Compliance Issues To Focus On Vetting Employees In China After GSK Sex Tape Revelations
This article was originally published in PharmAsia News
Executive Summary
Startling revelations that the trigger for the China compliance storm was a sex tape sent to GSK executives along with allegations leaders of its China unit were bribing physicians and hospitals to prescribe its drug has put the biomedical industry in the country on high alert. The result is an expected push to include material in training on how personal behavior is just as important, if not more, than professional, legal experts say.
BEIJING – The road to GlaxoSmithKline PLC becoming the epicenter of a widespread compliance crackdown in China was initially thought to be a government sanctioned effort to curb prices for drugs and medical devices – with multinationals a focus. But revelations that a covert sex video shot at GSK China general manager Mark Reilly’s Shanghai Xintiandi flat and then sent to top executives in the UK last March was the trigger has changed that view and put the focus on the personal.
Before the video surfaced, several anonymous emails were sent as early in 2012 to China’s State Administration of Commerce and Industry (SAIC) in Beijing alleging GSK China had instructed bribing physicians and medical officials. SAIC is an agency tasked with investigating corruption and unlawful competition in China.
Months later, the emails were sent to thirteen GSK executives, revealing more details of how special accounts were set up and used to bribe thirteen Chinese physicians.
And then an email with the sex video came.
Action, Reaction
Reilly was then authorized to hire a British corporate investigation firm, Shanghai-based ChinaWhys to look into the case, according to report by British newspaper Sunday Times.
Events then unfolded rapidly and the twists and turns engulfed the drug and device industry to try and understand the timing for the crackdown. ChinaWhy’s operators, British citizen Peter Humphrey and his Chinese-American wife Yu Yingzeng, were later detained by local authorities, and GSK offices in multiple Chinese locations were raided in early July (Also see "Public Security Ministry Claims Evidence Of GSK Bribery In China; Several Execs Arrested" - Scrip, 11 Jul, 2013.).
The alleged whistleblower, suspected by many as GSK China’s former director of government affairs, left in December 2012 due to travel expenses issues.
“The GSK storm was said to start from an inside fight, and actually there were fighting signs before the case was widely reported,” Bai Zhiqiang, an industry observer, told PharmAsia News in a written response to email questions. With a social media penname Yixi, meaning “evening questions” in Chinese, Bai has written widely about biomedical issues, including the hotly-debated drug lag in China (Also see "Drug Lag Debate In China Expands Beyond Industry, Regulator Corridors" - Scrip, 17 Jun, 2014.).
A research paper by a GSK researcher was alleged to have been forged around the same time – charges made public by former employees via a Web posting. The controversy surrounding the paper, authored by GSK China research team by former R&D head Jingwu Zang and published by Nature Medicine, led to several dismissals including Zang and the article was withdrawn (Also see "GSK Says Paper Published In Nature Medicine By Company Scientists To Be Retracted" - Scrip, 10 Jun, 2013.).
“You must know your employees and your Chinese counterparties thoroughly and that could mean months of due diligence investigations and document review.” – Dan Harris, lawyer and author of the China Law blog.
Know Your China Business
The tale told in brief above has made heads spin in executive suites over the mix of intra-company strife that collided at the personal and professional levels in a fast changing Chinese regulatory environment. Despite all of the compliance efforts to train and stress key points on ethical behavior – did companies miss the bigger issues of how to deal with human foibles? (Also see "Multinationals In China Need To Walk The Talk To Create A Compliance Culture-Execs" - Scrip, 29 May, 2014.).
“Many MNC’s China operations have different views of risks than their headquarters,” said John Russell, managing director of Beijing-based public relations firm North Head, in a newsletter to clients.
“Compared to companies in the U.S. and Europe, these MNC’s business operations in China are more complicated and time-consuming. They are even less efficient than Chinese domestic competitors.”
Multinationals in China have many practical legal worries that the home offices are quite aware of, including the U.S. Foreign Corrupt Practice Act and the UK Bribery Act, and those are in addition to Chinese laws, he added (Also see "Attorney Richard Cassin On FCPA’s Impact On Foreign Acquisitions And Competitor Snitching: An Interview With PharmAsia News" - Scrip, 16 Jan, 2013.).
Legal experts said the multiple potential legal tangles of operating in China require executives to check, double check and then check again.
“You must know your employees and your Chinese counterparties thoroughly and that could mean months of due diligence investigations and document review.” Dan Harris, a Chinese law expert and author of the China Law blog, said in a June 23 post.
“Doing an Internet search on your China employees and the Chinese companies with whom you conduct business is barely even a first step,” he said. “You then need to stay current with your knowledge through regular reviews.”
A key to ensure compliance with Chinese law, according to Harris, is to review what the China operation is actually doing, not what the headquarters would like to believe it is doing. That means establishing internal channels for employees to report violations anonymously and identify early warning signs.
The local unit of Janssen Pharmaceuticals Inc., Xian-Janssen, has moved in that direction, setting up a hotline and promising vigorous investigations.
Heads Roll
Another significant change as a result of the compliance scandal is an apparent move away from foreign executives and a reshuffling of mid-level to senior management roles.
More local Chinese or foreign-educated Chinese staff have been promoted to executive positions since the scandal, with language skills and detailed knowledge of daily business operations gained from on-the-ground experience as key factors in advancement (Also see "GSK's China Case Said Leading To More Chinese In MNC Executive Jobs" - Scrip, 11 Jun, 2014.).
Since last July when GSK was raided, seven companies have appointed new country general managers or presidents, though not all are of Chinese descent.
Meanwhile, compliance training efforts have stepped into high gear.
“Compliance is the area that has seen the largest demand for talent.” Joseph Cho, managing director of R&D based Pharmaceutical Association Committee (RDPAC) told PharmAsia News in May.
“As more companies pay closer attention, and compliance increasingly becomes the red line for general managers, company headquarters are increasing communications with local teams and beefing up regular audits.”
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Company |
Former GM |
New GM/President |
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GSK |
Mark Reilly |
Herve Gisserot |
|
Eric Baclet |
Andrew Hodge |
|
|
Ronald Christie |
Christian Kanstrup |
|
|
J&J |
Thad Huston |
Cesar Rodriguez |
|
Penny Wan |
|
|
|
Jean-Christopher Pointeau |
Karl Lintel |
|
|
|
Rachel Lee |
|
|
|
Brent Scott |
Source: Companies