partner and head of the regulatory team at the law firm Bond Dickinson, says: ‘GSK may well find itself in the middle of a perfect storm (rather less perfect if you are a GSK shareholder). Politically, and to uphold its reputation, the Serious Fraud Office needs a prominent scalp, and quickly.’
The big pharmaceutical company is firmly in the crosshairs of both the SFO and the US’s Department of Justice. Yet it could take many more months of scrutiny – and many more hundreds of management hours – before the process comes to a conclusion.
The company’s tactics in dealing with the allegations have been to both admit some wrongdoing, but also to largely blame the problems on rogue salesmen and executives who knowingly overstepped company procedures.
Sir Andrew Witty, the much-respected chief executive of the giant pharma group, has put his own reputation on the line, recently claiming that the company had reformed. ‘We had to learn some tough lessons but GSK has changed,’ Sir Andrew said, highlighting the group’s social responsibility on a trip to Kenya to hand out antibiotics and antiseptics. ‘We are very aware that there is a trust that must not be breached.’
Brian Spiro, partner at BCL Burton Copeland solicitors, says that GSK’s actions are in-line with the new obligations that the Bribery Act places on businesses to show that they did everything possible to prevent corruption.
GSK’s strategy for tackling the allegations has been to investigate thoroughly and to make a public show of tossing out the rotten apples, while taking steps to introduced new safeguards in the business that will hopefully prevent future lapses.
It has called in internal and external investigators – usually law firms and forensic accountants – in China, Iraq and Poland and is working ‘closely’ with the authorities in each country, as well as with the UK’s own SFO.
First among the company’s list of core values is transparency; consequently there are many statements and press releases on the progress of allegations on its website. The China investigation even has its own area of the site – collating background and statements – which features prominently on the landing page.
A spokesman for GSK says: ‘GSK has zero tolerance for unethical or illegal behaviour. We expect our employees to uphold our high standards and we believe the vast majority do so. GSK welcomes and respects people speaking up where they have concerns and we have a number of channels internally to enable them to do this, including hotlines and online portals.
‘We thoroughly investigate allegations using resources from inside and outside the company and take any action where necessary. We are committed to transparency on these issues, which is why we publish figures in our Corporate Responsibility report on the number of staff disciplined for breaching internal policies and controls.’
The report reveals that there were 3,128 instances of employee discipline for policy violations, ranging from attendance to expenses to falsification of documents, which led to 375 employees being dismissed or leaving voluntarily. Of the violations, 161 related to sales and marketing practices, which led to 48 dismissals and 113 documented warnings.
Another step the drug group has taken is to say that it would no longer pay doctors to promote its products at medical events and would eliminate individual sales targets for its marketing staff.
The UK arm of Transparency International, which monitors companies for corrupt behaviour, says: ‘The recent GSK allegations have once again placed the issues of corporate bribery and healthcare corruption in the spotlight.
‘Businesses that want to pay bribes are acting unethically and illegally. Bribes were illegal before the Bribery Act and are illegal throughout the world. Like human rights abuses, the fact that they are tolerated in some countries does not make it right for some companies to do it.’
This idea that a certain amount of ‘oiling the wheels’ is necessary to do business in some markets is, however, no longer acceptable in an age of global multi-nationals that boast of high ethical standards.
Barry Vitou, partner at law firm Pinsent Masons, says: ‘The law is pretty much the same the world over – bribery is not permissible. The argument along the lines of Well, everyone does it is not a successful defence strategy.
‘Companies operating globally need to have a decent policy and systems of control in place, led by a strong moral compass at the top. It certainly isn’t the case that bribery is as prevalent as people say it is. Some people just don’t put up any resistance at all.’
The pharmaceutical sector, says Vitou, finds itself at risk of bribery, much like the defence and oil and gas sectors, because it mainly sells very valuable items to state purchasers, usually through employees who earn very little compared to the total value of the transactions.
Transparency International UK adds: ‘The pharmaceuticals and healthcare sector is regularly cited as a high-risk sector for corruption. Out of a global survey of over 114,000 people in 2013, on average, 45 per cent believed medical and health services to be corrupt or extremely corrupt.’
Where the Bribery Act has changed things is that it has made it quite clear that a UK company is liable for corruption that takes place in any other country in the world, even if that is considered local practice.
Spiro says: ‘You cannot say I was pitching for a government construction contract and I paid one per cent to an agent, knowing that it would end up with a minister, because that is the only way you can win a contract in that country.’
Of course GSK is not alone among FTSE 100 companies in facing this kind of scrutiny. BAE Systems became embroiled in a huge bribery scandal after The Guardian journalists David Leigh and Rob Evans showed that the defence giant had been paying kickbacks worth millions of pounds around the world to secure arms deals, particularly in Saudi Arabia.
One former member of the BAE Systems team remembers a week in 2007 when the The Guardian carried five consecutive front page splashes on the company.
‘Our approach was not to be beaten into submission. We had to redouble our efforts to promote the positive things about the business, while recognising that the negative noise would continue,’ the comms veteran recalls.
It was essential to keep employees informed throughout – especially when the front page stories kept coming, later followed up by other papers and the BBC.
‘We kept employees informed and we kept talking to them. At the time, social media wasn’t so developed as it is now so that helped. Generally, your employees will tend to think the company is innocent until proven guilty, so it’s important to keep them onside.’
The company also pulled together a small ‘swat team’ of its most experienced communicators, who took the lead on the bad news story. This allowed other people to focus on other issues, including industrial strategy and financial news.
‘The company was extremely open in the steps it took to try to address problems. The publication of the Woolf Report [an independent report into the company’s ethics] shows that it was not afraid to air its dirty laundry in public,’ the former executive says.
A decade later BAE Systems has done so much to put its house in order that it has shot up the rankings of Transparency International and, more significantly, continues to win business from the UK and US governments.
Last year, outgoing chairman Sir Dick Olver gave a Tomorrow’s Company lecture in which he said that BAE Systems now actively turned down business that might cause the company to contravene its ethical code.
‘In practice, what looked to many like an albatross around our necks has turned out to be big winner with customers across the world who positively want to deal with providers who behave ethically,’ he said. ‘This year, our order book outside the US and UK is twice the size of a year ago.’
Rolls Royce Aerospace, the aeroplane engine maker and defence contractor, said in December that it was being investigated by the SFO over concerns about bribery in Asian markets.
Prior to this, Rolls Royce Aerospace had already appointed Lord Gold, an expert in ethics and compliance, to review its current process and controls. John Rishton, chief executive of Rolls, recently outlined the steps the company was taking to put its house in order. These include a new Code of Conduct and an ethics helpline with contact numbers in 48 countries.
The company also said it had sharply reduced the number of intermediaries used overseas.
‘We have a zero tolerance approach to bribery and corruption and make an unequivocal commitment to compliance. This is a company with exceptional prospects and I will not accept any behaviour that undermines its future success,’ Rishton told shareholders at the company’s annual meeting.
Philip Gawith, partner at Stockwell, the corporate reputation advisors, says that when dealing with allegations of bribery: ‘The key issue is what sort of reputation you start with. Companies that are trusted are given the benefit of the doubt. Companies who have been cavalier about their reputation are punished.’
He points out that GSK’s original $3 billion fine in the US was confirmed the same day in 2012 that Barclays was fined £290 million for Libor-rigging. The GSK story was largely forgotten as the papers reported every cough and spit of the Barclays lapse.
Gavin Megaw, director at Hanover Communications, says: ‘Prevention is always better than cure. Too many communications professionals think it is above their pay grade to get involved in operational matters. I say it’s a way to increase your pay grade. Comms people need to be proactively leading audits of their own operations, so they can identify a reputational gap. The bigger the reputation gap the more dangerous it will be when something goes wrong.
‘If something does happen, you need to deal with issues proactively. It doesn’t mean hiding them. Tell the world about them in your way.’
Megaw, who also chairs the PRCA Crisis Comms group, says that companies need to be as proactive as possible and keep telling their story.
‘Sometimes it’s difficult to give bad news and the legal team may want to stop you, but you have to get your version out because once the story is told you potentially hand it over to regulators and other voices.’
Internal audiences need to be kept up to date as well, because they have a huge impact on reputation, he says, ‘because if they turn against you, you have lost it even more than if the media turns against you’.
Tim Fallon, managing partner at Instinctif, has similar views on dealing with bribery allegations. ‘The reality is corruption in developing markets has often been seen as part and parcel of the way that you have to do business. But now that multinational companies realise that transparency and good corporate governance is so critical to winning business, this attitude has become a challenge for some organisations.’
Fallon advises total honesty at all times, even when the lawyers are saying ‘do not comment’. If a problem arises he advises that companies accept it quickly, apologise and show what measures the company is taking to make things right.
‘You will need to tailor the language of that apology to reassure a whole range of audiences. Honesty often buys you credibility. It is where corporations and organisations have tried to sweep things under the carpet and been found out that reputations are most damaged,’ says Fallon.
He also advises that the business leader themselves should be the person apologising, and do so sincerely, in their own words, rather than through a bland stock exchange announcement.
‘People accept that, like people, companies are fallible and mistakes happen. But the apology has to come from the top decision maker and they have to show that they are sincere,’ Fallon says.
That is the difficult role that Sir Andrew Witty now finds himself in, facing the biggest crisis of his six-year tenure. Having put transparency and operating responsibly at the centre of his business strategy, his words may yet come back to haunt him.