Agency Problem at GlaxoSmithKline

Agency Problem at GlaxoSmithKline
Case Code: CLFIN031
Case Length: 5 Pages
Period: 2017-2021
Pub Date: 2022
Teaching Note: Available
Price: Rs.200
Organization : GlaxoSmithKline
Industry :Pharmaceuticals & Biotech
Countries: United Kingdom
Themes: Management Control & Performance Assessment,Corporate Governance
Agency Problem at GlaxoSmithKline

Abstract

Emma Walmsley, Chief Executive Officer (CEO) of leading pharmaceutical giant GlaxoSmithKline (GSK),had been facing some resistance from institutional investors who were questioning her leadership qualities and competency as a CEO. There had been some criticism regarding the decline in the profitability and share price of the company since she had assumed charge as CEO of the group. Despite her focus on research and development, the company had not been successful in coming out with a vaccine for the Covid-19 pandemic on time.

However, Walmsley remained confident about her vision for restructuring the business of GSK with a future orientation and was trying to convince shareholders to secure approval for her restructuring plan. There were mixed opinions among different institutional investors; while some supported her, others were skeptical about her leadership qualities.

Elliot Management, an activist investment company, had acquired a significant stake in GSK after which it intensified pressure on the management board to make changes in the restructuring plans and also to bring about a change in leadership. Despite the odds surrounding her leadership qualities, Walmsley geared up to address the investor meet scheduled to be held during the last week of June 2021.

This case study can be helpful in discussing concepts like the principal agent relationship, agency cost theory, agency problem, and management risk.

Issues

  • The concept of Agency Cost and Agency Problem.
  • The Agency Cost theory.
  • Management risk and the factors that lead to principal and agency conflict in management.
  • The Agency Problem between the CEO of GSK and the activist investor of GSK.

Introduction

Emma Walmsley (Walmsley), Chief Executive Officer (CEO) of leading British pharmaceutical company GlaxoSmithKline Plc (GSK), was facing one of the toughest challenges of her career and as a CEO. Walmsley was to address an investor meet planned to be held during the last week of June 2021, where she had to convince the investors about her restructuring plan that was aimed at improving the efficiency of the overall business by dividing the business into the Consumer Healthcare division and the Drugs and Vaccine division.

At the investor meet, she would have to take responsibility to ensure stability and growth in revenues, profit margins, and market price of the share. After she had assumed charge as CEO of GSK in the year 2017, she had initiated several restructuring plans aimed at improving the Research and Development activity of the company to produce new vaccines and drugs. But these new vaccines or drugs had not been introduced into the market on time despite her focus on the restructuring of the Research and Development department (Refer to Exhibit-I for Research and Development Productivity of GSK)

Keywords

GlaxoSmithKline; Emma Walmsley; Elliot Management; Activist investment company; Agency Cost; Agency Problem; Agency Cost theory; Management risk;

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