Lessons from GSK’s Bitter Pill

Lessons from GSK’s Bitter Pill

By on Sep 21, 2014

scalability group cuffsThe judgement is in and Chinese authorities have fined GSK the equivalent of USD$458 million for bribing doctors to prescribe and purchase their products. The fine is alleged to be a sum equal to the amount that GSK bribed. In addition, the company’s China head and four other executives have been sentenced to prison terms, although these have been suspended to reflect their “co-operation with authorities”.

In previous blogs I have not addressed the possibility of head office involvement other than to point out that no evidence existed at that time to implicate the company. With UK and US authorities investigating this at the time of writing, it is inappropriate at this time to speculate just how much complicity, if any, head office had in the sordid dealings of its Chinese subsidiary.  (According to the Chinese authorities’ ruling, GSK China “actively organised, pushed forward and implemented sales with bribery.”) However, there are some very clear lessons that can be learnt from this experience for any company, no matter how honest.

Firstly, no matter where you are operating, nothing justifies a non-ethical approach to market. If you wouldn’t do it in your home market, don’t do it anywhere else. (And if the moral argument isn’t “strong” enough for you, consider that in today’s interconnected world, you will face further investigation, publicity and customer / consumer backlashes in many more markets than the one you got caught in.)

But, leaving aside the ethics, there is one key consideration that any company looking to build a lasting business in China, or any emerging market, needs to consider: expectations.

Emerging markets are information-poor, and companies are operating in regulatory and cultural environments that are significantly different from their home markets. This is particularly important to US companies which also operate on very short time-horizons.

It is always important to plan and establish goals, performance indicators, and measurement processes. This is equally so in emerging markets, with one key proviso: because information is limited, assumptions based on it will also be limited. Therefore, there must be some leeway in expectations – especially those related to time. Some companies get this, then forget (or refuse) to communicate this to in-country management. Others just don’t get it, and set themselves up for disaster.

The best in-country management is headed up by someone who understands “both” cultures – that of the market he is in and that of the company. For a host of proven reasons beyond the scope of this article, installing a country manager who is immersed in your corporate culture and has the cross-cultural skills to transfer this culture to local team (in a manner that is appropriate to the host culture) is extremely beneficial. But this comes with a caveat – if you hire an expert, be prepared to listen to him /her when he/she explains market-related issues. This is not about performance, but it is about applying understanding of markets and providing support to overcome market-specific issues. In other words, communicate closely, but give your local expert some space to solve local problems. Generally speaking, the key goal post which usually needs moving is time.

If you install a manager with a record of high-performance, be alert – especially if this individual is new to the market and culture. It is possible that he / she will continue to deliver, but there is an inherent risk: in order to deliver promised results despite unforeseen circumstances, the temptation to take shortcuts is magnified significantly. This is exacerbated in any situation where the local team are also encouraged to “deliver, no matter what”. In this scenario, whether unwittingly or not, you have created an environment that actively encourages ethical shortcomings. It is not worth mincing words – this is the worst possible environment you can create in terms of maintaining ethical business practice.

Above all, don’t shoot messengers, and don’t punish delay without seeking understanding. Avoid “don’t come to me until you have a solution” and be prepared to adopt a co-operative and consultative approach to solving unanticipated problems. (Perhaps the best-known advocate for this approach is P&G’s AG Lafley.)

Good companies understand the need to adapt to change, and are attuned to changes in their own environment. It should not be such a big leap to apply this thought process to cope with environments that are completely “changed” (different) from their own. Companies without this approach will have to fire a lot of managers. If they’re lucky, the terminations will be for failing to meet timelines, and won’t solve any underlying issues. If they’re not, the terminations will be accompanied by fines and prison terms.

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