BEING AN OBSERVER RATHER THAN A PARTICIPANT IN THE DRUGS BUSINESS makes it easier to sense those defining moments when something fundamental has changed, a limit is reached, and a new order
emerges to reset the basic license to operate. As Pharm Exec goes to press, one such moment appears to have arrived, with the trade media ablaze with lurid accounts of bribery, tax fraud,
and other illicit promotional activities in China—ironically, the country touted as guarantor of our industry's future. Equally
significant is that the chief target of the Chinese government's assault on corruption in the medicines trade is GlaxoSmithKline
(GSK), a favorite of the NGO community and a company well known for positioning itself above the grubby fold of its Big Pharma
Those commanding heights around CSR don't look so high right now. Investigation does not automatically incur guilt, but reputation
takes a hit when any government—let alone that which manages what is emerging as the world's largest single-payer healthcare
system—references you as "a criminal organization." Indeed, GSK appears to have missed numerous signals that the Chinese government
was moving to adopt its own zero-tolerance stance on what our industry obliquely calls "transaction costs." Not only was rooting
out business corruption a key platform of the recent 18th Communist Party Congress, it is the governing theme of the country's
new leadership. It has only to remind the industry of its special place in the local league rankings on capital punishment:
the first head of China's FDA, Zheng Xiaoyu, was executed in 2007 for administering his own "pay to play" scheme.
In addition, the magnitude of health system reforms to make China's 1.3 billion citizens eligible for basic health coverage
by 2020 effectively requires a huge transfer of income from physician and hospital "profit seeking"—activity that implicitly
depends on keeping prices of branded (i.e., foreign) drugs high. GSK's reported mea culpa to prosecutors—to cut prices of
its portfolio of drugs in China—puts it on the right side of the central government in terms of reform. But until government
finds a solution to compensate and replace the income lost to its key healthcare institutions from the private sale of medicines,
the basic economic incentive for graft will continue.
What this means is that Big Pharma has no option other than to unilaterally change its game—and take the hit by lowering expectations
on future revenue growth in China and other emerging markets. You can call it leading from behind—by being up front.
A crucial first step is to plug the organizational disconnects that plague all large drug companies. In a recent interview
with Pharm Exec, former Schering-Plough CEO Fred Hassan said the most important staffing decisions he made were for the country managers in
key ex-US markets. He vetted each and retained open channels even when these positions did not report directly to him. It
does appear that companies where China management is answerable only to the CEO encounter less of the "field rogue" phenomenon.
Another factor that deadens awareness of realities in the field are company cultures that reinforce silo's and negative attitudes
between sales staff and management: while the latter is decisive and strategic, the former is often perceived as conformist—and
A second, related element is the anticipation of risks through internal controls. "Accountability for relationships with third
parties is critical; these need to be 'owned' by an individual, so when that individual moves on, each relationship is reassessed
by higher management," says Michael Vermillion, Senior Director at Navex Global, an ethics and compliance service and software
provider. He notes that China's Ministry of Public Security has charged GSK with transferring nearly $500 million in suspicious
payments through travel agencies, running as far back as 2007. "Not only should business partners be categorized based on
potential risk for corrupt behavior—travel agencies are covered under money laundering provisions of the US Patriot Act—but
the estimated size and timing of payments should be part of the internal approval process, so these can be constantly tracked
and evaluated compared to what was approved."
The scope and duration of GSK's supposed illicit activity suggest these basic elements of an active compliance culture may
not have been in place, at least in GSK China. This also raises concerns about an activity that GSK does endorse—metrics of
good corporate citizenship. The company consistently scores at the top of the NGO Access to Medicines Index, which requires
evidence of "proactivity in fighting corruption, including the extension of ethical marketing practices to all sales agents,
local distributors, and contractors." The rub is don't expect any public flogging of GSK from here—the relationship with NGOs
is flawed, because it is mutually reinforcing.
What all this discussion says to me is this: if that proverbial defining moment is at hand, then the initiative has to be
seized—from the top, and simply because it is the right thing to do. We are at the point where good governance in pharma should
be the competitive differentiator of success anywhere, but especially in emerging markets.
William Looney is Pharm Exec's Editor-in-Chief. He can be reached at firstname.lastname@example.org
and on Twitter @BillPharmExec