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Reputability LLP are thought leaders in the field of reputational risk and its root causes, behavioural risk and organisational risk. Our book 'Rethinking Reputational Risk' received excellent reviews: see www.rethinkingreputationalrisk.com. Anthony Fitzsimmons, one of its authors, is an authority and accomplished speaker on reputational risks and their drivers. Reputability helps business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Thursday, 29 May 2014

Bribery and Boards

No-one doubts the GSK board had excellent ethics and good intentions, or that the company has an excellent set of values, but allegations reported in the Financial Times make alarming reading.

On 14 May, the FT reported:
"Police at the [Chinese] Ministry of Public Security said 46 suspects at GSK’s Chinese subsidiary had been identified as part of a “complete bribery chain” that funnelled money to hospitals, doctors and government officials between 2009 and 2012. Mark Reilly, a Briton who was head of the unit, ordered subordinates to offer the illegal payments, they said." 
On 27 May, the Serious Fraud Office in London “opened a formal criminal investigation into the group’s commercial practices”

The next day, the FT reported that GSK salesmen were demanding reimbursement of ‘bribes’ they had financed on GSK's behalf.

This isn't the first time GSK has been in trouble over sales practices.  In 2012 the company was fined $3 billion in the USA after admitting marketing medicines beyond their authorised uses, a case that also revealed "lavish junkets" for doctors.  At the time Sir Andrew Witty, the Chief Executive, said that the charges related to "a different era" at GSK and that he "had since taken remedial measures, including axeing all bonuses linked to prescription sales".

One likely root cause of the  problem is hinted at by Sir Andrew.  Late last year, he announced another overhaul of marketing practices, including an end to target-based pay for sales representatives, presumably those that weren't actually ended in 2012.  Those pesky incentives to meet sales targets can easily produce undesirable behaviour, as UK banks and energy companies know all too well from their mis-selling experiences.

But there is a deeper issue: the fact that the well-intentioned board clearly did not know what was actually going on in their company.  This is a widespread problem, about which we have written previously.  The danger is that boards live in a rose-tinted bubble divorced from reality.  For a variety of reasons they are too often the last to realise that something is seriously amiss even when there are people below them who are aware of the problem.

These are but two of the family of behavioural and organisational risks that afflict all organisations.  Regulators are beginning to insist that they are tackled before they cause harm.  This is no small challenge but there are practical  solutions.

Anthony Fitzsimmons
Reputability LLP
London
www.reputability.co.uk





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