The King Report's governance framework applied to GlaxoSmithKline PLC

Corporate Governance Sustainability

During the last several years, the issue of corporate governance has been increasingly brought to the forefront. This is because the financial crisis exposed the weaknesses of the current system by: failing to protect the interests of stakeholders. In response to these challenges, various reports have been reexamined. One of the most notable is the King Report of 2002. It identified several different criteria that can be used to prevent excessive risk taking. To fully understand how these ideas can be implemented in a corporate environment requires examining the recommendations provided with an actual firm (i.e. Galaxo Smith Kline PLC). Once this takes place, is when the positive and negative elements of these practices will be obvious.

The King Report of 2002

The King Report found that one of the most effective strategies for improving governance is to embrace practices that are reducing risk. The best way to achieve these objectives is to focus on a number of areas to include: discipline, transparency, independence, accountability, responsibility, fairness and social responsibility. The combination of these factors will illustrate the positive and negative aspects of reporting.

Transparency

Transparency is allowing individuals outside of the company to use various pieces of financial data to make investment decisions (surrounding the firm's value). This helps improve confidence in different projections and comments that are made about an organization's activities. Galaxo Smith Kline is taking this information and they are providing investors with a full disclosure of their activities. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

Evidence of this can be seen in the 2011 Corporate Responsibility Report. Inside, it is discussing a host of ideas that are designed to address the needs of stakeholders to include: governance / management, the firm's approach, their behavior and commitment to people / communities. These elements are highlighting how Galaxo Smith Kline, is using their annual report as a way to highlight what they are doing in the area of social responsibility. (Corporate Responsibility Report 2011)

This is providing communities with benefits by informing various stakeholders of these activities. In the future, any kind of issues can be addressed, so that the negative impacts of the firm's activities are limited. Once this takes place, is when the community will look at the company in a positive light. This is the point that there will be better relations with local leaders and citizens groups (leading to even greater support for a host of activities). (Corporate Responsibility Report 2011)

The negative aspect of this report is that the company is doing as much as possible to satisfy the needs of stakeholders. The problem is that this is often not enough and different groups will want even more. The increased reporting will be used to demonstrate how they are concentrating on one area and ignoring others. When this happens, there is a possibility that social responsibility will become ineffective with each group of stakeholders wanting the equivalent of others. This can become a distraction for executives, who are trying to maintain their profit margins and address frivolous complaints. (Corporate Responsibility Report 2011)

Independence

Independence is when there are various mechanisms that are utilized to prevent any kind of conflicts of interest from occurring. This means that there must be policies that will monitor and enforce this kind of activity. In the case of Galaxo Smith Kline, they are focused on improving corporate governance through concentrating on: audits / assurance, external assurance and risk management. These areas are designed to ensure that there is a certain amount of independence during the process. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this approach are the sufficient checks and balances to prevent any kind of major abuses. At the same time, this will make certain that all of the programs are effectively addressing the needs of stakeholders. Over the course of time, this will ensure that these initiatives are intelligently addressing the root causes of the problems. (Corporate Responsibility Report 2011)

The drawbacks of this approach is it could lead to executives trying to micro manage these programs. This is troubling, as these kinds of efforts will hurt the ability of employees, managers and community leaders in working together. When this happens the odds increase that there will be some kind of negative backlash. This could hamper efforts to deal with challenges impacting communities by over regulating how these initiatives are ran. As a result, any kind of initiatives must have provisions that allow for increased amounts of flexibility. If this kind of approach is taken, the firm will be able to control the effectiveness its programs and the way services are delivered. (Corporate Responsibility Report 2011)

Accountability

Accountability is when various decision makers are held accountable for their actions. In the case of Galaxo Smith Klein, they are focused on having an anti-corruption and bribery program. This is where the firm will go after individuals who are engaging in practices that are considered to be unethical. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

When this happens the odds increase that there will be some kind of standard for holding different stakeholders accountable. Moreover, the firm will have elections for the board of directors every single year. This will increase accountability by having procedures for monitoring and changing any kind of actions (which are considered to be against these guidelines). (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this aspect of reporting, is that there are mechanisms in place to enforce various policies and procedures. Anyone who is in violation of them will be subject to these standards over the long-term. When this kind of approach is used, it will help a firm to be able to ensure that everyone is following these regulations. This will create an atmosphere that is conducive of supporting the needs of various stakeholders. (Corporate Responsibility Report 2011)

The negatives of this reporting are shareholders could become emotional about particular actions (such as: cutting back on funding a specific program). This could lead to sudden changes in the board of directors from stakeholders who are emotional about what happened. Once this occurs, is when the firm could lose key talent. This will have an adverse impact on the profit margins of the organization. (Corporate Responsibility Report 2011)

Responsibility

Responsibility is when there are procedures in place that will allow an organization to correct inappropriate behavior (i.e. mismanagement). Galaxo Smith Klein is using the Compliance department to monitor and address any kind of issues. The way that this will take place, is there will be regular audits (based upon the risk profile). This will determine how frequently an audit is required. In the event that there is some kind of discrepancy, these policies are allowing Compliance to quickly fix any problems. This helps to improve transparency and accountability by having a way of rectifying potential abuses. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this kind of reporting, is that firms can quickly deal with any kind of problems when they are small. At the same time, they can determine the effectiveness of them in real time. This helps them to quickly fix all issues and make adjustments that are necessary. Once this occurs, is when everyone is more responsive to the needs of stakeholders. (Corporate Responsibility Report 2011)

The problem is the Compliance department could become too aggressive in their tactics. This will cause various programs to face unnecessary amounts of scrutiny. When this takes place, many individuals will become frustrated by bureaucratic efforts to deal with these challenges. This is the point that the program will be ineffective at addressing the issues. (Corporate Responsibility Report 2011)

Fairness

Fairness is when there is an emphasis on ensuring that all programs are taking a balanced approach when dealing with the underlying problem. In the situation with Galaxo Smith Klein, the firm is using the Compliance department to achieve these objectives. This is through conducting routine audits and analyzing the effectiveness these resources. Once this takes place, is when there will be a mechanism for protecting the interests of everyone. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The advantages of this reporting are focusing on how effectively the resources are being used. This helps actuaries in providing assistance to areas that need it the most (which is dealing with the root causes of the problem). Once this happens, is when these programs will have more of an impact through addressing the specific needs. (Corporate Responsibility Report 2011)

The disadvantage of this kind of reporting is that the definition of balance could be different between various stakeholders. This means that the company's resources will continue to be misallocated (based upon these perceptions). When this happens, there is the possibility that there will be greater amounts of conflict and waste. In the future, this will make it difficult to address the main causes of the problems impacting communities. (Corporate Responsibility Report 2011)

Social Responsibility

Social responsibility is when there is an awareness and response to social issues. This is accomplished by having executives focusing on and understanding what specific issues need to be addressed by these programs. In the case of Galaxo Smith Klein, the firm is focused on dealing with a number of social issues that are impacting everyone to include: support for health, the environment and specific community related programs. These are designed to address the challenges that are impacting specific areas and society in general. Once this takes place, is when the firm can point out the problem and what they are doing as a part of the solution. (Corporate Governance 2002) (Corporate Responsibility Report 2011)

The benefits of this reporting, is that it can help the firm to be able to show that they are something more than just about increasing their bottom line results. Instead, they are an organization that is focused on giving something back to society and communities around the world. This is when everyone will have a more favorable image of the company and the practices they are utilizing. (Corporate Responsibility Report 2011)

The drawbacks of this kind of strategy are that there could be too much of a focus on these activities. This is problematic, as the social responsibility initiatives can serve as a distraction. When this happens, staff members will stop concentrating on increasing the profit margins of the firm. This could be enough for the company could lose its competitive edge. As a result, all firms need to keep social responsibility efforts in balance. (Corporate Responsibility Report 2011)

Conclusion

Clearly, Galaxo Smith Klein is embracing practices from the King report. This is allowing the firm to be more responsive to the needs of stakeholders. At the same time, it is helping the company to address critical issues. However, like with any kind of program there needs be a certain amount of balance and flexibility that must be utilized during the process. This is because these programs need to take into account the different viewpoints of stakeholders.

Once this takes place, is when the firm will be more responsive to these issues. This will help to improve their image among various stakeholders. Moreover, the firm will be able to maintain its profit margins. This is developing social responsibility practices that will intelligently address a host of problems. As a result, this program can be used to show how social responsibly can address a host of challenges. If the various ideas of the King report are implemented properly, it will have a positive impact on staff managers and employees in adjusting with a number of issues. This is when the company can become a model for addressing different problems which are impacting society.