Thursday, February 20, 2014

GlaxoSmithKline Bribery in China (2013)

GlaxoSmithKline Bribery in China (2013)

By Chris Murray

     GlaxoSmithKline (GSK) is a British pharmaceutical company that distributes worldwide.  Recently in 2013 the company became the target of accusations that head managers in China were bribing government officials and doctors in order to prescribe higher costing treatments to patients.  GSK is suspected to have offered approximately $500 million in travel packages, entertainment, favors, and cash over six years to these doctors and officials.  Due to the recent healthcare boom in China since GSK started doing business there, the Chinese government has been cracking down on corruption at all levels.  Several employees in GSK's Chinese division have been questioned about the bribery charges including Liang Hong, one of the top executives for GSK's Chinese division, who made a television confession on the bribery charges while Steve Nechelput, the division's CFO, and Mark Reilly, the division's country manager, have been barred from leaving the country until the investigation by the Chinese is over.  Ethically, these charges put Liang Hong, Steve Nechelput, and Mark Reilly in a tough spot.  GSK offers apologies for their employees working outside of their internal controls but seem to have done so to only distance themselves from the problem.  This post will survey Hong's, Nechelput's, and Reilly's actions ethically using individualist theory, utilitarianism, Kantianism, and virtue theory.
Liang Hong, at his televised confession

     The individualism theory states that the goal of business is to make profits for stockholders and employees.  However this is only seen as ethical so long as the company respects laws and human rights.  In bribing doctors and government officials with travel packages and other entertainment to help push their drugs on the population, the Chinese division of GSK was trying to make as much profit as they could in the booming market to compete against other pharmaceutical companies in China.   This does not respect the rights of the people to be fully informed about their treatments.  Since officials were pushing advertising for more expensive drugs and doctors were prescribing the more expensive drugs to citizens, GSK was infringing on their autonomy to make well informed choices as well as making them pay more, comparatively.  During the investigation, GSK's sales in China dropped a whopping 61% due to the bribery accusations.  Public opinion on the company dropped radically as seen by these dramatic sales cuts.

      Utilitarianism states that every action that aims to make everyone happy is ethical.  In this case, the actions by the GSK's Chinese executives to increase sales would lead them to bribe doctors and officials who would then promote GSK's drugs to the people.  That may sound all well and good; GSK gets paid more from the citizens who are happy to accept the 'better' drugs as described by their doctors who are being paid by GSK themselves.  Everyone seems happy except that the consumers are unknowingly paying more for drugs they could get cheaper by buying a different brand or from a different company/manufacturer other than GlaxoSmithKline.  When the consumers found out that they were paying more than they needed too, they moved en masse away from GSK supplied drugs and found other brands to buy.  This is evident in GSK's huge drop in sales in the third quarter of 2013.

     Kantianism states that businesses should never consider themselves exempt from the rules and work to help consumers make well informed decisions while doing so for the good of everyone, intrinsically.  Evidently Liang Hong, Steve Nechelput, and Mark Reilly sought to make monetary gains for the company in exchange for the peoples' ignorance to competing brands of drugs.  Not to mention that Liang, Steve, and Reilly thought that they would be able to be exempt against the Chinese' fight against corruption in the new healthcare boom in the country.  They also went against the basic Kantian principle that the people should be considered an end, rather than a means to an end.  They treated their consumers as a means to get richer in making them buy more expensive drugs.  With the doctors playing by their rules, the Chinese branch of GSK was able to keep consumers misinformed about their choices in treatments.  These practices were all against Kantianist ethics.

glaxochina_2614609b.jpg     Virtue Theory is based on four characteristics: courage, honesty, self-control, and fairness. Courage stands for a company's willingness to take chances and stand up for what is right.  Honesty stands for a company's willingness to be truthful with their business actions.  Self-control refers to a company's ability to create reasonable expectations.  Fairness refers to a company's hard work and fair practice.  If a company follows all four of these characteristics then it is therefore ethical.  Interestingly this is where GSK retains most of its ethical virtues as a whole.  Liang Hong was honest when confronted with his accusations.  GlaxoSmithKline's headquarters was courageous in extending apologies for actions of their employees in the Chinese branch.  However the Chinese branch was hardly playing fair in pushing their more expensive drugs on patients through their doctors and officials.  They also lacked self-control in succumbing to bribes to push their drugs in the market.  While there were certainly some redeemable aspects to the situation, it could have been avoided completely in the first place had Hong, Nechelput, and Reilly stuck to the four virtues from the get-go.  

     GlaxoSmithKline's Chinese division will suffer dramatic sales cuts well into the next few years most likely due to these accusation and subsequent investigation.  The public has already showed a massive boycott on their drugs during the third quarter of 2013 which will only continue until fines are paid, executives are jailed or fined, and the company on the whole can be trusted again.  Hong, Nechelput, and Reilly worked against the ethical theories discussed and put their company in a bad light.  Now GlaxoSmithKline has to deal with the backlash in the Chinese market, to try and gain the peoples' trust again despite seeming unethical now.  


     Barnato, Katy. "GSK's China Sales Topple on Bribery Scandal." CNBC, 23 Oct. 2013. Web. 20 Feb. 2014.

     Jack, Andrew. "Q&A: China’s Investigation into GlaxoSmithKline." Financial Times. Financial Times, 4 Dec. 2013. Web. 20 Feb. 2014.

     Shobert, Benjamin. "Three Ways To Understand GSK's China Scandal." Forbes. Forbes Magazine, 04 Sept. 2013. Web. 20 Feb. 2014.

     Jack, Andrew, and Patti Waldmeir. "GSK China Probe Flags up Wider Concerns."Financial Times. Financial Times, 17 Dec. 2013. Web. 20 Feb. 2014.

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