Friday, 29 October 2010

Glaxo SmithKline and Corporate Governance

Because I am researching for my forthcoming book "FT Business Briefings: Corporate Governance" I was intrigued by this news story.

In 2002 Glaxo Smithkline, one of the biggest drug companies in the world, sent Cheryl Eckard, one of their global quality assurance managers, to their Puerto Rican plant at Cidra to fix manufacturing violations cited by the US Federal Drug Administration. She found problems that went far beyond these violations. They included defective, misidentified, below strength and over-strength drugs and those not manufactured in accordance with FDA approved processes. Her concerns were so serious that she tried to get the plant shut for two weeks in order to sort out the problems. She tried to raise her concerns with superiors, including making a full report to GSK’s Compliance Department. Court papers show that Eckard made numerous attempts to get her superiors to take action before GSK fired  her in May 2003. Even subsequent to this Eckard claims she tried to call the, then, UK chief executive who would not take her call. As a result of her failure to get her reports investigated properly she reported the matter to the FDA and subsequently filed suit against GSK on behalf of the US government under the US False Claims Act, which allows individuals to sue suppliers to the US government on its behalf and to receive a share of any recovery. Amongst other things her suit alleged that there was an attempt at a cover-up. 

In 2009 the plant was closed and in 2010, after nearly seven years, GSK settled this claim for $750m. The company “declined to say whether further lawsuits from patients may be expected”.

I am guessing that companies don't agree such huge settlements in cases where allegations are completely without foundation.

My angle on this is to ask where GSK's corporate governance was in all this mess? Its annual report and accounts contains a report on its corporate governance that would seem to be a model of good practice and compliance; and yet what is described above is a gross failure of governance. The answer is that it is not regulations, rules and systems that matter but behaviours. It is not sufficient to have committees and organisation charts if there is a culture of cover-up's going uninvestigated and unpunished and if there are no effective internal processes to investigate and support reports from whistleblowers. It is up to the Board of Directors to supervise such arrangements and make sure they actually work.  I think a settlement for $750m represents a significant business risk and therefore ask why the reasons behind it are not included in the, superficially impressive, list of business risks that form part of that report and accounts? The directors report should not be a box ticking exercise but a genuine effort to explain and communicate. Shareholders would like to know what has been done to try to ensure that such a massive failure is unlikely to recur.

Thursday, 21 October 2010

Everyman Cinemas

I am going to keep with my cinema theme a little longer - after all the London Film Festival is still on. But this is a beef about the membership deal at Everyman Cinemas. Don't get me wrong, I think the Everyman Cinema chain in north London, and some surrounding areas is great. They provide comfy armchairs and settees at their plush and quirky venues, which are generally small cinemas showing a mixture of mainstream and slightly more art-house films. They also sell food and drink and, at their Hampstead cinema serve it to your seat - what luxury. No really, it all adds to the 'going out' experience. They also have a membership scheme which, in return for an annual fee, offers discounts, free tickets and undefined special offers. In its first year this was great: lots of free tickets and we went lots. I am pretty sure that extra income from our glasses of wine and bowls of nuts provides compensation for lower direct revenue. The problem arose on renewal. Up went the price and the offers evaporated. A mistake you think, an administrative error? But no response to our emails of protest either. If you live in north London, beware!

Wednesday, 20 October 2010

Bogus calls from Windows Support

I have had two calls today from people purporting to be from 'Windows Support' telling me that my computer has been sending 'error messages' and is downloading a lot of 'malicous code' and 'spam'. I have not had the patience to string them along to find out what they are trying to do. My guess is that they would try to get me to open a link, log in to my computer and download some malicous code such as a keylogger to detect passwords or bank detauils!

Microsoft do not make unsolicited calls - see their website. In my case I happen to know that I have not bothered to register with Microsoft and so they could not have my phone number.

Do not cooperate with these people! If you have then disconnect from the internet and seek professional help to clean your computer. Run an anti-virus scan. Alert your bank or credit card companies and change passwords and pin numbers if they have had access to your computer.

Sunday, 17 October 2010

The London Film Festival

The London Film Festival is marvellous. It showcases lots of interesting films, many foreign films that you wouldn't otherwise get a chance to see. But should it be renamed The Insiders Film Festival? Even if you can get on-line to them just after booking opens most of the best films are already sold out - which means that the tickets were pre-sold to insiders. The festival seems to receive a public subsidy, so how about making a fairer share of tickets available to the public?

I've just seen 'Africa United' at the festival, a sweet and well made advernture story about a bunch of African kids journeying through Africa, and their dreams, to get to the World Cup in South Africa. It addresses serious issues like child soldiers, incompetent officialdom, bribery, sex slavery and does do so in a context that is generally uplifting so that the continent is not made to seem like one huge rolling disaster. The film is worth seeing but too many big issues dealt with in passing to make a serious impact. Despite all the hype at the showing, and that I suspect is about to explode upon us, it is primarily a film for kids. Lots of not terribly plausible plot with the children somehow avoiding death and some mawkish sentimentality. Which does not have to be a bad thing if handled well. Comparison was made with Slumdog Millionaire but that, despite negotiating some of the same problems and issues, is a far more assured film.

Whilst on films, saw The Social Network last weekend. Its good reviews really are justified: a brilliant film about the founding of Facebook - amazingly just seven years ago. What distinguishes the film is that it is about people and relationships and it paints those people as complex and not as one dimensional. So whilst the precise way Mark Zuckerberg, for example, founder of Facebook, is portrayed will inevitably colour your judgement, nonetheless the film-makers try to show a person in a situation, leaving that judgement up to the viewer rather than trying to force you to a particular response.

Thursday, 14 October 2010

Public Sector Waste

I just came back from a short trip to Italy's Marche region (food, beautiful and historic cities, beaches) to find I had missed Sir Phillip Green's announcement on public sector waste; so I am catching up. Of course, he's right and he's wrong. He's wrong because much public sector procurement simply can't be aggregated. The specifications of computers or paper or printing quality really are different. So the headline figures of half of expenditure of £191bn being wasted is plain silly. Still it caught your attention. But he's right on two counts; firstly much of the uncoordinated and inadequately overseen expenditure could be coordinated and controlled much better; and secondly, public sector expenditure is often astonishing in its waste and incompetence. Examples...

The government's Building Bridges to Work initiatives are designed to help the long-term unemployed  get back to work. After two years of unemployment, people are required to attend a centre full time for 13 weeks, where they receive help and advice or must take up work placement opportunities (unpaid). It is laudable to try to break people out of the cycle of dependency and despondency. But does this particular scheme work? The private sector firms who administer these schemes think so. It works for them. A highly qualified HR professional of my acquaintance volunteered (unpaid) to help out at one of these centres. He found himself chatting to these people but actually unable to offer specific help. The participants are mostly obliged to sit around doing little they could not do at home - just a bit more like a daily version of the workhouse. But those private sector firms get paid and the government claims it is doing something. But who collects the data to show it works and what data do they compare it with? My understanding is that the firms themselves provide the data to demonstrate what good value they provide. Hmmm.

Or someone who worked at an outer-London local authority who told me they paid/pay a firm to provide and maintain computers- £1,000 per machine per year, which they don't do very well. Blimey, I'll do it for half that...less if necessary. Does the authority have any idea how little computers cost nowadays? Good business if you can get it.

Or experience of computers provided by Barnet council to assist the educational needs of dyslexic young people at university. Another great scheme... except that the computers often did not work properly and (literally) years of continual complaints got nowhere in persuading the external provider to sort the problem. The local authority, councillors, central government were all chased, only to find that it appeared to be nobody's job to check that the provider was actually carrying out the service they were paid for. And no, they were not doing what they were paid to do. To be fair, a different scheme is now available centrally through universities rather than local authorities and does work much better; but how many millions of pounds were wasted in the old scheme that was nobody's responsibility to check on?

So yes, Sir Phillip is right, there is lots and lots of waste in the public sector...and that it is all before we even consider overmanning (try comparing numbers employed in human resource departments with private sector norms) and unecessary jobs.