Glaxo: A decade of growth

June 01, 1993

A decade ago, few people would have named Glaxo as one of the UK’s biggest corporate donors; today it is in the top ten and growing.

For a dairy export company founded in New Zealand over 100 years ago, Glaxo has come a long way. Today it is the world’s second largest pharmaceutical company, employing 45,000 people in 70 countries. It is also one of the UK’s top corporate donors, ranking seventh according to Charity Trends 1992.

Yet little more than a decade ago, it hardly featured among the big players. Since 1980, sales have increased ten-fold and profits twenty times. Then, charitable donations in the UK amounted to only £59,000; last year they exceeded £8 million.

This remarkable corporate growth has been fuelled in large part by Zantac, launched in 1981 as an ulcer treatment, which now accounts for nearly half of Glaxo’s world-wide sales of £4 billion. In fact Glaxo’s concentration on medical products is comparatively recent, only gathering pace after the second world war. The company’s history is still reflected in the name Glaxo which, in one of the quirks of corporate history, comes from a powered baby food marketed in 1906!

Community involvement

Even in the great diversity of approaches to community affairs adopted by UK companies, Glaxo is exceptional in terms of the generosity of its donations: the company exceeds Per Cent Club guidelines more than ten fold. The £8 million contributed to charitable and community projects in the year to June 30, 1992 is equivalent to 5.2% of UK profit before tax (pro-rata from global figures). The remarkable growth over the last decade makes Glaxo one of the key companies whose contribution has put community affairs firmly on the map in the UK.

World-wide corporate contributions are estimated at £18 million, which at 1.3% of profit before tax still exceeds even US standards. Glaxo runs a highly profitable business by any standard: every £1 of sales generates 30 pence in trading profit, although this has to support a major research programme (£600 million last year).

Policy

Glaxo undertook a fundamental review of its community policy in 1991. This resulted in a decision to adopt clear categories and criteria, and a resolve to be pro-active in seeking new projects to support.

The programme priorities are now being concentrated on projects in the following areas:

improving healthcare in the UK: projects funded include a £1 million donation for a lung investigation, research and treatment unit at the Wythenshawe Lung Centre;

promoting scientific and medical education: recent examples include the endowment of three academic chairs – in molecular parasitology at Cambridge University, in cellular pathology at Oxford and in organic chemistry at Imperial College, London – at a total cost of around £3 million.

In addition, support is given to initiatives:

to improve the environment,

to promote healthcare in the developing world, and

to enhance the visual and performing arts.

As in other companies, the trend in recent years has been to concentrate on fewer projects with larger sums. For most companies that means moving from donations of £500 to £5,000 each; for Glaxo, it can mean providing £500,000.

The larger projects must meet clear criteria, such as:

clear-cut, tangible aims;

innovative and capable of replication;

the projects must be very well managed, offering efficient use of resources;

Glaxo’s involvement must be decisive in making the project happen.

Major donations are approved by a group appeals committee which meets quarterly. It is a sub committee of the main board, comprising at least three directors, with non-executives being in the majority and with one of them acting as chair. The whole programme at group level is managed by the secretary to the group appeals committee (also group holding company secretary) assisted by colleagues also with other part-time duties.

Operating companies

Of the £8 million donated in the UK last year, £7 million was from group head office. In-kind donations of staff time, emergency medical supplies or equipment are minimal, so the total is almost entirely donations. Redundant equipment is also donated, but since this has minimal value to the company, it does not show up in the total. Appeals for donations to received by operating subsidiaries from national organisations are referred to group head office. So the donations programme is very much concentrated at group level.

The subsidiary companies have discretion to undertake any other community involvement activities, including local donations, and are encouraged to follow the group guidelines where these are considered appropriate to local circumstances. However there is no compulsion for subsidiaries to “sign up” for the campaigns of the last few years, whether Opportunity 2,000, employee volunteering, partnership sourcing etc – rather it is for local management to decide what is appropriate.

This logic is also followed by other companies too: profits are drawn to the centre; the group holding company has the financial resources, but employs very few people. In the businesses, the reverse applies. So they get involved at a local level, in their local communities, often through staff.

Employees

However, in Glaxo there is a reluctance to “impose” a culture of staff voluntary activity – the feeling is that employees work hard enough during the week without having to turn out at the weekend in T-shirts emblazoned with the corporate logo to clean out the village pond.

So organised employee involvement, whether secondment or volunteering, is limited in the UK, although some staff do get involved of their own accord. This compares to the US, operating in an different culture, where there is more active and organised staff involvement. For example, in a programme to encourage young people not to leave school early, called Be Cool, Stay in School, in Durham, North Carolina, 80 Glaxo employees give one-on-one tutoring sessions to students for an hour every week.

Rationale

So why does Glaxo donate such large sums and such a high proportion of the shareholders profits to charitable causes? Chairman Sir Paul Girolami puts it: “a company has to realise that the framework provided by the community is an essential ingredient in the efficient operation of the business …. industrial activity can only do its job well if it forms part of an open, educated and healthy society …. a company must go beyond providing jobs and a demand for services; it has to promote and sustain such a society by participating in community operations as a member of that community.” This represents the traditional altruistic or philanthropic approach, saying companies have responsibilities and only prosper in the long term when the society in which they operate is prosperous.

All companies with active community affairs programmes have a mix of motives, partly for genuine community benefit, partly for business benefits. Some stress that community activities must justify their call on corporate resources with a short term payback, such as better recruitment or retention rates, enhanced reputation, even increased sales. Of companies recently profiled in Community Affairs Briefing, Kingfisher (Issue 4) perhaps epitomises this approach, with virtually no donations at group head office level, but integrating an extensive community programme into subsidiary businesses. At the other end of the scale, others stress the community benefit alone, only looking for a payback indirectly and in the long term. Glaxo is thus nearest this end of the spectrum.

Communications

In keeping with these altruistic objectives, Glaxo does not see its community affairs programme as a front-line tool to enhance corporate reputation, although it is concerned the programme gets its deserved recognition. So it is now about to produce the first-ever brochure detailing group activities. No surveys of external opinion covering the impact of community activities on corporate reputation have been undertaken and none are planned. In any event, the general public is not the key audience, since sales come through the medical profession largely in the state-run health service. While the company does face some pressing public issues, like animal experimentation, the approach is for the businesses to tackle these head-on and answer them directly; the community programme cannot be used to divert attention.

Conclusion

Companies like Glaxo face a fundamental question: in a highly decentralised company which tries to empower operating subsidiaries, should decisions on type and level of community activity be left entirely to management locally? Or is community affairs an area where head office must give detailed directions for businesses to play a full and active part?

For Glaxo, group level activities are well thought-out, professionally run and generous; the discretion allowed to operating subsidiaries means their involvement in local communities meets more fully the local circumstances and demands. Inevitably this is at the price of a slower response to the latest national campaigns of BITC and others compared to companies with a strong directive approach. Glaxo has answered the first question above in the affirmative, resulting in one of the most generous corporate contributions programme, firmly putting it among the leading corporate citizens in the UK. Zantac has cure more problems in society than ulcers alone!

FactFile

Glaxo Holdings p.l.c.

Year ended 30 June 1992

Chairman: Sir Paul Girolami Main business: research, manufacture and marketing of medicines, particularly for the treatment of peptic ulcer disease, asthma, infections and skin disorders

Turnover: £4,096 million Profit before tax: £1,427 million Employees: 45,000 (12,000 in the UK) FT UK top 500 ranking: 3

Charitable donations: £3.7 million (UK only) Total community contributions: £8 million (UK); £18 million world-wide % of profit before tax (total contributions): 5.2% (UK equivalent) 1.3% (world-wide) Memberships: Per Cent Club, BITC, ABSA

Manager, Charitable Contributions: Simon Bicknell Address: Glaxo House, Berkeley Avenue, Greenford, Middlesex UB6 0NN

Phone: 071 493 4060

Corporate Citizenship Briefing, issue no: 10 – June, 1993

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