NEW COLLEGE DURHAM

BA (HONS) MANAGEMENT, BUSINESS AND ADMINISTRATION

Business Deconstructed

Assignment

GlaxoSmithKline

Andrea Verhohlen

Submission Date: May 2008

---

1

1. Introduction

1.1 GlaxoSmithKline, PLC

GlaxoSmithKline plc

.

(GSK) was formed in December 2000 by the merger of "Glaxo

Wellcome" and "SmithKline Beecham" and is now one of the world′s leading

pharmaceutical and healthcare companies. The organisation is headquartered in London

and has further production facilities in 114 countries within Europe as well as in

Northern America and Asia. Apart from pharmaceutical products and vaccines, health-

and sanitary items are also manufactured and sold in over 140 countries. (Annual

Report, 2007, p.4) GSK employs over 103,000 people around the world. In 2007,

women "accounted for 24 per cent of senior managers and 37 per cent of all managers"

while "minorities made up 19.1 per cent of employees in the UK workforce".

(Corporate Responsibility Report, 2007, p.100) The organisation invests in its own

research to develop new drug substances. One in six employees′ works in the area of

research and in 2007 GSK spent over 13 million pounds every day for R&D. Research

efforts are also directed at diseases, which are mainly widespread in underdeveloped

countries. (Annual Report, 2007, p.16)

1.2 Vision & Mission

A vision is the "desired future state: the aspiration of the organization." The vision of

GSK is "to become the indisputable leader in our industry by helping people do more,

feel better and live longer". A company´s mission can be defined as "the overriding

purpose in line with the values or expectations of stakeholders" (Johnson & Scholes,

2005, p.13). The mission of GSK is expressed in its long-term strategy for growth,

based on the following objectives:

· To build the best product pipeline in the industry and achieve operational and

commercial excellence

· To improve access to medicines for those who cannot afford them

· To ensure that business decisions take into consideration ethical, social, safety and

environmental concerns

· To persist in being a recognised leader in protecting and enhancing the health of its

employees globally, enabling sustainable business success

---

2

2. Stakeholders

2.1 Stakeholder Theory

Generally, a stakeholder is anybody who has a "stake" in an organization. Freeman

defined stakeholder as "any group or individual who can affect or is affected by the

accomplishment of that organisation′s goals." (Freemann, 1984, p: 48)

Harrison & St. John

stated that a focus on stakeholder management will lead to

innovation, fewer damaging moves (strikes, boycotts, bad press) and fewer obstacles

during strategy implementation. In contrast to the shareholder value principle which

centers the needs and expectations of the shareholders of a company, the stakeholder

theory intends to grasp the organization in its entire socio-economic context and to

conciliate the needs of all respectively the most important stakeholders.

(www.onpulson.de).

Ward specified the term stakeholders and divided them into different groups with the

power to influence the overall business strategy:

Figure 1: stakeholders, adopted from Ward, 1992

---

3

2.2 Stakeholders of GSK

GSK defines its stakeholders as "shareholders, patients, governments, non-

governmental organisations, payers and employees but also the "scientific community

and healthcare professionals and providers" are mentioned. (Annual Report, 2007, p.4

& 14). In contrast to Ward, GSK does not mention its suppliers as stakeholders.

GSK states that it is "essential to maintaining good relationships with our stakeholders"

(Corporate Responsibility Report,2007, p.8) and engages with its stakeholders in

different ways: through their sales representatives, conducting market research via third

parties to understand patient needs, different stakeholder discussing groups, panels and

engagement workshops to retain feedback, patient groups, open days and community

projects, as well as meetings with multilateral organizations and NGOs.

In November 2004, the BBC broadcasted a report that GlaxoSmithKline plc. applied

non-tested drugs on HIV - positive children at children′s homes in New York.

(news.bbc.co.uk) Hence, GSK began in 2004 as the first pharmaceutical company to

publish the results of clinical trials with detailed data on the Web in order to increase

transparency.

2.3 Stakeholder mapping

Normally the various stakeholders have different interests and expectations in an

organisation as GSK recognises, "there is a balance to be struck between the return to

shareholders and our desire to improve access to our products". (Annual Report, 2007,

p.10). All stakeholders′ objectives cannot be met; just a part of it, therefore the

Mendelow Framework may be applied to adjust the power and the interest of the

different stakeholders. Power means the ability of people to change or to interact

actions. The level of interest describes the willingness that people have in supporting or

offending the strategy. The influence can be measured by power*interest. (Johnson &

Scholes, 2005, p.185)

Figures 2 and 3 depict the different stakeholder categories and how the various

stakeholders should be treated.

---

4

Mendelows Framework

Figure 2:

Mendelow Framework (Adapted from A. Mendelow, 1991)

Stakeholder group with

Level of importance

Example

Directors, major shareholders,

High interest and power

High importance

trade unions

National government,

Low interest and high power Medium importance

institutional shareholders

Salaried staff, customers,

High interest and low power Medium

importance

suppliers

Low interest and low power

Low importance

Unskilled labour force

Figure 3

: Examples for the Mendelow framework

GSK states that its "overarching objective is to maximise total shareholder return"

(Corporate Responsibility Report, 2007, p.9), so shareholders are regarded as "key

players". On that account this report is directed at investors and shareholders and

provides information about their legal interaction with the company and GSK`s

financial performance.

---

5

3. GKS`s legal form and its implication on shareholders

As GSK is registered in the UK, it underlies English law and thence the "Companies

Act of 1985" which regulates the responsibilities of companies and their directors and

secretaries in interior and exterior relationship.

3.1 Public Limited Company (PLC)

In contrast to the Private Company (Ltd), the Public Limited Company is permitted to

offer shares to the public by advertisement and is therefore a more "suitable inviting

investment by large numbers of people". (Dine,2001,p.13)

Like other company forms the PLC is regarded as an "artificial person / legal entity" (as

opposed to sole proprietor) which has an existence separate from its members and is

able to

· Hold assets

· Employ associates

· Conclude contracts

· File a lawsuit

· Be sued

(www.companieshouse.gov.uk)

This separation (which is also referred to as

the veil of incorporation

) results in different

liabilities for the corporation and the members. A PLC limits the liability of their

shareholders, which means that in case of insolvency or liquidation of the cooperation,

they are only liable with the amount of money they have already invested respectively

the amount for that they obliged themselves before (guarantee). Shareholders are not

personally responsible for company`s debts, while the company as "artificial person" is

completely liable, with no limit for its own debts, although it obtains its capital and

distributes its profits to the members.

(§ 3 Companies Act 1985).

Exceptions are

"fraudulent" or "wrongful" trading

(Section 213/214 Insolvency Act 1986).

In the case

of bankruptcy, the remaining values are given primarily to the shareholders and in

second instance to the remaining creditors like suppliers etc., so shareholders are hidden

from creditors. (Handley et al, 1996, p.131).

---