GSK fails the leadership test
ONE of the stiffest tests for boards of big multinationals is how they handle a crisis. Confronted with the Macondo disaster in the Gulf of Mexico, BP was found wanting and skewered by President Obama and the White House.
Investors in BP are still paying a heavy price, while former chief executive Tony Hayward has forged a new career and fortune at energy group Genel and as chairman of Glencore.
Current chief executive in the hot- seat is Sir Andrew Witty at Glaxo Smith Kline, Britain’s flagship pharmaceutical group, whose leadership is being more than tested by the deepening sex tapes and bribery scandal in China. Witty has made a rod for his own back. When he settled with the US authorities in 2012 he promised to ‘display integrity in all that we do’.
Witty and Glaxo find themselves in a very difficult place. In Britain, the Serious Fraud Office, armed with tough anti-bribery legislation, is pursuing the company with rigour and natural justice. China’s approach is a different kettle of fish, as the Daily Mail reports today.
What is astonishing about this is that GSK, with all the resources available to it, seriously thought it was a good idea to send its top China executive Mark Reilly back into the lion’s den – amid a general crackdown on corruption – in the belief he could somehow resolve the matter. Despite the UK’s wooing of Beijing with red carpets and Windsor receptions, it remains an imperfect society when it comes to justice and human rights.
The key for GSK was to get ahead of the curve, as it has in the past. Some years back, after accusations of selective publishing of research results, it bravely decided it would release everything.
Witty and his chairman Sir Christopher Gent should have dealt with the bribery allegations in
Late call
China by sharing with investors all the information in its possession. Instead, it is now faced with a steady stream of uncontrolled email and steamy disclosures that undermine its credibility. GSK needs to come clean and release a dossier of all the documents it possesses about the events in China, rather than allowing the leakers and the Chinese authorities to dominate the narrative.
It will be claimed that the material is sub judice and the legal advice is to maintain silence. Britain’s most valuable life sciences company should not be hiding behind such excuses. OF ALL Britain’s private sector pension schemes, the one of most interest to regulators is that at BT.
It is a ginormous plan that embraces 320,000 members and has assets of £46.7bn.
Recent estimates by Macquarie estimate the current deficit at £8.1bn, suggesting the company covenant would require it to up its annual contribution to the shortfall from £325m to £700m-£770m. This might cramp BT’s style as it seeks to compete with Sky in the acquisition of super-expensive Premier League football rights.
BT would dispute this claim. The company’s free cash flow is estimated at around £2.5bn a year, so even with the high costs associated with rolling out superfast broadband, it is not gasping for cash.
Moreover, former chief executive Lord Livingston consistently claimed that the actuarial calculations of the deficit, based on gilt interest rates, was of little relevance given the size and quality of the assets held.
Be that as it may, BT has made a significant move to de-risk the company’s exposure to future pension liabilities. It has reached a deal with Prudential of the US to offload 25pc of the risk that some of its pensioners will live longer than predicted.
The BT pension fund trustees are not the first to lay off some of the risk. But the sums involved are huge – three times that of Aviva when it did something similar with £5bn of liabilities in March.
Not so long ago Britain had the strongest defined salary pensions structure in the world. But as tax benefits have been eroded and a mountain of regulation added, most big corporations have moved to defined contribution – where responsibility is transferred from the sponsoring company to the employee – not a great outcome for most future pensioners.
It’s telling that many companies, big and small, are seeking to transfer their final salary pension fund liabilities to specialist firms. In the first quarter this year £9bn of derisking took place. The BT switch could lead to a rush for the exit.
Foul play
CANADIAN Bank of England governor Mark Carney has shown a determination to jettison the Old Lady’s fusty image and to bring international staff to the top table.
Now he is taking on tradition by substituting rounders or softball for cricket at the Bank’s annual sports day at Roehampton in South-West London. Sacrilege.