As this paper revealed last Saturday, Sir Andrew used Wednesday’s results to put his hands up. There had been failings, he admitted, and senior GSK executives in China had “acted outside the interests of the business”. Both GSK and the Chinese authorities had been scammed.
Sir Andrew is to be applauded for at least partially admitting that there have been failings. Many CEOs would have hidden behind the weasel words of “police inquiry in progress, I can’t say anything”.
For GSK, speed is now of the essence. Sir Andrew’s announcement of an independent inquiry by the US law firm Ropes and Gray, will give investors some reassurance that he is determined to get to the bottom of what went so horribly wrong.
That report must be published, as must the findings of the separate piece of work being undertaken by Ernst & Young who have been dispatched to China by GSK.
It is likely that both pieces of work will reveal dangers with sales-based commissions in incredibly competitive markets hemmed around with opaque third-party relationships. China’s heath-care spending in 2006 was £101bn. Its forecasted spending in 2020 is £650bn. Which Western business would not want a slice of that?
But it is a slice that has to be cut with great care and with a nod to integrity. Sir Andrew insists that GSK’s compliance procedures are robust. But it was only last year that the business was handed a £2bn fine for mis-selling. What is needed now is evidence that all is well in the rest of GSK’s global markets, not reassuring words.
If GSK finds that commissioned selling is at the heart of the problem then it must change its practices, even if that means increasing costs. Others involved in this trade should do the same.
It was Rahm Emanuel, President Obama’s former chief of staff, who famously said, “never let a good crisis go to waste”. Sir Andrew and the Western pharmaceutical sector would do well to remember those words.
Hester’s replacement will have an easier job
Stephen Hester was famously asked to do his bit for Queen and country by Alistair Darling, after receiving a begging call from the then Chancellor at the height of the financial crisis in October 2008.
Nearly five years on, any candidate to replace Mr Hester at the helm of RBS would be forgiven for being more sceptical about taking on the role, given the harsh treatment he received before his Treasury-approved ejection last month.
That might explain the apparent difficulty in attracting top-rank candidates – BlackRock’s Mark McCombe declared himself a non-runner a matter of hours after being labelled a leading contender. Running RBS means putting up with constant political interference and effectively submitting to Treasury approval for major strategic decisions.
Yet, for the far-sighted, it is a more attractive job now than when Mr Hester took it on. The one sure thing is that, at the end of their tenure, likely to be at least five years, the Government will have a smaller shareholding, if any, than it does today.
Secondly, though yesterday’s £5.6m fine for startling failures in the bank’s reporting systems was a reminder that there is still work to be done, much of the heavy lifting has been completed.
Finally, though the job may pay less than comparable roles abroad, the parameters for setting pay are better understood than when Mr Hester’s compensation package was agreed back in 2008.
Who would be best to take on the work: an internal candidate, or an outsider? Given the Chancellor’s stated desire to turn RBS into a mirror image of Lloyds Banking Group, the smart money must be on an insider, probably from its retail and corporate banking business.
British businesses leading web revolution
For years, the internet was seen as a threat by the telecoms industry, and in many quarters it still is. Yet the public appetite for data and the ability of the internet to deliver it at ever-increasing speeds was behind strong results delivered yesterday
by TalkTalk and EE.
For TalkTalk, at the budget end of the broadband market, it is the ability to deliver pay TV over the internet, without putting satellites in space or digging up roads to lay new cable, that is delivering success. Operating on low margins, it made a big investment in promoting its YouView set-top box and is reaping the benefits of greater customer loyalty.
EE has, meanwhile, spent hundreds of millions building Britain’s first 4G network to offer its customers significantly faster mobile internet access. Nearly 700,000 have signed up to pay the higher prices, pushing EE’s profit margin to record levels and making the £10bn flotation or private equity sale sought by its French and German joint owners increasingly attractive.
For ARM, the microchip designer that is Britain’s biggest hi-tech success story, a six-year smartphone boom has driven growth. It has shown the way by investing in R&D and engineers, and betting that there are many areas of our increasingly connected lives that the internet is yet to colonise.
All three companies offer a lesson for businesses which still fear the internet, or believe its revolutionary power has peaked: embracing change can bring big rewards.