Business Ethics & CSR - GSK Promises to be Good

The global pharmaceutical industry is under threat, like never before, for the way that it markets its products.

In the last three years alone, pharmaceutical companies have been fined more than £13bn by authorities in the US. And now the focus is increasingly on the activities of "Big Pharma" in emerging markets. As we reported on the Business Blog in 2013, GlaxoSmithKline ("GSK") has been accused by the Chinese authorities of paying up to $500m in bribes to local doctors - the latest of several bribery scandals to hit GSK.

The pharmaceutical industry is one of the most tightly-regulated in the world. There is close scrutiny of controls over the development and testing of medicines and about the claims that can be made about pharmaceutical products once they are made available.

Once a medicine or drug is launched, it needs to be sold. This is where the key issues seem to arise. The main method of promotion is via personal selling by tens of thousands of sales representatives who visit, inform and entertain clinicians who might then go onto prescribe or recommend the product.

It is not hard to imagine how the pressured, personal selling of medicines can create some ethical dilemmas.

Inviting (and in some cases paying) doctors to conferences, often in luxury international hotels - how close is that to a bribe? Paying consultants to give speeches and presentations about certain drugs - is there a conflict of interest there? And what about simple financial bonuses for prescribing and/or recommending certain medicines?

The scale of the fines and penalties being incurred by the big pharmaceutical companies seems to be having an effect on their behaviour.

In December 2013, GSK made an important announcement about changes in its global sales and marketing practices.

The changes, undoubtedly prompted by the hugely damaging corruption scandal in China, mean that GSK will stop paying doctors to promote its products through speaking engagements. Members of its sales force will also no longer have individual sales targets.

GSK says its sales representatives will be rewarded for "technical knowledge" and the "quality of the service they deliver to support improved patient care". Their financial compensation will also be linked to the overall performance of GSK.

In a statement, Sir Andrew Witty, chief executive of GSK, said:

"We believe that it is imperative that we continue to actively challenge our business model at every level to ensure we are responding to the needs of patients and meeting the wider expectations of society."

"We recognise that we have an important role to play in providing doctors with information about our medicines, but this must be done clearly, transparently and without any perception of conflict of interest.”

The announcement is the latest step in attempts by GSK to clean up its act. Will it be enough to protect the business and shareholders from further damaging corruption scandals?