As stories continue to emerge from China this week about GlaxoSmithKline's operations there, it must be a very anxious time for the Company Board. Four top Chinese employees have been arrested and are reported as likely to serve long prison sentences for alleged crimes of bribery and price fixing of the company's products - some of which, it is alleged were sold at 10 times their true value. The English head of GSK China, is reported to have left on a one-way ticket in June, and rumours abound about the scale and diverse nature of the alleged fraud. Chinese police claim the total to be over £300m in the last 5 years. Recent annual sales figures for GSK in China have reached £750m.
The alleged scam allegedly involved the
use of travel agents to pass money intended for conferences and seminars
directly to doctors in return for prescribing GSK products. This type of
activity could be difficult to detect as books would balance, and
"rewards" in the form of expense claims could easily be made to look
How can a Board effectively
oversee an operation in another continent, with an unfamiliar culture, where the
legal system’s interpretation, responsibility for investigation and ultimate
judgement rest with the dominant political grouping? And how can they ensure that
their corporate ethos prevails?
A recurring theme in our field, strongly reinforced by our latest research, concerns
boards that not only don’t know what is really going on inside the business but
don’t even know that they don’t know what is going on – until they discover the
gap in their knowledge during a crisis. We call it the 'unknown knowns' problem because it frequently turns out that lots of people internally knew something was amis. But behavioural and organisational risks have typically kept the board in
the dark through an information 'glass ceiling' that prevents unwelcome information moving upwards. And other behavioural forces can prevent the board’s good intentions from percolating down to the
rest of the business.
The GSK board now knows that it may not
have known what was really going on in their Chinese business.
The worrying question remains for all boards: to what extent can the board be confident
that it knows what is really going on in the business, especially the unwelcome stuff?
Boards need to be aware of vulnerabilities such as these. It's not easy, but boards need to find and fix these unknown knowns before they cause serious harm.