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Glaxosmithkline (LSE:GSK) share price has declined by 13.0 pence (0.79%) in trading on the London Exchange today, continuing its current decline that began on 02 September, although the company announced that it has reached an agreement to divest its nutritional drink brands, Lucozade and Ribena, to Suntory Beverage & Food Ltd for £1.35 billion.
GSK had decided in February this year to divest the brands as they were not part of the company’s core business. The two brands combined have generated only half-a-billion pounds of revenue on an annual basis, so it’s not likely that the decline in share price has much to do with the divestment. Rather, investor confidence may simply not be fully restored in the company, as the investigation continues into its business tactics in China, which ADVFN first reported on 16 July.
The news today is essentially that some unnamed people have come forward to corroborate the allegations that Chinese executives at GSK have been involved in forms of high level bribery within the Chinese pharmaceutical market. Whilst GSK shareholders certainly have a moral basis for concern over the bribery allegations, it may be best for investors, institutional or individual, to relax a bit and just hope that the U.S. government does not come down too hard on the company.
One source of comfort is that GSK is not alone. I am not suggesting that two wrongs make a right, or anything even close to that. What I am saying is that other pharmaceutical companies – Eli Lilly (NYSE:LLY) and Pfizer (NYSE:PFE) are also alleged to have Chinese executives involved in bribery schemes in mainland China.
The problem is that what we call bribery, the Chinese call cunning. And in the Chinese culture, cunning is the most highly honored “character trait.” In fact, a book due to be published later this year by Dr. Gregory Finkleson, an immigration attorney familiar with Chinese business tactics, indicates that cunning is more highly valued than family relationships.
When reputable companies expand their business activities into China, they are, much like Captain Kirk of the Starship Enterprise, going where no ethics have ever gone before. While those companies may endeavor to hire influential Chinese business men, they are also entering a marketplace where “influence” and “bribery” are considered to be synonymous. China is a country where financial success and reputation are achieved by amoral tactics. Business people in China have a substantially different perspective relative to what we understand to be ethics.
For the Chinese, it’s all about winning and doing whatever it takes to win in the business arena. Ask the Chinese business who are under investigation. The will have a difficult time understanding what they have done wrong. They have acted according to Chinese standards and they have achieved success by doing so. What’s wrong with that.
Western investors are going to have a difficult time figuring out how to deal with this clash of cultures. We live by regulations. They live by manipulations. As much as I hate to say it, and I do hate to say it, without some major changes in the Chinese culture, regulatory supervision will, more than likely, be replaced with an “if you can’t beat them, join them attitude.”
Whatever the outcome, shareholders, relax. This too, shall pass. One way or another.
