GSK’s mea kinda culpa is a first step to redemption

Bean counters let off the hook with move on compulsory tendering

GlaxoSmithKline is wise to admit that staff may have broken Chinese bribery laws. When big companies stonewall during a crisis, it makes them look furtive. GSK’s confession in the conditional tense comes early enough in the spreading scandal to support the impression that the drugs multinational is as much sinned against as sinning.

Ideally, chief executive Sir Andrew Witty should have delivered the mea kinda culpa. Instead, it came from ops boss Abbas Hussain, who was on the spot in China. Second quarter results on Wednesday will give the government’s favourite drugs development guy an opportunity to make good the deficiency.

He will probably reiterate suggestions that staff may have circumvented company processes to make indirect payments to doctors who prescribed GSK drugs. That stance has presentational strengths but logical weaknesses. Where corruption occurs within multinationals, it is inevitably carried on through shady parallel structures.

For bosses, complicity comes in two forms: knowing and doing nothing; or suspecting and asking no inconvenient questions. Given the reputed prevalence of bribery in the Chinese healthcare system, several western pharma companies may be tarred with the latter brush.

However, ignorance can be a defence of sorts against action under the UK Bribery Act, if a company has “adequate procedures” to prevent bribery. Helpfully, GSK has a top quartile ranking from Transparency International for the quality of its anti-graft disclosure.

Bribery distorts markets and impedes the development of democratic institutions. It is dispiriting that GSK may have helped internationalise China’s flow of backhanders. ’Fessing up is a first step to doing better in future.

Notta lotta bottle

British sportsmen may no longer bottle out of big challenges, but the propensity lives on at the Competition Commission, which has decided against mandatory switching of auditors. The organisation may never again be in a better position to inject life into the dusty market for accounts verification. All forms of groupthink are under attack in the wake of the financial crisis, most notably in the banking industry. Yet bean counters have been let off the hook, subject only to compulsory tendering by FTSE 350 clients every five years.

The case for rotating your auditors – which conjures images of a carousel to which accountants grimly cling – is a respectable one. New eyes spot old oversights. Switching encourages groups to sell audit for what it is worth rather than a loss leader for consultancy.

Instead, the audit industry will continue to resemble a Tunnel of Love, a fairground ride in which couples cuddle aboard boats drifting on an artificial stream. The market favours incumbents because choice of auditor has little effect on client competitiveness. Bonds between Big Four auditors and big companies are reinforced by the tendency of agency accountants to hop across into finance director jobs. The average audit tenure is 48 years.

The homeopathic tendency has also been at work diluting EU proposals, setting a deadline for auditor switching at 25 rather than 12 years. But some investors are less accommodating. USS and RPMI Railpen, two big pension funds, plan to vote against the reappointment of auditors after 15 years’ service. They show the backbone the commission lacks.

Baby boost

Most people like babies and the royal family. So the arrival of a royal prince should deliver an economic boost, surely? Unaccountably, the Office for Budget Responsibility has not quantified this. So journalists have fallen back on a figure of £243m in extra retail sales over nine weeks from the Centre for Retail Research.

At least 18 big news outlets including the Daily Mirror and CNN have quoted the estimate. But it is an oddly precise figure for something as unknowable as how much people might spend celebrating.

The CRR’s Professor Joshua Bamfield admits himself that £243m is akin to a rounding error when annual retail sales in the UK are £313bn. His methods seem a tad impressionistic to us, depending on consumer questionnaires and interviews with retailers.

The CRR describes itself as a one-time “university research group”. Not quite. The consultancy split in 1997 from Nene College of Higher Education, where Prof Bamfield worked. The college eventually became part of the University of Northampton. Prof Bamfield is no longer on its faculty, or anyone else’s. But if you need data to lend statistical punch to an article on royal events, he’s your man.

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.

More on this topic

Suggestions below based on GlaxoSmithKline