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London. Mark originally went to work for GSK in China as a Finance Director, but
he was well-connected and trusted in Glaxos UK headquarters which led to his
promotion to Head of the China division.
continue to learn from this. GSK has been in China for close to a hundred years
and we remain fully committed to the country and its people. We will continue to
expand access to innovative medicines and vaccines to improve their health and
well-being. We will also continue to invest directly in the country to support the
government's health care reform agenda and long-term plans for economic
growth."
The company said it had fundamentally changed the incentive programme for its
sales force, and increased the monitoring of invoicing and payments.
When the Chinese authorities began their investigation into the claims in 2013
Gao Feng, the head of China's fraud unit, said: "We found that bribery is a core
part of the activities of the company. To boost their share prices and sales, the
company performed illegal actions." GSK was alleged to have used a network of
more than 700 middlemen and travel agencies to bribe doctors, hospital staff,
government officials and lawyers with cash and even sexual favours. "There is
always a big boss in criminal organisations, and in this case GSK is the big boss.
QUESTIONS:
1. Why were employees at GSK in China engaging in unethical behaviour?
2. What do you feel about the reaction of the Chinese authorities to this
scandal?
Information for the Case Study is taken from the following sources:
How a secret sex tape plunged British drugs giant Glaxo into a 90 million
bribery probe, Daily Mail, 29/06/2014
China fines Glaxo 297 million for bribery, Mark Reilly sentenced Telegraph,
19/09/2014
GlaxoSmithKline ex-boss to be deported back to the UK from China, The
Guardian, 19/09/2014
GlaxoSmithKlines former China chief Mark Reilly charged with bribery,
Independent, 14/05/2014
Postscript: Three Ways to Understand GSKs China Scandal (taken from Forbes
website, 04/09/2013)
First, that the crackdown on GSK is part of the growing anti-corruption program
Chinese President Xi Jinping has set in motion. In August, two senior executives
of state owned enterprises (SOEs) were placed under formal investigation, the
most recent being Wang Yangchuan, the vice president of China National
Petroleum. This explanation can point to numerous and growing anti-corruption
initiatives Xi has rolled out since taking office, with the GSK scandal and its
associated allegations against other pharmaceutical companies as only more
recent and high profile examples.
The second way to understand the GSK scandal is specific to healthcare reform.
China is in the midst of a once-in-a-generation expansion of its healthcare
system. The country is making massive investments in every facet: new hospital
and primary care infrastructure is being built at a torrid pace, a national
insurance plan has been rolled out that covers almost everyone in the country,
providing increasing coverage for basic pharmaceuticals, devices and diagnostic
procedures. Yet most, if not all, of these additional investments are being built on
top of a weak foundation. Doctors are chronically over-worked and under-paid.
Hospital administrators struggle to meet shortfalls between government
reimbursement and the increasing costs associated with the levels of service and
medical products they are expected to provide.
It should be no surprise that both hospital administrators and doctors have found
alternative means to make up for the revenue not provided by the government.
For administrators, their response has been to incentivize doctors to prescribe
unnecessary pharmaceuticals, surgical procedures, and diagnostic evaluations.
Doctors have supplemented their paltry incomes through the sort of bribes the
GSK scandal has laid bare, as well as the back-channel red envelope payments
that families make directly to doctors to ensure proper and timely care. The
combination of these practices has created problematic inefficiencies within
Chinas healthcare system that must be dealt with if the massive additional
investment the countrys central government is making is going to be used
wisely and actually benefit the Chinese people.
Multinationals such as GSK did not create this environment; rather, they have
had to determine how to navigate the complex field where international
compliance standards overlap with how healthcare is consumed and paid for in
developing healthcare economies such as China. The realization that companies
such as GSK did not create this situation, but are bearing unequal blame for it
leads to the third, and most troubling way to understand the GSK scandal: China
to the competitive landscape shifting not only within China, but also in many of
the other emerging economies around the world, where Chinese competitors
could begin to challenge international players for market share.
China is not wrong to crack down on corruption. The countrys leadership is not
wrong to leverage multinationals for more cost effective inputs to its healthcare
system. But China needs to be careful that it does not overplay its hand, lest it
dis-incentivize the very industry players who have much to offer the Chinese
people in terms of disease management and quality of life.