A Business Deconstructed. Company Analysis of GlaxoSmithKline plc.

Term Paper 2008 29 Pages

Business economics - Business Management, Corporate Governance


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. 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:

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Figure 1: stakeholders, adopted from Ward, 1992

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.

Mendelows Framework

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Figure 2: Mendelow Framework (Adapted from A. Mendelow, 1991)

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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.

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


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).


A distinguishing feature of PLCs is the division of the basic capital into shares which are sold to shareholders and therefrom the PLC obtains money. Everybody is allowed to buy shares and becomes thereby one of the numerous company “owners”. (Dine, 2001, p.12)

Before a PLC either begins with business activities or is allowed to take out a loan etc., it must demonstrate the Companies House that shares in the value of at least £50,000 have been issued, and that for each share at least 25% of its nominal value has been paid. § 117 Companies Act 198 . Shareholders receive several rights as listed in 3.4.

3.3 Formation

The central authority responsible for the formation of a company in England and Wales is the Company Registration Office in the Companies House in Cardiff.

Prerequisite for the registration is the corporation-contract which consists of two documents: the “Memorandum of Association” and “Articles of Association”. (www.schlaefke.net)

The memorandum of association defines the following issues:

- Name
- Domicile of the company`s registered office
- Objects of the company
- Limitation of liability clause-liability of members
- Share capital clause-amount of share capital

§ 2 Companies Act 1985

PLCs must have at least two shareholders, two directors and a qualified secretary (one of the directors may be the secretary). The Corporation name is to be completed by the addition "Public Limited Company", or "PLC". § 282 Companies Act 1985



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Business Deconstructed Assignment Glaxo Smith Kline SEMINAR



Title: A Business Deconstructed. Company Analysis of GlaxoSmithKline plc.