Outside Perspective
by Lisa Zamosky
October 2008
As the biopharmaceutical industry undergoes massive, transformational change, many companies are looking outside the industry to fill leadership positions.
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As the pharmaceutical industry adjusts its business operations to cope with unfriendly market conditions brought on by expiring patents, rising drug development costs and shrinking productivity, hiring practices also are beginning to break, if only slightly, with tradition.
Once an insular business that exclusively looked within for its leadership, a recent spate of unconventional hires indicates a possible loosening of the reins: The industry may be recognizing the value of working with executives with different, yet transferable skills, particularly with those who have come from business environments that have already weathered the major transformations currently at play in the pharmaceutical industry. For an industry in transition, some seek a new wave of executives with solid business skills and a fresh perspective to lead operations and shake things up as a critical component to a successful future in the pharmaceutical business.
Looking Outside
Although experts refrain from calling the increased interest in outsiders a “trend,” few dispute that there has been a shift in recent years. Though it varies across the industry, companies are increasingly open to drawing on the expertise and fresh perspective of senior officers who have had careers in other businesses. Marta Brito Perez, AstraZeneca’s human resource vice president, North America and global marketing, in Wilmington, Del., USA is one such example. Prior to joining AstraZeneca in January 2008, Brito Perez held a series of senior-level appointments with local and federal government, most recently as a human capital officer of the U.S. Department of Homeland Security. Although her extensive background in human resources management was an obvious prerequisite in leading the HR efforts at AstraZeneca, her prior posts have prepared her for many of the significant issues facing the pharmaceutical industry today. Playing a key management role during times of significant change for the government, she says, added to her experience at AstraZeneca.
“When the strengths you are looking for [with regard to] leadership skills are around communicating the vision of the company, communicating direction, bringing people along with you and managing change, when those are the kinds of things you’re looking for in a company, it’s easy to go outside,” Brito Perez says. “You almost want to bring in people who have gone through those changes rather than people who have always been in the same environment.”
According to Peter Tollman, senior partner and managing director with Boston Consulting Group in Boston, Mass., USA, the job of managing a pharmaceutical company for success has changed tremendously. People with careers in the industry who have been highly successful over the past 20 to 30 years are facing a situation in which the practices that have led to success in the past are not the same ones that will lead to success in the future. “There is a lot to be gained from getting perspective and ideas and management practices and techniques from other industries that have been through some of the types of pressures that the pharmaceutical industry is going through,” Tollman says.
However, not everyone agrees that recruiting talent from outside the industry is the way to go, or even that there is openness on the part of big companies to look to other industries for talent, despite recent hires indicating otherwise.
Stephen Israel, global sector leader, biotechnology managing director at Korn Ferry in New York City, says that executives coming from other industries may have difficulty stepping into leadership roles within the pharmaceutical industry. “It is too difficult to learn about drug discovery and development and apply the lessons of managing a non-pharmaceutical business to one that is focused on drug discovery and development,” Israel says. “It doesn’t mean that there aren’t people who have risen to the occasion and overcome those deficits, but it’s not easy.” Israel further points out that he is never asked by his clients to find an executive outside the pharmaceutical industry to fill an opening.
The New Line-Up
Still, numerous examples of executives who have come from other industries, or at least risen to top spots via non-traditional channels, exist. Peter Levin, head of North American life sciences practice for Egon Zehnder International in New York City, says he has noticed an inverse relationship between the type of CEO boards of large pharmaceutical companies choose and the board’s own level of experience within the industry. Some boards of the big pharmaceutical companies, Levin says, select CEOs with substantially different backgrounds to lead their operations because the industry is going through a crisis, while others comprised of people with less pharmaceutical industry experience are more risk averse.
Levin has identified three models of new hiring practices playing out in instances in which boards have chosen to make untraditional hires. Joe Jimenez, the CEO of the pharmaceuticals division at Novartis, came from Heinz to join the company as head of the consumer health division in April 2007. After only six months in the position he was promoted to his current post as CEO. The Jimenez hire is an example of the hiring model Levin would call “youthful outsiders.”
“The boards, in the case of the youthful outsiders, are pursuing a leadership model that has the promise of youth and an outside perspective. They select these young leaders from other industries and give them a brief career inside pharmaceuticals and then promote them to CEO,” Levin explains.
“Unusual insiders” is another recruiting model trend, Levin says. The board of directors in this case seeks a combination of pharmaceutical experience and new perspectives on the industry, Levin says. The C-level candidate doesn’t necessarily come up through the traditional R&D or sales and marketing path in the case of an “unusual insider,” but emerges instead through a nontraditional financial or legal function.
Jim Cornelius, the new CEO of Bristol-Myers Squibb, is one such example. He previously served as CEO of Guidant, chief financial officer of Eli Lilly and Company and president and CEO of IVAC Corporation.
Pfizer’s CEO, Jeffrey Kindler, a lawyer who comes from the food industry, is another example of Levin’s “unusual insider” model. Previously, Kindler was with McDonald’s as president of partner brands, which was the unit that included several restaurant brands such as Boston Market, Chipotle Mexican Grill and Pret a Manger.
Finally, the “youthful insider,” Levin’s third recruiting model, might be best exemplified by the recent choices made by GlaxoSmithKline, which hired 43-year-old Andrew Witty to take the reins, and by Roche’s choice of 42-year-old CEO Severin Schwan.
“The youthful insiders are risk takers,” Levin says. “They are not afraid of slaughtering holy cows that are embedded in the company culture. They know that the industry has to change, and they are not bound to any specific model.”
Is the Learning Curve Too Steep to Climb?
Although few dispute that during this time of great change, the industry could benefit from a fresh perspective, whether or not senior-level executives coming from outside the industry are ultimately successful remains to be seen. The long-held belief has been that the business of biopharmaceuticals is so specialized it requires an insider to do the job properly. No one disputes it’s a complex industry, but some see a bit of image inflation at play.
“I think the pharmaceutical industry in general likes to make it more complex than it is,” Levin says. “It is complex and the regulatory issues are complex … but it’s not impossible to understand, not even in a short period of time. And, given the situation that the industry is in right now, new perspectives are probably more warranted, not always, but in some cases, more warranted than having a traditional understanding of how the industry works.”
According to Tollman, determining what kind of leadership is going to be successful is very difficult to do. “There are so many confounding factors beyond whether someone comes from the industry or not,” he says. “If you look in general at a successful turnaround, the academic literature that I’ve read suggests more often than not [that] insiders have been successful relative to outsiders. But there are certainly examples of both being very successful. To me it’s a case of who’s the right person for the job.”
Perhaps only time will tell whether it’s the insider or outsider who can best navigate the rocky waters of change. However, carefully choosing which positions to go outside of the industry to fill is clearly important to success. Areas such as R&D and commercial operations require a special skill and knowledge set. “If you’re running clinical trials, you need to be a medical doctor,” Tollman says. “If you’re not a medical doctor, you should forget about it. And if you’re going to do statistical analysis of clinical trials, you need to be a statistician.”
However, roles that don’t involve a science background may well benefit from an outsider’s perspective. “We look for great leaders, and we look for global experience,” Brito Perez says. “Areas like HR, finance, legal, communications, public relations, corporate affairs—these positions lend themselves and, in fact, beg the need for some experience from the outside that can broaden the perspective of the company in those areas.”
What Does the Future Hold?
As the pharmaceutical industry restructures itself in order to develop medicines in a more efficient, cost effective manner, many shifts, large and small, will continue to occur in the coming years. According to Tollman, a new generation of leaders is what’s needed in the industry now, but where they come from may not ultimately matter.
“Whether they are new or not, [they must] understand what it’s like to be intensely competitive in an industry under pressure, to build strategies that are competitively differentiated, how to manage costs for productivity, how to deal with challenges and how to make important strategic choices about what they are and are not going to do, not just at the product level, but the overall corporate level,” Tollman says. “I think those are to be the key issues of the day. Ultimately it’s about how you are going to change the culture.”
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