Seher Hussain

Media headlines in China over the last few days have centred on allegations of corrupt practices involving senior local managers of GlaxoSmithKline. To date, four of the company’s executives have been detained by the Chinese authorities and stand accused of paying bribes to doctors and government officials. The most recent developments include the broadcast of what appeared to be a confessional interview on state-controlled television with one of the detained GSK employees, as well as the imposition of a travel ban on the company’s finance head.

This isn’t the first time that the pharmaceutical giant has found itself facing accusations of unethical behaviour. Earlier this summer it fired its Shanghai-based R&D chief, Jingwu Zang, for misrepresenting data in a published article. Competitor Pfizer, the world’s largest drug-maker, has also faced scrutiny over its Chinese and other emerging markets business. Charged under the US Foreign Corrupt Practices Act, it recently paid out a $60.2 million settlement relating to the bribery of government officials in China, Russia, Italy and Bulgaria.

GSK has said it will cooperate fully with the Chinese government’s investigation. It has also stated that it had not found any indication of unethical behaviour, but that “if evidence of such activity is provided we will act swiftly on it”. It remains to be seen how this story will develop, but what GSK’s recent troubles seem to indicate is that ensuring good ethical practices and safeguarding corporate reputation are vital considerations for any company operating in China.

Taking shortcuts to establish a market presence and build up sales is always going to be a temptation in any industry, and with a sector that is predicted to grow from $357 billion in 2011 to $1 trillion in 2020, nowhere is that more the case than with healthcare in China. However, individuals who do not behave to high ethical standards risk an integral part of their company’s intellectual capital - its reputation. And as this blog has previously argued, reputation is one of the most important intangible assets any organisation possesses.

As the Chinese government ramps up its anti-corruption drive, all companies operating in China need to ensure they are seen to have a reputation for fair play. That means putting in place strict internal controls, publicising them widely inside and outside the company, and acting swiftly and decisively should any evidence of corrupt practices emerge.

This is not only a specific corporate imperative, but also serves to help create a market in which high ethical standards are the norm. So, for example, by insisting on and enforcing best practices pharmaceutical companies would be facilitating the development of the domestic sector. If strong ethical frameworks are put into place international and home-grown pharma companies alike will be able to operate in an environment that inspires confidence and promotes integrity.

There is always a temptation to think that what might apply elsewhere does not apply in China. In IP, for example, foreign companies often fail to register rights and/or to enforce them on the basis that there is no point in doing so. The reality, though, is that you cannot protect IP unless you register it and then go after infringers; and that in China the system can often be made to work if you choose to engage with it. In the same way, not bothering to implement or enforce procedures to stamp out illegal behaviour by employees on the basis that corruption is an integral part of doing business in China is not only morally indefensible but rife with danger. Reputations can be harmed, perhaps irrevocably, not only in that market, but in others too. China might be different in many ways, but when it comes to protecting your IP, your reputation and your integrity it is wise to be as vigilant there as you would be in any European or North American market.