Glaxo's new notoriety: $3b in criminal fines, an apology and a vow to do better

On Monday, July 2, 2012, GlaxoSmithKline pled guilty to 3 misdemeanor criminal counts and settled civil liabilities concerning prescription drugs Paxil, Wellbutrin and Avandia. GSK and its CEO have done well to respond with contrition and a commitment to make things right. According to government allegations, here's what happened:

America is more medicated and spending more money on prescription drugs than ever before. The most recent data from the Centers for Disease Control indicates that prescription use by children and adults is on the rise, and spending for prescription drugs was $234.1 billion in 2008 -- more than double what was spent in 1999. When a company like GSK is selling more drugs to more people, using fraud to sell even more drugs looks downright greedy– all at the expense of sick and suffering Americans.

Apologize, Be Visionary and Clean House. GSK was no doubt braced for the government to make a public spectacle of the ordeal and issue a tongue-lashing. GSK responded the right way and made little attempt to minimize or recharacterize what it did. Indeed, there is no "positive" about a $3 billion criminal and civil fine (unless you're the government). The penalty is so enormous and the conduct so egregious, attempting to do anything but accept full responsibility would be wholly inconsistent with GSK's guilty plea and settlement.

Here's how GSK responded:

1. Press release. While a wordy headline makes no mention of "fraud" or "criminal" (nor is there an expectation that it would), GSK puts the $3 billion out front: "GlaxoSmithKline concludes previously announced agreement in principle to resolve multiple investigations with US Government and numerous states; Final settlement of $3bn covered by existing legal provisions announced in November 2011. Fundamental changes to US compliance, marketing and selling procedures implemented in recent years."

2. CEO Statement (within press release):

- Apology. CEO Andrew Witty was apologetic, expressed regret and his intention to act in the interest of patients. Anything short of a full scale, unequivocal apology would have been viewed as insufficient, even offensive.

- Focus on patients. Witty shared his vision for that GSK's culture focus on patients, be transparent and act with integrity.

- Corrective actions. Witty's statement outlined what GSK is doing to fix the problems. This is critical information because the American public (and government) must be assured that GSK is cleaning house, reviewing and changing policies, and removing employees who don't perform as expected.

- Bringing innovation to market in compliance with regulations. Witty acknowledged the unique role GSK has in bringing innovation medicine to market in compliance with government rules and standards.

3. Corporate Integrity Agreement. GSK entered into a Corporate Integrity Agreement as part of its settlement with the government. Under this agreement, GSK is required to change its executive compensation program so the company may recoup annual bonuses and long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct. Among other things, the agreement also requires GSK to implement and maintain transparency in its research practices and publication policies.

4. GSK Corporate Responsibility Reports. Visit GSK's website, and you'll see its beautifully prepared and substantively rich 2011 Corporate Responsibility Report featured on the home page. The company has an archive of CR reports dating back to 2002. Any organization anticipating a high-profile matter with negative publicity should ensure that all the important contributions of the company, particularly in areas of corporate social responsibility, are prominently highlighted and easily accessible. GSK will no doubt emerge from underneath this black cloud quickly. As the world's second largest drug company, it has tremendous resources to repair the damage and ensure something of this scale doesn't happen again. The company and its CEO have engendered tremendous goodwill in the effort to reach the world's poorest, most neglected populations. This bank of goodwill, coupled with what appears to be a genuine desire to do what's right, will move GSK and its customers forward.