GSK Annual Report 2002

Research and development
Safety of marketed products is a potentially significant risk and a
matter of great concern to GlaxoSmithKline, as is the conduct of
laboratory and clinical practices in R&D. These must be in
accordance with applicable laws and regulations as well as with
corporate standards that may exceed such requirements. All
pharmaceutical products bring with them benefits and risks,
including potential side effects. Pre-clinical and clinical trials are
conducted during the development of potential products to
determine the safety and efficacy of products for use by humans
following approval by regulatory bodies. In spite of these efforts,
when drugs are introduced into the marketplace, unanticipated
side effects may become evident. The Group views the use of
animals and human tissue in the testing required to develop new
products as another risk.
Marketing and sales
The Group operates globally in complex legal and regulatory
environments that often vary among jurisdictions. The Group’s
policy is to conduct marketing in accordance with applicable laws
and regulations as well as with corporate standards that may
exceed such requirements. Any failure to observe applicable
marketing codes, rules regarding government pricing, management
of samples, and legal restrictions on sale and marketing practices
may create significant risks to the commercial sectors and the
Group. Failure to comply may result in legal proceedings.
Legal and intellectual property
Product liability, intellectual property, antitrust and government
investigations, and related private litigation are potential risks to
GlaxoSmithKline, and the Group is involved in various legal and
administrative proceedings in these areas. The outcome of these
proceedings cannot be predicted with any level of certainty.
There is also a potential risk that third parties may allege that
the marketing of the Group’s own products will infringe the
intellectual property rights of those third parties.
Finance
There are potential risks surrounding the Group’s ability to forecast
the future and thus uncertainty about its ability to meet financial
targets set out in its budgeting process. The Group invests in new
products and ventures based on assumptions about the success of
those efforts that may prove to be inaccurate. In addition, there
are potential risks around the Group’s treasury operations including
tax liabilities, transfer pricing, and the possibility of trading losses
and counterparty fraud. Compliance with evolving financial
disclosures and other legal reporting requirements constitute risks.
The Group’s pension liabilities represent a further area of potential
risk. Further discussion may be found in Note 33 to the Financial
statements, ‘Employee costs’.
Manufacturing
Maintaining supply of key GlaxoSmithKline products is a potentially
significant risk. The Group’s policy is to take reasonable measures
to ensure uninterrupted supply of product, including manufacturing
in accordance with applicable laws and regulations as well as with
corporate standards that may exceed such requirements. The
Group takes efforts to minimise the single sourcing of key products.
Rationalising the supply chain and balancing manufacturing
capacity present other risks that could potentially disrupt the supply
of important products.
Corporate governance GlaxoSmithKline 37
Information technology
Protecting information technology assets is an increasing risk as
businesses extend networks, systems and data to third parties,
and as dependency on the Internet for communications increases.
Ensuring proper systems validation and electronic records and
signatures are key regulatory issues and matters of potential risk
for the Group. Web systems accessible to the public must comply
with legal and regulatory requirements and represent potential
risks. Other potential risks include use of personally identifiable
information, electronic record retention, outsourced business
applications, and susceptibility to viruses and outside incursions.
With much of the Group’s business dependent upon electronic
means, disaster recovery also poses a potential risk.
Security, environment and safety
Threats to the security and well being of our employees, property
and the environment present significant risks for which appropriate
safeguards and precautions are continually reviewed and upgraded.
Employee injury, changes in health due to occupational conditions
and plant management and the potential impact of plants on the
environment are potential risks the Group addresses through a
process that sets targets and provides guidance on how results
may be achieved.
The Combined Code
The company seeks to uphold, and to report on compliance with,
best practice in corporate governance. The Board is reviewing the
recommendations from Derek Higgs’ ‘Review of the role and
effectiveness of non-executive directors’ and Sir Robert Smith’s
Report on ‘Audit Committees, Combined Code Guidance’ and
intends to ensure that the Group will continue to comply with
the Listing Rule requirement in relation to ‘The Combined Code
– Principles of Good Governance and Code of Best Practice’ (the
Combined Code) which is issued by the UK Listing Authority. The
Combined Code comprises recommendations as to best practice
in terms of the control and reporting functions of the board of
a company. The Combined Code sets out principles under the
headings of:
• directors
• directors’ remuneration
• relations with shareholders
• accountability and audit and prescribes more detailed
provisions in respect of each principle.
Specifically the provisions require directors to report in the
Annual Report on:
• directors’ remuneration
• directors’ responsibility for the Financial statements
• going concern
• internal control.
Compliance
The Directors’ report on compliance with the Combined Code
and other corporate governance requirements, and their reports
in accordance with the provisions of the Combined Code, are set
out under ‘Directors’ statements of responsibility’ (page 74).