Fixing What Ails CEOs

The career of former Novartis CEO Dan Vasella began in medicine, expanding first to business and, more recently, to coaching and advising CEOs. CEOs’ greatest gift, he argues, should be teaching those on their way up.

February 28 2014 by JP Donlon


Former Novartis CEO, Dan Vasella

Wracked by a series of childhood illnesses (TB and meningitis) and family losses due to cancer, Dan Vasella initially chose a career in medicine. He practiced as a physician in Switzerland until 1988, when he accepted an offer from Sandoz AG, the Swiss pharmaceutical giant, to take a sales job with the company’s U.S. affiliate. The switch from medicine to business gave him the opportunity to do work that could benefit, in his words, “not one or a hundred but thousands” of people. He rose rapidly in Sandoz’s marketing organization. In 1992, after a series of successful management assignments in the U.S. and Switzerland, he was named CEO.

A few years later, Vasella helped engineer what was then one of the largest mergers in Big Pharma by joining Sandoz and its rival Ciba-Geigy to create Novartis. Vasella was named CEO of the new company and retained that position until January 2010. He was appointed chairman of Novartis’s board of directors in 1999 and stepped down in that capacity this time last year. No stranger to controversy, Vasella’s annual compensation drew criticism from otherwise stolid Swiss, particularly when the company offered a departure payment of 72 million Sfr ($78 million) if he agreed not to share knowledge of Novartis’ secrets with the outside world when he retired. In Switzerland, he soon became the poster boy for public indignation over highly compensated executives, which led to a referendum at the end of 2013 on capping executives’ pay. (It failed to pass.)

In addition, he took heat from fellow Swiss executives for naming a Californian, Joe Jimenez, a non-doctor, as his CEO successor. During his 14-year CEO legacy, he pushed Novartis to invest in new areas of healthcare, such as generics and led efforts to expand the company’s presence in China. He also spearheaded the acquisition of U.S. eye-care company Alcon, which ultimately positioned Novartis as a global leader in one of the healthcare industry’s fastest-growing segments.

Today, Vasella is dedicating his time to coaching and training CEOs of multinational and emerging companies. A longtime proponent of executive learning and development, he launched a customized course with Harvard’s Business School on management and leadership in his first year as CEO of Novartis. That program is still running today. He also started another program where executives taught younger talent. He is working with McKinsey & Co. as a private advisor to for high-level client executives—one of Vasella’s personal passions—because he believes that a shortage of talent tends to limit opportunities for growth. Also, he serves on the board of directors at PepsiCo and American Express.

Towards the end of his tenure as CEO, he realized that Novartis, along with the rest of Big Pharma, was undergoing a tectonic shift. The problem was that the medical future would be nothing like the medical past. For very complex diseases, such as cancer, the question of finding a cure became problematic. It was better to think in terms of cures, in plural, because every patient is different and the frontiers of molecular medicine have reached the point where the question is no longer, “does it work?” but “does it work for him/her?” It’s a challenge with which pharma is still trying to catch up. This situation is coupled with the fact that the regulatory apparat—the FDA and related agencies—is like WWI generals still fighting the last war, as far as medical science is concerned. Chief Executive caught up with Vasella during a recent visit to New York.

What does the future hold for Big Pharma?

First, if pharma does not innovate, they have no right to exist. Generics have an absolutely clear role to play, and I’m for it. But if we want progress in medicine, we need innovation. So the question is what has happened to innovation in traditional pharma? The process of discovery and development of molecules has become increasingly expensive, and that has led to ever-increasing prices for drugs, which in itself is a problem. So with the healthcare costs increasing due to demographic trends, drug costs are increasing, too. This creates an environment of multiple pressures in the whole healthcare system.

More companies will disappear; consolidation will continue. But having said that, we have had several successes, for example, in cancer therapy. In addition, regenerative medicine will play an increasing role in the future. We are not short of knowing what has to be done. There are lots of unmet needs.

Does the new world, which pharma now occupies, require a different kind of leader than the kind of leader we have seen thus far?

That’s an interesting question. What kind of attitude do you have to have in order to lead successfully? I believe you have to deeply care about what you’re doing. If it’s just to make money, then change industries. Go somewhere else. But [in the future], you [will] have to be preoccupied about bringing better therapies to people. If you do that successfully, people will pay for it. The margins may not be as large as they used to be. The market is not as large as it used to be because a lot of volume is being met with generics; but still, for people who do the job, there will be ample room.

As a former CEO and current board member, what do you think of situations where the former CEO is brought back from retirement, such as P&G bringing back A.G. Lafley or JCPenney recalling Mike Ullman?

These are emergency situations. They always point towards two things. The board has been taken by surprise, either because the CEO decided to leave or they got under such pressure that they had to ask the CEO to leave, and because they had not prepared the succession discussion well in advance. In my experience, talking about succession when it’s theoretical is almost not worth having.

The important thing is to understand what the timeframe is. The immediate question is who are the internal candidates? Do we believe in them? Should we go outside? What is the risk profile if we go outside versus inside? Let’s take JCPenney. When you hear that somebody is being brought back, do you tend to believe that the board made a mistake in so far as it had no succession plan? Does it suggest that in desperation they went back to the guy they knew?

It’s a question of what industry and what stage the company is in. If you’re in a crisis mode, you don’t experiment. You call back somebody you really know well, and you don’t risk another adventure. So you cannot detach the situation in which a corporation and its board finds itself.

In your current capacity of a McKinsey advisor to various client companies, what exactly do you do?

For example, there is a CEO of a tire company who had difficulty in improving productivity and was losing market share. Listening to him, it was all about margins and productivity. He never had thoughts about what the purpose of the company was or what kind of tires they should make. What would the tires stand for? Safety? Longevity of the tires as compared to competition?

So we talked about what he imagines his people were thinking about what they were making. In addition to me, there were four to six CEOs in the same discussion. We had a long conversation about purpose and how to go about it. We asked who was in his top team and how he interacted with them. We would finish by asking, “What sort of help do you think you need most?” Some people respond by saying that they want to work more on one topic. This sometimes shifts to one-on-one coaching. I coach some CEOs every six weeks for three hours, with a break in between. We talk about whatever they want to talk about. It ranges, for example, from a crisis at home, to strategy, or to a top team issue.

What single issue or challenge do you see most often?

Often, it’s a question of loneliness, the top team, one’s legacy or working with the board and with the non-executive chairman.

What most often tends to derail a CEO?

First, most of these people are extremely gifted, dedicated and hard-working. Problems arise when they don’t have stable emotional relationships. This could concern a spouse, partner, children or friends. The danger becomes enormous if either alcohol or sex is involved. Some start affairs, which you would say are stupid or childish, but CEOs have emotional needs like anyone else. People don’t talk about this, but it is real.

As a Swiss and a physician, what do you make of what’s happening with Obamacare?

A nation like the U.S., which is a leading nation in the world, should be able to deliver healthcare and make it available to everyone in the country. The question is: what is not working perfectly well in the system? I would suggest to you that the tort system in the U.S. is a disaster. So are the waste and the poor quality of certain services. The problem is, everybody is focused on costs; but if I have a factory that doesn’t work properly, the first thing one should do is not to cut costs. First, you work on quality and then costs go down.

Ask why does it cost so much more to treat a diabetes patient here than in the U.K.? It’s not just because of salaries of physicians; it’s also a question of what is being done at what stage of the disease. Waiting until somebody has complications before you intervene, is much more expensive. In the U.K., they intervene earlier in a preventive way.

Unfortunately, it’s complex, not simple and easy. It is also a system where you need to have everybody enrolled, but where it’s cheaper not to enroll and pay a fine—it’s not going to work.