GlaxoSmithKline in China

Navigating the Complexities of Doing Business in China: Lessons from the GSK Bribery Scandal

Introduction

This report analyzes the GlaxoSmithKline (GSK) bribery scandal in China, examining the internal and external factors that contributed to the misconduct. It assesses GSK’s response to the scandal and offers recommendations for companies seeking to avoid similar situations while operating in China. The report also provides strategic and operational lessons for businesses navigating the complexities of the Chinese market.

Analysis

GSK’s Ethics and Compliance Program Failure

Despite having a robust ethics and compliance program, including a “3rd Party Code of Conduct” for suppliers, GSK’s internal controls failed to prevent the bribery scandal in China. Several factors contributed to this failure:

• External Factors:

• China’s Business Culture: While China has made strides in combating corruption, “guanxi” (relationship-based business practices) remains prevalent, creating pressure for companies to engage in gift-giving and other potentially questionable practices.1
• Regulatory Environment: Despite anti-corruption laws, enforcement can be inconsistent, and navigating the complex regulatory landscape can be challenging for foreign companies.2
• Competitive Pressure: The intense competition in the Chinese pharmaceutical market may have incentivized GSK employees to engage in unethical practices to secure market share.

• Internal Factors:

• Lack of Oversight: GSK’s internal controls and auditing processes may have been insufficient to detect and prevent bribery, particularly in a geographically distant and culturally different market like China.
• Incentive Structures: Sales targets and performance-based bonuses may have inadvertently encouraged employees to prioritize short-term gains over ethical conduct.
• Cultural Disconnect: A lack of understanding of Chinese business culture and ethical norms among GSK’s senior management may have contributed to the company’s failure to identify and address potential risks.

While both external and internal factors played a role, internal factors were arguably more important. GSK had a responsibility to implement and enforce effective compliance measures, regardless of the external environment. The company’s failure to do so ultimately led to the scandal.

Assessing GSK’s Response

GSK has taken several steps to address the bribery scandal, including:

• Strengthening internal controls: The company has enhanced its compliance procedures, increased training for employees, and implemented stricter oversight of third-party relationships.
• Cooperating with authorities: GSK cooperated with Chinese authorities during the investigation and accepted responsibility for its actions.
• Implementing a remediation plan: The company has committed to implementing a comprehensive remediation plan to address the root causes of the misconduct.

While these initiatives are positive steps, further actions are necessary. GSK should focus on:

• Cultural Sensitivity: Develop a deeper understanding of Chinese business culture and ethical norms, and integrate this knowledge into its compliance programs and training.
• Transparency and Accountability: Increase transparency in its operations and hold individuals accountable for ethical breaches.
• Continuous Improvement: Regularly review and update its compliance program to adapt to the evolving regulatory and business environment in China.

If I were Mark Reilly (GSK’s former China head), I would have prioritized:

• Early Intervention: Address any signs of unethical behavior promptly and decisively.
• Open Communication: Foster a culture of open communication and encourage employees to report concerns without fear of retaliation.
• Ethical Leadership: Set a clear example of ethical conduct and emphasize the importance of compliance at all levels of the organization.

Was GSK Treated Unfairly?

While the perception that bribery is necessary to do business in China may exist, GSK was ultimately responsible for its actions. The company violated both Chinese law and international anti-corruption standards.3 However, the severity of the penalties imposed on GSK may reflect a desire by Chinese authorities to send a strong message to foreign companies about the importance of ethical conduct.

Avoiding Similar Situations and Reconciling Local Expectations

To avoid similar situations, companies should:

• Conduct thorough due diligence: Before entering the Chinese market, companies should conduct thorough due diligence to understand the legal and ethical landscape.
• Develop a robust compliance program: Implement a comprehensive compliance program tailored to the specific risks of operating in China, including training on local laws and cultural norms.
• Engage in ethical leadership: Promote a culture of ethics and compliance from the top down, and empower employees to speak up about concerns.
• Seek expert advice: Consult with legal and compliance experts to ensure adherence to local and international regulations.

Reconciling local expectations of questionable payments with the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act requires a commitment to ethical principles and a clear understanding of the law. Companies should:

• Establish clear policies: Develop and communicate clear policies prohibiting bribery and corruption.
• Provide training: Train employees on the FCPA, the U.K. Bribery Act, and other relevant anti-corruption laws.
• Implement robust internal controls: Establish internal controls to detect and prevent bribery and corruption.
• Seek legal guidance: Consult with legal counsel to navigate complex situations and ensure compliance with all applicable laws.

Conclusions and Lessons Learned

The GSK bribery scandal provides valuable lessons for companies operating in China:

• Compliance is crucial: A robust compliance program is essential for mitigating risks and ensuring ethical conduct in the Chinese market.
• Cultural sensitivity is key: Understanding and adapting to local business culture and ethical norms is critical for success in China.
• Ethical leadership matters: Strong ethical leadership is essential for fostering a culture of compliance and integrity.
• Transparency and accountability are vital: Transparency in operations and accountability for ethical breaches are essential for building trust and maintaining a positive reputation.

HomeworkDoers Can Help!

Our team of expert business writers can assist you with:

• Case study analysis: Analyzing complex business cases like the GSK scandal, identifying key issues, and developing strategic recommendations.
• Research papers: Conducting in-depth research on international business topics, including ethical challenges and legal compliance.
• Business reports: Preparing professional business reports on a variety of topics, including market entry strategies, risk management, and corporate social responsibility.

Place your order today to get expert help with your business assignments!