Friday, November 29, 2013

Chinese Practices? - Glaxo Sparks Fury Over Sign-On Bonus Demand

GlaxoSmithKline Chief Executive Andrew Witty poses with his medal after being honoured with a Knighthood by Prince Charles

By Mark Kleinman, City Editor

GlaxoSmithKline (GSK), Britain’s biggest drugs company, has sparked fury among some of its biggest suppliers by demanding ‘bonus’ payments to continue working with the group.

Sky News understands that GSK has asked hundreds of marketing services agencies to agree to rebates for work already undertaken and for future activity, as well as a ‘sign-on bonus’ to be readmitted to its roster of preferred suppliers.

The drugs giant, which owns brands such as Aquafresh, Nicorette and Sensodyne, is run by Sir Andrew Witty, one of David Cameron’s closest business advisers.

Its request for a retrospective rebate is particularly unusual for a multinational company of the scale of GSK, particularly at a time when the treatment of small and medium-sized business (SME) suppliers is under much closer scrutiny.

“The demands are naked profit-chasing. They are outrageous,” said one.

According to a request for information circulated among international suppliers in recent weeks, GSK asked parties:

“If your agency has performed work for GSK in 2013, please provide a [percentage] rebate for the 2013 global annual spend by GSK. For all future GSK annual £ spend levels, please provide a percentage rebate. All agencies must complete this question.

“If selected to be a part of the GSK Global Digital Roster, please indicate a one-time sign-on bonus you will offer GlaxoSmithKline (in GBP).”

The rebate and payment demands come at a sensitive time for GSK, which is facing massive fines by Chinese authorities over allegedly corrupt payments to medical practitioners to ensure the continued prescription of its drugs in one of the world’s most important emerging pharmaceuticals markets.

Last year, GSK was fined a record $3bn by US authorities over cash payments to secure business that were disguised as consulting fees and corporate entertainment.

The requests have been sent to many smaller suppliers which would be unable to afford to repay fees already earned and accounted for, said a source at one of the SMEs contacted by GSK.

Sir Andrew has been invited to be part of a business delegation accompanying Mr Cameron on a trade visit to China next week, although it is unclear whether he has accepted given the backdrop of the company’s problems in the country.

In a statement, a GSK spokesman said: “We hugely value the relationships we have with our key partners and suppliers, many of which have been in place for years.

“As part of a long running programme we are reducing complexity in these relationships by increasing the levels of business we place with key suppliers while securing discounts on volumes of services. We value our suppliers and we would encourage them to talk to us if they have concerns.”

A source close to GSK said that cost was not the sole factor determining the awarding to or renewal of business with suppliers, adding that its selection process considers criteria including quality, performance, adherence to GSK values and overall competitiveness on cost.

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