Sir Andrew Witty is stepping down as the chief executive of GlaxoSmithKline PLC (GSK) and Emma Walmsley has been appointed as his successor. This appointment of the next head of the U.K. pharmaceutical giant gave The Man From FCPA pause to reconsider what was most probably Sir Andrew’s greatest setback during his tenure; the GSK in China scandal which led to the company being convicted of bribery and corruption of Chinese government official in the health care industry, under Chinese domestic law. The company paid a fine of nearly $498 million and had its top three China business unit officials criminally convicted for their roles in overseeing the bribery scheme. There has been no final resolution of these matters under either the U.K. Bribery Act or FCPA.

While the fallout from the matter did not reach Sir Andrew, the cost to the company was certainly high. In addition to the criminal penalty of $498 million, the company also paid bribes of over $500 million for five years. The investigation cost has never been reported so that figure is unknown. There was also a sex tape scandal which led to the conviction and incarceration of a UK citizen Peter Humphreys and his wife, Yu Yingzeng, a naturalized US citizen, who investigated the provenance of the sex tape.

Yet these fines and penalities pale beside the true cost to GSK, which was its sales targets in China. GSK had targeted the over $30 bn Chinese medical product and services market to be 20 percent of GSK total revenue by 2020. That strategy is now in tatters as the Chinese prosecution made GSK a non-entity in the Chinese health care market. Now any transaction involving GSK involving a Chinese health care provider, invites government scrutiny. It is far easier for healthcare providers to purchase pharmaceuticals, healthcare products, and medical services from companies which have not gone through such a prosecution.

The cost of bribery and corruption is high for all those involved. However in markets like China, the reputational damage can be so great as to destroy a company’s ability to do business in that location. Businesses need to understand the enhanced risk they face in such jurisdiction. Also it helps not to pay bribes.   

Topics