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Andreas Whittam Smith

Andreas Whittam Smith: GlaxoSmithKline - and you thought the culture at Barclays was sick

The culture of modern business is the problem. Corrupt practices have spread far and wide

While Barclays has been dominating the news, we hardly noticed that, at the same time, the British pharmaceutical giant, GlaxoSmithKline (GSK), was fined £1.9bn for bad practices in the US. This is six times more than Barclays has been fined for dishonestly manipulating interest rates.

Before returning to Barclays, let us focus for a moment on GSK. Some of its victims were sick children. Take, for example, the company's promotion of its antidepressant drug Paxil, a trade name for Paroxetine. It was not approved for use by patients under 18, but the company went ahead all the same and marketed it to doctors for this purpose. To quote the US Department of Justice's account, it did so by "preparing, publishing and distributing a misleading medical journal article". At the same time, GSK did not make available data from two other studies in which Paxil also failed to demonstrate efficacy in treating depression in patients under 18. Moreover its "labelling was false and misleading".

Then there is the case of GSK's drug, Wellbutrin, whose use was officially limited to treating major depressive disorders. Again, the company cheerfully marketed it for the treatment of conditions for which it had not been approved, such as weight loss, sexual dysfunction, substance addictions and attention deficit hyperactivity disorder. Its sales methods comprised spending millions of dollars to persuade doctors to speak at meetings, sometimes at lavish resorts, at which the non-authorised uses of Wellbutrin were routinely promoted.

These are two examples of GSK's misbehaviour; a further five were described by the Department of Justice. These crimes are at least as reprehensible as Barclays', or perhaps worse, as GSK was putting people's physical wellbeing at risk. From which we can conclude that we are not confronting something arising out of the special nature of banking or out of the particular characteristics of the drugs industry. Rather it is the culture of contemporary business that is the problem. Corrupt practices have spread far and wide. They are occurring on a scale that is unprecedented.

The traditional response, which is to press on with tighter regulation, is not convincing. To take the example of the two industries mentioned here, their regulation has been refined over many years. In Britain, as long ago as 1826, for instance, an economic crisis led to a new act "for the better regulation... of certain bankers in England". The regulation of drugs in the US goes back to 1906 when President Theodore Roosevelt signed into law the Pure Food and Drug Act. The Act prohibited the marketing of "adulterated" drugs. Ever since then, the regulation of these two industries has regularly been updated and refined. Yet very recently, Barclays and other large international banks were falsifying key interest rates and GSK was misbranding drugs and failing to report safety data.

Regulation has two weak points. It almost invites evasion, the finding of a way round an irksome rule. And it cannot prevent criminal behaviour. This means that attention has also to be paid to the spirit in which business is conducted, what is often called its culture. This is what requires most attention at the moment.

To some extent, the authorities have already taken this point. The Financial Services Authority, for instance, has given a lot of attention to instilling the notion of "treating customers fairly" into firms that deal directly with the public. This approach has become pervasive, believe it or not. Without it, there would have been many more mis-selling scandals than we have seen.

Moreover, in the GSK case, the US Department of Justice added something extra to the fines it levied. This is what it called a "corporate integrity agreement". Admittedly, its scope is quite narrow, covering such areas as changing the way GSK's sales force is paid so as to remove compensation based on sales goals for territories, one of the driving forces behind much of the dishonest conduct. The agreement also requires GSK to implement and maintain transparency in its research practices and publication policies.

Fine, but changing the culture of business has to go much further than these two examples suggest. It is worth examining whether companies above a certain size should be required to establish codes of conduct for their staff. These would vary from firm to firm to reflect the different types of business they undertake. The overriding principle might be the one upon which the FSA focuses – treating customers fairly. Under that, you could fit the accurate signalling of interest rates in the market as well as selling only drugs that passed the relevant safety tests. Everybody from chairman to the newest junior employee should be required to observe these codes and they should be a condition of employment. Serious breaches should lead to dismissal. They should become a familiar aspect of employment. Of course, you have a code of practice. Of course, it is mandatory. Of course, you had better observe it or else there will be consequences. That should be the new culture of business.