GlaxoSmithKline CEO: London HQ knew nothing of China scandal

Sir Andrew Witty said the drug firm had 'no sense' of the 'shameful' allegations that some GSK China executives bribed doctors with cash and sexual favours worth £320m

The chief executive of GlaxoSmithKline has insisted the British drugs group had no knowledge of the alleged cash and sexual favours bribery scandal which has engulfed the company in China before the police arrested four of its senior Chinese executives last week.

Sir Andrew Witty, GSK's chief executive, said the company's headquarters had "no sense" of the "shameful" and "deeply disappointing" allegations that some GSK China executives are the "godfathers" of a criminal scam, bribing doctors with cash and sexual favours worth £320m.

Witty, who was speaking publicly about the "fraudulent behaviour" for the first time, said: "It appears that certain senior executives in the Chinese business have acted outside of our processes and our controls to both defraud the company and the Chinese healthcare system."

He said the company has "zero tolerance" for the alleged behaviour, which is "totally contrary" to GSK's values.

However, he repeatedly refused to say if he would hand back some of his bonus this year if the company was found to have broken the law in China. He said the level of his bonus – which totalled £2.7m last year – is "really a matter for the board".

Witty added that he was "absolutely committed to rooting out corruption and we are absolutely committed to getting to the bottom of what has happened".

The GSK boss, who was paid £3.9m last year, said he was "absolutely willing and ready" to go to China to head up the company's investigation. However, he is leaving the day-to-day handling of the crisis to Abbas Hussain, GSK's head of emerging markets, who flew out to China take control of the situation last week.

He refused to provide details of how the alleged fraud operated, but said the Chinese policeinvestigation is focused on the four Chinese nationals already detained by the police. He said they appear to have been "potentially defrauding GSK and also at the same time allegedly doing some things in the market which are clearly inappropriate and illegal".

The Chinese investigators have "no allegations" against Mark Reilly, the British head of GSK China, or Steve Nechelput, its finance director in the country, Witty said. He said Reilly, who has left China for the UK, and Nechelput, who the Chinese have banned from leaving the country, have been helping GSK with its investigation.

GlaxoSmithKline (GSK) headquarters in London. CEO says HQ was unaware of the alleged bribery in ChinaWitty said GSK's head office in London had no knowledge of the alleged fraudulent activity until the Chinese police raid its offices in Shanghai earlier this month. "As far as headquarters, we had no sense of this issue."

This is despite GSK declaring last month that a four-month internal investigation into allegations of bribery and corruption in China found "no evidence of corruption or bribery in our China business".

Witty said the previous allegations raised by a whistleblower were "quite different" to the new charges. "They are two completely different sets of issues: we fully investigated the first and of course this has now surfaced in the last couple of weeks," he said.

GSK has already pumped in extra cash into its investigations team in China to help them to get to the bottom of the scandal, Witty said.

Despite the apparent serious breach of compliance, Witty said GSK's controls and audit systems are "extremely robust", but promised the company would "learn from this and make changes".

It comes a year after Witty promised a company-wide overhaul to prevent a repeat of a scandal in which GSK staff tricked and bribed doctors into prescribing dangerous antidepressants to children in the US. "We're determined this is never going to happen again," he said last summer after GSK paid a record $3bn (£1.9bn) fine to settle the claim.

GSK has "reached out" to regulators in the UK and the US and has "consulted with the UK government" about the Chinese investigation.

He warned that the allegations are likely to have "some impact" on GSK's future performance in China, but said it was "too early to quantify the extent".

GSK reported a 2% rise in second-quarter sales to £6.6bn. Its drug and vaccine sales in China rose 14% to £212m. China accounts for just over 3% of the company's global sales.

China indicated that its investigation into the "rampant" bribery scandal will be extended to other foreign and local drug companies. "It will not be surprising if more pharmaceutical companies and hospitals, domestic or international, are to be involved in probes in the days to come," the Chinese state news agency said yesterday. "Big international firms should shoulder [their] due responsibilities to bid farewell to malpractice, setting a good example and serving as a wake-up call for domestic pharmaceutical companies."

Article Source : http://www.guardian.co.uk

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DFS supports British manufacturing resurgence

Sofa maker is among firms bringing jobs back to the UK from overseas as Chinese labour falls out of favour

Anyone subjected to brash DFS adverts promising double discounts and 0% finance on sofas would think it was impossible for the furniture firm to get its products from anywhere other than low-cost factories in the developing world.

However, the company is one of a number of British businesses, including Golden Wonder, Hornby and Aston Martin, that has stopped shipping products back to the UK and is transporting jobs to these shores instead, making it the biggest sofa manufacturer in Europe.

At a DFS factory on an industrial estate in Derbyshire there are banks of sewing machines, state-of-the-art fabric cutters and gas-powered staple guns.

Harvey Ellis, head of manufacturing at DFS, who oversees the 838 workers on three sites and in two woodmills, explained: "Once we receive an order, it takes just four days to go from an order on our screens to being loaded on to a van. The frames are shipped in from our wood factory six miles away and we will make 3,000 pieces a week. Today we'll complete 900."

In three years DFS has toned down its Chinese activities to join the march of the makers, increasing UK production by a quarter. One worker, nail gun at the ready, said he could cover an entire sofa with fabric – sewn by the factory's seamstresses – in less than 30 minutes.

It is a skill in much demand. The desire for British-made products has become so great that the factory in Alfreton has just increased its workload, adding an extra shift to keep it running 16 hours a day. Along with two more factories in Doncaster and Long Eaton, it means DFS now makes nearly all of its fabric sofas in the UK, accounting for half of all furniture sold by the company. Only the labour-intensive leather products are still made abroad.

DFS chief executive Ian Filby said he wanted to see the business return to its British roots, and that customers now asked why the company did not make more of its UK credentials.

"Customers are astounded to think that a value-for-money player is also a major UK manufacturer," he said. Then, with a nod to the dark days of the three-day week, he added: "We all know about the bad old seventies, but the historical mindset of 'all UK manufacturing is shoddy' has gone full circle and people now see the UK as the sort of place where people work hard and make a decent crust. People believe that quality product is made in the UK and aren't going to buy British if the product is poor."

DFS appears to have tapped into a patriotic zeal among the British public. Its market share has risen from 25% to 28% in the last three years and Filby believes that there are also compelling financial reasons for bringing work back to the UK.

"I'd be surprised if there's not a lot of British manufacturers wanting to be more responsive to shorter lead times. We're never going to compete with the sweatshops of the Far East as a country, but you can manufacture here as long as you're adding design or R&D [research and development]. I think the other phenomena which people recognise and is going to continue, is that moving things around the globe is expensive."

And it is not just DFS that has seen the benefits of shifting work back to the UK. This year Golden Wonder revealed that its Pot Noodle snack will be made in Leeds instead of being shipped 10,000 miles from China, and Aston Martin Rapide S cars are now built in the Midlands, while clothing businesses including Topshop and Marks & Spencer are selling more British-made outfits.

Lee Hopley, chief economist at the EEF manufacturing association, explained that manufacturing in the UK was increasing as costs overseas grew and customers became more demanding.

"I think customers would be surprised by how much is made in the UK," she said. "There is a lingering perception that it is still made overseas. Manufacturing output is higher now than the 1980s in real terms, although we're still 11% below our pre-recession peak. There's been big investment in technology and equipment, while there is also a focus now on innovation to look beyond the product."

Model railway maker Hornby is another example, shifting its paint production back to the UK from China after there were fears that any quality issues would take several weeks to be resolved. Executive chairman Roger Canham added that making products closer to home helped businesses respond to demand – and check for errors – more easily.

"It takes four weeks for a shipment to arrive from China, which means if you want to check the quality you have to wait until it arrives," he said. "Now, if I want to check all I need to do is jump in a car and go to the factory.

Bringing jobs back home: DFS chief executive Ian Filby at the furniture manufacturer's production facility in Somercotes, Derbyshire"There was a huge surge in manufacturing from China in the 1990s, but now that wages are increasing and shipping is more expensive it's slowed down. We've got a new range of Airfix quick- build models which we will manufacture in the UK because it gives us a better chance to respond to demand quickly."

And with the shift in work back to the UK come much-needed new jobs, at a time when youth unemployment running at around 20%.

Filby said he would create 250 new jobs at DFS this year, having hired 400 new people in the 18 months to January, and revealed that one of the benefits of having UK factories was the loyalty he got from the staff who had worked there for generations.

At Alfreton, for example, nearly half the staff have been there for five years, and 35% have notched up 10 years' service. Owned by private equity group Advent, DFS has promised to reward staff for their loyalty with 1% of any profit made from the company's sale, which is expected to happen over the next few years.

Another reason why British workers will welcome the return of a manufacturing base that dwindled for decades but is showing renewed determination to compete with the rest of the world.

Article Source : http://www.guardian.co.uk

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