Expert comment: GlaxoSmithKline to pay $3bn in US drug fraud scandal

Dr Sue Hornibrook is a member of the Centre for Value Chain Research at Kent Business School. She is a Lecturer in Strategic Management; and Corporate Responsibility, and is Head of Student Placements.  She comments on the following news item

BBC News US & Canada
GlaxoSmithKline to pay $3bn in US drug fraud scandal

This article reports the results of a long running investigation into the conduct of one of the world’s largest healthcare and pharmaceuticals companies, who have been found guilty of a number of illegal practices in the US, including bribery.  In the US, the sales force offered incentives to physicians to prescribe GlaxcoSmithKline products, including free holidays, entertainment, and inflated funds for doctors to go on speaking tours.  In response, the British based company has changed procedures and removed staff from the US operations who had engaged in misconduct.

This particular case highlights the ethical and legal dilemmas facing managers of multinational organisations that operate within different legal and cultural contexts.  Bribery and corruption is considered an ethical issue that is also the subject of international legislation – for example, The UK Bribery Act – that attempts to impose criminal liability on individuals and organisations in the event that their employees, subsidiaries, agents or consultants pay bribes anywhere in the world.

Ethical issues arise when laws or precedents are unclear or in variance with changing social values. In general, legislation is insufficient in tackling moral issues, as it differs across national and international boundaries and always lags behind events. Organisations that operate across national and international boundaries have to deal with a constantly shifting and complex environment. They have to conform to what society deem is acceptable behaviour, and such perceptions are different according to national and cultural characteristics. Ethical behaviour by both employees and by organisations is therefore vital to maintaining the business society relationship.  For organisations, appropriate processes and procedures should be implemented to ensure that “good” behaviour is highlighted and rewarded, and “bad” behaviour identified and sanctioned.  Top executives very seldom actually ask managers to do something that is illegal or immoral but sometimes leave things unsaid, or give the impression that they don’t want to know the details regarding how a result is achieved.  Incentives within organisations, particularly implicit ones, will drive behaviour, so remunerating a sales force based on sales volume, rather than individual behaviour, is more likely to encourage unethical behaviour.

Failing to manage ethical dilemmas has enormous implications for organisations. For GlaxcoSmithKline, the costs are not just limited to the financial penalties imposed by the US courts. The largest cost is the reputational damage to the whole of the organisation, which will take much longer to restore.

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