700 Lose Their Jobs at Glaxo, But the Lawyers' Jobs Will Be Safe
GlaxoSmithKline (GSK) laid off about 700 employees, but there are two different explanations as to why it might have done that. It's either an efficiency drive, or the company cannot get its legal costs under control.
The first explanation comes from GSK itself, which is in the middle of a cost-cutting drive "to deliver annual cumulative cost savings of £2.2 billion by 2012 of which £1.5 billion is expected to be achieved by the end of this year," according to the company's Q1 2010 earnings report. That drive has been unpopular not least because it has forced traveling GSK staff to share hotel rooms, which they all hate.
The second comes from the nitty-gritty of that same report, which reveals that GSK's legal costs increased to £210 million for the quarter, up from the previous quarter and more than a third of the £591 million the company spent on lawyers last year. (GSK has also set aside a £2.3 billion tax provision just in case auditors don't like what they see, which is increasingly common at Big Pharma.)
The legal expenses come to £300,000 per person being laid off -- far more than the annual average cost of an average employee salary plus benefits and company car.
Sure, drug companies get sued all the time, and defending a meritless suit is often as expensive as defending a good one. But to put some perspective on this, check out the line on page 17 of GSK's Q1 disclosure, which describes its total "corporate costs" (defined as "unallocated costs and disposal profits include corporate functions, costs for legal matters, fair value movements on financial instruments and investments and profits on global asset disposals."): £394 million. That's 53 percent of all its corporate costs.
Obviously, the layoffs are unpopular among the staff, but we'll never hear about that because GSK president Deirdre Connelly has banned her staff from commenting on CafePharma, the bulletin board where drug industry folk go to swap gossip and insults. Joking! Connelly's ban is a complete failure: There's a thread about GSK's HIV division that has 982 replies and 72,763 readers, and there were 56 people surfing the GSK section of CafePharma when I looked at 3.40 p.m. today -- more than on the day the ban was implemented.
Related:
- Why Glaxo Will Be Furious At FDA's New Side Effect Warning for Its Diet Drug Alli
- Why Glaxo's Internal Ban on Online Pharma Gossip Is a Bad Idea
- GSK Earnings: $900M Spent on Lawyers; Silence on Job Cuts
- GlaxoSmithKline Layoffs Follow Promise of No Cuts at National Sales Meeting