Just occasionally a useful e-book sneaks out that mainstream publishers have failed to ensnare.
Thomas Fox’s “The Dénoument”, which explores the many implications of the GSK scandal in China, is one of them. In 50 pages of facts and informed interpretations he unravels the latest twists in a saga worthy of Hollywood.
His main focus is on the learning for compliance practitioners. But his excellent and readable account also uncovers useful ethical leadership lessons.
“You know its going to be a rainy day when your employees line up to testify against your company in an ongoing investigation for bribery and corruption,”
In something of an understatement Fox suggests there has also been clear Chinese business unit management participation in the bribery and corruption scheme.”
Back in 2013 the company was apparently told by an anonymous whistle-blower of the allegations, yet after investigating the company conveniently gave itself a clean bill of health, “finding no evidence of wrong doing.”
In a bizarre tale someone sent the GSK board including the CEO a covert sex tape involving a senior executive and his Chinese lover in 2013. Although the company response was to hire an apparently independent firm to investigate, that firm’s principals were hardly distanced from GSK and were soon themselves arrested for allegedly breaking Chinese laws relating to information privacy.
Given the amount of intelligence flowing into GSK about the situation in China it hardly seems credible the internal enquiry failed to turn up evidence that the Chinese authorities readily developed against GSK.
Lesson No 1 for ethically-minded leaders: don’t trust internal investigations looking into allegations of serious compliance breaches—seek real independent sources.
Other issues have since surfaced about bribery and corruption at GSK including Syria and elsewhere. The pharma company now finds itself under investigation in at least four countries. However, unlike other firms that have hit these kind of buffers , the allegations against GSK are current. As Fox concludes laconically:
“I fear things will not turn out well for the company.”
He further points to some of the wider ramifications of the GSK scandal, what he calls “international ripples”. These have effects far beyond the original starting point.
Lesson No 2 for ethically- minded leaders: assume any ethical issue may well expand beyond the geographical limits of the original starting point; take active steps to prepare for handling these unexpected risk and reputation implications.
Eventually GSK ended up in a Chinese court issuing a grovelling apology for its actions and accepting the largest fine levied on a western company for bribery and corruption in China. Had it been in America that penalty would have been the third highest of all time. No small matter and with long-term ramifications for the company.
“…this has been a deeply disappointing matter for GSK”
Sir Andrew Witty CEO at GSK
Witty has been busily engaged in a company clean up effort. He seems to have worked hard to appear one the “good guys” in a what is a sorry tale of corporate self destruction and reputational damage.
His mea culpa statement was a long way from where GSK started earlier in the year when the company tried to use the “rogue employee defence.” This is the tired excuse that the problems are due to only a few rotten apples “outside our system of controls.”
Lesson 3 for ethically-minded leaders: Avoid the rogue employee defence, even if you think it’s true. First, it has little public credibility, secondly it may well turn out to be wrong leaving you looking foolish, and thirdly, making excuses is not the way forward in tackling reputation damage.
Fox then points to various lessons for companies operating in China—but these certainly have relevance across the globe. For example, he highlights the dangers of pursuing the company’s business priorities divorced from its stated ethical values.
Lesson 4 for ethical-minded leaders: align your company’s business priorities with your company’s stated ethics; this is not about a bureaucratic response, it’s about practical, on then ground actions.
Another important change GSK has made is no longer tying compensation of its sales people to the number of prescriptions doctors write or for speaking favourably about its products at conferences.
Many classic cases have occurred elsewhere showing the damage arising from getting the incentive system wrong, and how it can encourage unethical practices. What is perhaps surprising is that a company as well resourced as GSK got it so seriously wrong.
Lesson 5 for ethical-minded leaders: check out to what extent your company is actively encouraging unethical behaviour through its current remuneration and reward systems.
A common dilemma facing multi- national companies is where the rules of engagement at home differ significantly from those operating locally elsewhere.
This has particular relevance where companies are expected to carry out due diligence checks on those it employs or contracts with. Yet in some countries such as China the required checks may prove to be either illegal or regarded as intrusive.
A further lesson for ethical leaders is therefore to find ways to ensure the company seeks sufficient intelligence about those it expects to work for it in another country.
In the case of GSK for example, the challenge was to know who it was doing business with in China without breaching the local rules for collecting information.
Fox suggests five steps for managing third parties to meet legal obligations at home and to deal with the local constraints on data collection. These should guide an ethically-minded leader in steering the company to develop clear ground rules at a strategic level.
The main thrust of his suggestion is to ensure you verify the information received back from a third party. In essence, the actions come down to doing more in-person interviews and analysing local documents thoroughly. Warning signs such as refusal to disclose or verify information must be cleared or managed through careful risk management.
Lesson 6 for ethically minded leaders: You cannot afford the company to neglect due diligence in dealing with third parties; insist the company asks them to disclose the essentials and if they refuse or cannot, draw the obvious conclusions; also find non intrusive ways to verify them.
One of the sensible business GSK reactions to its problems in China has been a new effort to look at other sales products and models. These are designed to lesson the company’s exposure to corruption risk, while providing a strong business base for growth.
This has included altering the sales and pay of drug reps and severing the link between money for doctors for promoting products. But others in the industry have not followed this lead in how they pay their sales teams. GSK’s CEO Andrew Witty therefore sees a long-term competitive advatage in “being the first mover towards a new marketing model.” As Fox explains:
“business executives are only limited by their imagination in their response to business issues”
Lesson 7 for ethically minded leaders: consider a market-based solution to corruption risks; that is explore ways to reduce the chances of corruption affecting your company by developing alternatives products and services less susceptible to these tendencies.
Risks to reputation and compliance breaches constantly change. New facts on the ground may completely blindside a leadership team that relies too much on formalised systems, rather than localised rapid response. For example, the HSBC money laundering scandal in Mexico is a classic example of the central leadership being completely out of touch with what was happening on the ground.
What does this means in practice? There is a need for a more strategic approach to risk, rather than an obsession with one particular kind, such as anti corruption. It requires an integrated approach to risks so they’re fully evaluated. Without this says Fox
“a business can be derailed by a combination of small events that reinforce one another in unanticipated ways.”
What actually happens when a company faces specific allegations of bribery and corruption? One of the lessons learned from the GSK scandal says Fox is that especially when companies are operating in a high risk environment
“…a board must absolutely take a more active oversight role”
This has implications for resources, internal controls and staffing. This may explain for example, why it’s said one in ten employees at HSBC are now dedicated to compliance issues.
Fox goes on to suggest some nine questions a board and the ethical leader should be asking. These include: How is tone at the top established and communicated; how are business risks assessed; and what procedures are in place to identify and mitigate fraud theft and corruption?
A major failing of the GSK board was apparently it did not understand the actual business practices in which the company was engaged. While top management can make the right noises about ethics and compliance, this is seldom enough to make a difference. One of the lessons learned is moving the “Olympian Pronouncements” of the CEO down to the lower levels of the company.
Fox suggests further actions senior executives can take drawn for research elsewhere.
Lesson 9 for ethically minded leaders: Set an example by acting ethically, talking about ethics and values; explicitly ask middle managers what dilemmas arise in implementing ethical commitments of the organisation; show them their ethical performance is being watched as closely as their financial performance; make this part of their performance evaluation; be available for them to discuss and resolve the hardest cases.
In China GSK reportedly had more compliance staff than in any country apart from the US. It conducted 20 internal audits a year and even brought in an outside consultancy (PwC) as its auditor. Yet the company still fell foul of corruption.
Fox expresses amazement a company as well resourced as GSK with a past history of mal practice and fines did not have sufficient controls built into its systems. He also points to failures of auditing and ongoing monitoring. Again there are some important lessons for leaders.
Lesson 10 for ethically minded leaders: It’s your job to see the internal systems, auditing and monitoring are set up and working well. While you may rightly delegate much of the practical work to specialists, you still have a responsibility to see the overall system is fully functioning; regulators for example will be assessing best practice so get up to speed on this.
Fox ends his detailed account of the GSK Dénouement with a wrap up about what it all means for the international fight against corruption. He suggests the “only real hope that a company has in today’s worked is an effective, best practices, anti corruption compliance program.”
Since the UK Bribery act came into force businesses three years ago companies are still struggling to do what must be done to prevent corruption. According to one new study over a third emerge as inadequate 
There is a clear gap between those companies that are succeeding in putting adequate procedures in place and those that are not. The agenda for ethical leaders is clear and compelling.
The good companies are seriously outperforming the weak ones. The task for ethical leaders is to protect their organisations from expensive and damaging risks that in many cases can be anticipated and contained. The GSK story is consequently a salutary one and as Fox concludes:
“the fight against global bribery and corruption may just have moved a few feet forward.”
- Business failing to implement adequate procedures to prevent corruption, Good Corporation, December 8th 2014