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GSK bribery scandal "highlights importance of reputation risk management"
The ongoing bribery scandal that is engulfing drugmaker GlaxoSmithKline (GSK) should be viewed by other businesses as a clear lesson in the importance of having strong reputational risk management processes in place, to avoid issues that can seriously affect their bottom line.
This is according to CFO.com, which observed that GSK's current troubles - which began with allegations of corrupt activity in China, but which have now spread to other countries - are having a hard impact on the firm. It highlighted a December 2013 report by the Financial Times that estimates sales in China have dropped by 61 per cent since the scandal broke.
And it seems the company is set for more difficulties, as an investigation by the BBC's Panorama, set to air tonight (April 14th), has found it is also facing charges in Poland, where 11 doctors and a GSK regional manager have been charged over alleged corruption between 2010 and 2012.
The BBC observed that if these allegations are proven, GSK may have violated both the UK Bribery Act and the US Foreign Corrupt Practices Act, which make it illegal for companies based in either country to bribe government employees abroad.
CFO.com noted that many organisations find it difficult to stay in business after events that significantly damage their reputation, such as corruption charges. While large firms may find themselves well able to cope with regulatory penalties, the effects of months of negative media headlines - which have also hit firms including Citigroup, Target, Royal Caribbean and General Motors - can have a much longer-lasting impact.
Therefore, there are a few steps that all organisations need to take to minimise their risk in this area, which include establishing strong controls on governance and compliance, and ensuring ethical practices throughout the supply chain.
"A good reputation strengthens market position, reduces the cost of capital and increases shareholder value," the publication stated. "It insulates the brand, permits higher prices and helps to attract top talent. Nothing is more essential to the life of a corporation than reputation."
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