Fred Hassan: the master of the pharma turnaround

pharmafile | May 28, 2010 | Feature | Sales and Marketing |  Schering-Plough, management 

Jonathan: Take us back to when you first took the reins at Schering-Plough back in 2003. You inherited a company that was being investigated at the time by both the FDA as well as the SEC for accounting irregularities. From day one, what was your biggest challenge?

Fred Hassan: I’ve faced a lot of challenges in my career, but  this was the biggest I’d ever seen. There were several things that needed to be done right away – there was the immediate issues of the regulatory challenges and the legal challenges the company was under.

It was also under a financial challenge in the sense that the major businesses were going down. Part of that challenge was something I did not know about before I got there, and that was a cash flow challenge. That’s not seen very often in pharma companies, but this company was looking at a big cash burn, and something had to be done about it very quickly.

I set up a roadmap as quickly as I could. I had to move forward with imperfect data, and that’s where experience and insights helps. I anchored it with the board and then with the shareholders at our annual general meeting, which took place a few days after I arrived. And I anchored it with the entire company in a global town hall.

All this happened in the first week I got there. So from top to bottom, people understood the roadmap. It was a very simple roadmap of five different phases. It showed that we had a problem, but by breaking it down into bite-size pieces we could deal with it, and we still had to look forward to a period when there would be a lot of hope for the company. If people can see the hope – the light at the end of the tunnel, then they do build up that sense of purpose that I was trying to build.

Jonathan: How would you say your leadership qualities enable you to lead teams through adversity?

Fred: Perhaps the biggest quality I try to work on is a sense of humility, because if one keeps balance in one’s life and a sense of humility, then one becomes a better listener. You stay in tune with yourself, with your environment. You listen better, and if you can anchor yourself well with your environment, then you can design a strategy to bring about change. So it always begins with a sense of humility.

Then also there is a sense of urgency. Once you’ve built up a sense of direction, of where you’re going, you have to build up a sense of urgency. If you can show that you can generate energy inside yourself and generate energy around you, the whole system starts to generate energy around that sense of direction, and then one gets about doing some very purposeful things.

Bringing about change is not easy, but once it starts to happen, it’s a very good feeling because the whole organisation comes onboard, and people start to believe that they can make a difference, and then change happens.

Jonathan: Are there any instances of personal hardship you’ve actually confronted in your life, in your career, not necessarily at Schering-Plough, and how did you overcome those?

Fred: I’ll tell you one personal hardship – I grew up with a terrible stutter. I couldn’t speak in school. The more I worried about stuttering, the worse it got. I still have it, but it doesn’t hold me back anymore. I decided I was going to think past it and work at the job that had to be done and not worry about this problem.

So that is a personal example where I feel very proud that I did not let something hold me back.

Jonathan: Is that something that you’ve almost kept mind when you’ve gone into big corporations – that there is always a solution to a problem.

Fred: You have to look at life beyond the challenge and make a mental picture of how it might look. Then go for it and keep that mental picture in front of you. So if I come into a tough situation in 2009, I have to make a mental picture of how things would look like in 2013 and 2014, and keep bringing that mental picture back as you deal with the bite-size problems that need to be solved. You can’t solve all the problems, but you can break them down into pieces that need to be solved.

Jonathan: You once said: “No restructuring or strategy will succeed in the long term unless you get control of your top line.” How did you successfully gain control of that top line at Schering-Plough? You’ve mentioned that there was a cash flow problem.

Fred: This is a very common problem with people who come in in a hurry and try to make some big moves. It’s relatively easy to get the bottom line to go up by slashing costs. It is very difficult to make a good customer experience so that you can grow the top line. And what I feel is that the maths are very clear.

If you’re growing zero percent or one percent, and your cost structure is facing an inflation of 3-4%, you might be able to in the short term keep your bottom line okay by reducing costs.  But in the long term, you have to beat inflation with top line growth if you’re going to make the business prosper.

So wherever I’ve gone, I’ve certainly worked on the cost structure. But I’ve simultaneously worked on building the top line, on making good advances with the customer experience. If one can do that well, even as one goes through adversity, then one emerges a lot stronger once you come out of the difficult time. 

Jonathan: There must have been some forms of internal conflict when you first took over. Can you give me an example of where you’ve won that conflict for the best of the company?

Fred: Yes, I’ve come into many new situations, including Schering-Plough, where I’ve run into some resistance. There are people who immediately see you as somebody who might not be very good for their own careers. Some of them might become active resisters, and those are easier to deal with. It’s much harder to deal with the passive resisters.

These are the ones who say they’re on your side, but they’re actually not on your side, and you don’t know about them until a lot later. So when I try to develop a new programme, a sense of change, I try to make a judgment about those people who are the fence-sitters, those who are the passive resisters and those who are the boosters. The boosters really make the programme work a lot better.

The fence-sitters you can work on. You can try to convince them. It’s those passive resisters that you have to find and ask them to make a basic judgment. Are you with or are you against the programme? And if you’re not with the programme, then you probably belong somewhere else. That is what I have worked on pretty aggressively, and in every place usually there’s been a wave of change in terms of people leaving the company within the first 18 months. But not all the people who leave the company leave in the first six months, because sometimes it takes a longer time to find out those who really don’t belong with the company in the long term.

Jonathan: It must be very challenging to find who those passive resisters are. Are there any tell tale signs that you’ve learned over the years of sort of identifying them?

Fred: Usually, the way you find them is generally when people give you praise – you’re listening for signs on whether it’s real praise or not. Another way to find out is what are they telling their people about the programme. And it’s my practice not to be bound by the layers. I go to level three, level four. I talk with people in small groups and dialogues, and if the message – if the messages they’re hearing from their supervisors are not reflecting the values that I want in the new company, then I do get very concerned about those supervisors.

For example, if I say: “I want a spirit of transparency and building trust,” and the supervisor passes on a message that they want information to be hoarded in a certain department or that certain political things would happen among departments, then I would worry about whether the supervisor has the values that I’m trying to bring into the company. And you cannot succeed in a company if your management layers are not totally in line with the values. If there’s ‘toxicity’ in the system, it’s not going to work. People in management have a special responsibility to show with their behaviour that they are encouraging the culture you’re trying to create.

Jonathan: You have also said “One of the most important traits in leadership is to take the time to listen and to learn.” Can you give me one example where this approach has served you well?

Fred: Listening and learning is so important, and  especially for those who become chief executives, because chief executives are in a situation where there are not many people who challenge them, and they often end up taking up too much time talking and not enough time listening. So I go out of my way to structure my time in a manner that I get to listen.

I’ll give you one example. I joined this company in 1997 that was in great difficulty [Pharmacia & Upjohn]. There has been a merger between a Swedish company and a US company, and that had resulted in a lot of difficulties, and I was brought in as a chief executive from the outside to try to make this merger work. I was in place in Sweden in Uppsala on a listening tour, and I was talking to a medical doctor, and he said that the major product    [bladder treatment Detrol] that the company was looking forward to for its salvation, for its future growth, was compromised with a company in the US.

This is the first time I heard that: had I known that before I joined the company, I might not even have taken that risk. But suddenly I realised the future growth product of the company had been compromised in a deal that had to be untangled. So  having listened to that, I verified it, and it was true, so then I set about dealing with it. I made a deal and got the product back before it got approved by the regulatory authorities, and paid a handsome price.             

Afterward, the product went on to become a very, very large product in the marketplace, and the price that was paid was a lot lower than if we had let the problem fester, see the product get approved, so we would probably have had a totally different story for the company had I not been a listener at that point. 

Jonathan: As a CEO with experience in mergers and acquisitions, what is you advice for anyone looking to make an acquisition to expand their business?

Fred: I would say be very careful about a transaction because when one makes a transaction, one changes the system, and one can have unforeseen consequences. So look at the fit. Make sure that the fit with the other company is good. 

When I look at a situation in my industry, I look at the strategic fit first.  Does it fit with the strategy that my company is trying to pursue in the next phase of its development? 

In other words, don’t get enamored by the attraction of the object of the target company, but does it fit the next stage of strengths, weaknesses, opportunities and threats that my company has at present? Does it fit the strategy? And of course, part of the strategy fit is the culture fit and how one is gonna deal with that culture fit. The second is the size fit. In a size-driven business like pharma-ceuticals, you want to make sure that the size engine will be stronger as a result of this combination so that the combined sales that would be generated would be properly supported by the size engine. 

In too many cases in pharmaceuticals, the merger occurs, the financial community applauds, there are two or three good years of earnings increases and costs are reduced, and then the stock price starts to go down again because the R&D pipeline is not supporting the larger sales base that’s been created.

And that’s just short-term thinking, and it doesn’t lead to shareholder value increase in the long term.  So I work very hard at the size fit. Strategy fit, size fit, and the third is the financial fit. If you go in at a price that is not the right price, and you overpay, then no matter how good a job you’ve done on the operational side after the merger, it takes a very long time for the shareholders to get their money out of the transaction. So it’s very important that the finances are right as well.

These are the three hurdles that I always look at, and if a target matches those three, then I move. And it’s true that in my industry among all the CEOs I’ve probably seen more transactions than the other big pharma CEOs. 

Jonathan: So what lessons in particular have you learned through your own personal experiences? Have there been times you’ve made a slight misjudgment, I should say, and you’ve learned from that, and that has made you a better chief executive?

Fred: Nobody can bat 100, and there have been a few, and the key is then to recognise it early and to deal with it. Very early in my career, I got into the sunscreen business, and I bought a brand name called Sunbrella, which looked like a very good name, and I brought it into the business, and it turned out to be a total failure. And the reason it turned out to be a failure is that the sunscreen business that I was involved with was a dermatology driven business, and this Sunbrella trade name and the Sunbrella approach was based on selling it on the beaches or in totally different environments, and I missed it totally. 

So the lesson I learned there was know who you are and lead from your own strategy, and don’t try to grab something just because it looks good. It’s an early lesson.

Jonathan: As an organisation gets larger through either acquisition or mergers, there can be a tendency for the institution to dampen the inspiration. Is that something you agree with, and, if so, how do you prevent that from happening?

Fred: This is always the challenge with bigger companies. Many companies are rising stars for a long time, and ultimately they start to run into difficulties. So managing ‘bigness’ is really a challenge, and I think it almost takes a reinvention cycle inside a company every five or six years to make it happen. Otherwise, companies drift towards complacency and sometimes even to arrogance just because they have been so successful in the past.   

It doesn’t have to mean a new chief executive every five or six years, but it certainly needs a new sense of urgency, a sense of reinvention in the company every five or six years.

The other way to deal with the bigness is to create a sense of a small company and a big company. In other words empower people in smaller groups to innovate, to drive the business forward while still taking advantage of the financial strength and the infrastructure of a larger company. That’s not easy, but that’s the job of the CEOs of larger companies.

Jonathan: I’d like to quote you again. You said: “We make it a priority to educate people on the frontline about the company’s strategy. That means letting them in on what I’ve been talking about with top management.” This reminds me very much of two recent interviews that I’ve conducted, one with Herbert Hainer, the CEO for Adidas, and also Tony Shay, the CEO for Zappos. And I know from Tony’s point of view, he encouraged the use of Twitter and other social media networks for his employees.

Fred: I believe that in a large operation it’s impossible to get complete energy and alignment with everybody unless you get the energy and alignment of the frontline managers. A typical frontline manager might be supervising 7-12 people. If you can get them on your side, if they can become ambassadors of the center to the people that they supervise, then the people who are directly the workers are energised and motivated. 

So let’s say a typical company of 50,000 global employees – it’s much easier to get to 7,000 frontline managers than to get to 50,000 global employees. And my whole approach has been get to the frontline managers very early. Whether you come in as a new CEO or if you have a merger and you’re just acquiring a new company force, get to the frontline managers early. Get them to understand the strategy. 

Treat them as people who are part of management, and show them that you care, and that you expect them to lead their people to new heights. Once people are challenged and encouraged, it’s surprising how much they can do. It’s really surprising how little is done in terms of reaching out to the frontline, and how so many chief executives spend time with their division heads or the level below, but not really get to the frontline managers.

Jonathan: So what would you say is your personal strategy as a leader to make sure that everyone hears? It’s all well and good telling people, but how do you actually make them hear and let it sink in?

Fred: First of all, have a simple strategy. At Schering-Plough we had a simple strategy. Grow the top line, grow the R&D pipeline, reduce costs, and invest wisely. So something that wasn’t very complicated. It was mentioned again and again, didn’t change over the years, and basically what we said is: “Once the strategy is clear, execution becomes the strategy.”

We repeated this in different ways through different platforms, whether it was a CEO dialogue that might have – the CEO might have with a few people, or email messages coming from the CEO, or different messages coming at country manager meetings. Our country mangers meetings involved about 300 people and we talked about the same messages, and then they would pass those messages onto their people.

As long as you don’t shift on strategy, people start to believe it and execute it. In the end, execution is really what holds companies back. Strategy is not that difficult to formulate. It’s the execution that really makes a difference.

Jonathan: How would you encourage others in your organisation to communicate the vision – your vision for the company – let’s say from now to 2013?

Fred: Well, it’s both from the top and from the bottom. So from the top it’s, of course, my expectations of managers and leaders that – being a manager is a very important responsibility because they lead by their own behaviour. So I expect managers to model the behaviours and the messages that I pass on from my level.

But also I get my messages to frontline people and encourage them to expect their supervisors to follow a certain set of behaviours. That actually encourages middle management to get aligned with the DNA of the new company that we’re trying to form. Sometimes if you rely on the conventional hierarchy and the cascade, you become a prisoner of the hierarchy.

So if you go direct to the frontline managers and show them the expectations they should have of their leaders, that creates its own positive cascade as well.

Jonathan: So what is the one trait that you have seen derail more leaders’ careers?

Fred: In my opinion, the biggest derailer is a sense of – it’s not arrogance, but a sense of complacency that also is a form of arrogance that starts to creep in when people have been very successful. They have risen up to a level because of certain very strong project management skills or certain quantitative skills that they might have had, and they believe that those skills are going to make them very successful once they are at a senior level. And what they start to miss is being in tune with the environment and being in tune with themselves. 

So many times people get derailed because they don’t have a good balance and a good sense of what the reality is when they face challenges. They’re not ready to move with speed and flexibility that hard times and adversity requires. This, I think, is the biggest issue. So if one stays in tune, then one can stay flexible and stay nimble to deal with issues.

Jonathan: My next question is as a leader, how do you stay in tune with your business on a daily level?

Fred: There are many different ways. Of course, one can read a lot. One can meet people in the industry. One needs to be a listener – always engaged. One approach I’ve used which works is that when a group makes a decision, it’s almost a good idea to encourage one of the group to be a naysayer or to be the devil’s advocate and to show the other side of the case. So as we discuss a problem, it’s always good to look at the other side and prevent this group-think problem from creating bad decisions. 

People like to be affable and agreeable with each other, and ­sometimes it creates a ‘group-think’ problem, so I encourage one or two naysayers in the group to bring up the other side. Even in  my private decision making, I have one or two confidants who are my naysayers. I like to bounce those things off them, recognising that they might have the negative point of view, which might in many cases be a braking mechanism on what I’m about to do. It’s very important to have balance when it comes to decision making.

Jonathan: How would a member of your executive team describe you?

Fred: Probably a good person to work for because if you go back to my different changes, it’s amazing how many people have followed me. So obviously they enjoy working with me. I am very tough in terms of my expectations – sometimes very, very tough in what I expect, but that I’m also tough on myself.

I put very high standards for myself, and I work pretty hard. They would also say that I am caring about people, and that I connect on an emotional level with people, and that makes them want to root for me, because if they do connect on an emotional level, then they will be boosters, and most people would say that they would want me to succeed because they do connect on the emotional level. 

Jonathan: It’s said that making mistakes makes a successful business. What would you say is your favourite mistake?

Fred: My favourite mistake often is not moving fast enough when I go into a new situation, and then later on regretting that I didn’t do it fast enough, but then hopefully learning so the next time I see something like that I would move faster. In the case of Schering-Plough, I moved faster than I normally would have because I did not move as fast as I would have wanted to in pharmacy in Upjohn in 1997. I was probably taking my time on the cultural changes and the cultural transformation. 

That happened a few years after I was there. In Schering-Plough, I didn’t lose a lot of time; even though I had imperfect information, I moved pretty fast. So the key is to recognise one’s mistake and to learn from it and get better next time. The best learning, in my opinion, actually occurs when one makes a mistake.

Jonathan: Can you name me one or two people in business that you’ve probably learned the most?

Fred: I’ve learned from a lot of people – I’ve been very, very fortunate to have good mentors along the way. My style is not to have a single mentor dominate, but I’ve learned from a lot. One person I learned from a lot was formerly a schoolteacher who happened to become my boss. I was in Lincoln, Nebraska, and he used to say things to me, and then leave the points that he has made to me on little cards, which I kept, and that was a very good way to learn. So I remember that person very well.

Jonathan: So what would you say are the principles by which you run your career?

Fred: Principles are basically treat people with respect, make people want to come to work and succeed, and make people want to see you succeed, and also people should have fun. If people are having fun, they’re likely to succeed. If they’re not having fun, they’re probably not gonna succeed as a team.

Jonathan: The most important part of most chief executives’ jobs is never actually in their job description. Would you agree with that, and, if so, what would you say is the most important part of your job?

Fred: The most important part of one’s job is to be a good listener, and to be a good diplomat with different audiences, which is not very clear in any job description. There are times when one has to give way to the other side, there are times when one needs to move forward as a persuader and get them to change their point of view, and that means dealing with external audiences on public policy matters, customers, with one’s own board, with one’s own executive management team.

Dealing with people is perhaps the most important part of any chief executive’s job. It’s not a very clear item in the job description, and it’s not a very clear item that gets taught in the business schools and MBA programmes.

Jonathan: My final question is this – now that you are semi-retired, and you’ve left the big, fast pace of the corporate world.  Where do you go from now? What are your hobbies?

Fred: I am obviously very happy with being in the pharmaceutical industry – I’ve spent my life in it and it’s a very good industry because it does good things for people.

I believe that as the baby boom generation start to reaching the age of 65, there’s a lot that needs to be done over the next two or three decades. I want to be a part of the change process that’s needed to bring innovation to the forefront. So I’m at present working on many projects in this private equity firm that I’m involved with, which is involved with the innovation cascade. Only in some cases it may be at an earlier stage than what you might see in many larger more operational companies. But at least it’s part of the innovation cascade. I also like to help mentor people.

Many people in the smaller companies that are the portfolio companies are successful CEOs, but they need a mentoring hand, especially on important matters like succession planning, like having goals that are achieveable, having good performance reviews for the people – practical tools that young CEOs may not get very easily in the places that they’ve been, and where somebody can come and help them. And I really enjoy that role as well.

Jonathan: Would you say you’ve got a little bit more time on your hands now than when you were working in a big corporate business?

Fred: I think I will get more time on my hands at some point.  It’s surprising. In my whole career, I have left one place and have started at another place almost immediately. And I’m looking for a time when I might be able to take a break, but it seems like people are always interested in accessing me as soon as possible. 

And in this case, too, once the merger occurred on the third of November, I ended up in this private equity firm that I work at very soon after that.

So I did not get the break. But I know in due course, I will get the time that I’m looking for.

FRED HASSAN

Fred Hassan is best know for taking on two major pharma companies which were failing – Pharmacia in 1997 and Schering-Plough in 2003, and transforming their fortunes. 

In each case, the turnaround process culminated in the sale of the company:  Pharmacia was acquired by Pfizer in 2003 for $60 billion and Schering-Plough was bought out by Merck in 2009 in a reverse takeover deal worth $41billion.

This interview was conducted in late 2009, shortly before he departed Schering-Plough.

Hassan has just been appointed chairman of the specialist eye care company Bausch + Lomb.

This article is based on a live interview with Fred Hassan on Meet the Boss TV. To see the video (and other interviews with senior business leaders) visit: www.meettheboss.tv