Full Interview - Former Schering & Plough CEO speaks out about the pharmaceutical Industry

Fred Hassan: I think listening and learning is so important, and it’s especially important for those who become chief executive officers, because chief executive officers are in a situation where there are not too many people who challenge them or check 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.

There has been a merger between a Swedish company and a U.S. company, and that merger had resulted in a lot of difficulties, and I was brought in as a CEO 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 that this company was looking forward to for its salvation, for its future growth, was compromised with a company in the U.S.

This is the first time I heard that. Had I known that before I joined that company, I might not even taken that risk.

But suddenly I realized that the future growth product of this company has been compromised in a deal that had to be untangled.

So at that point, having listened to that, I verified it, and it was true, and then I got about the task of dealing with it. And I dealt with it. I made a deal.

I got the product back before it got approved by the regulatory authorities, and paid a handsome price.

But 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 had we let this problem fester, the product get approved, we would probably have had a totally different story for that company had I not been a listener at that point.

MTB.TV: Definitely. I mean, certainly, I wanna talk about sort of the ‘80s and ‘90s, and I know in the ‘80s we had sort of bills, and in the ‘90s it was a big boom on home computing, and now pharmaceutical, and I guess where they share a common ground is that they’ve all been very reliant on M&A for their survival – for mergers and acquisitions.

I mean, as a CEO and certainly a man that’s had a huge amount of experience in both mergers and acquisitions, what are your words of advice for anyone that’s looking to – for an acquisition to expand their business?

Fred Hassan: I would say be very careful about a transaction because when one does 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 pharmaceuticals, 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 at 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 financial numbers also be right. 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.

MTB.TV: Definitely. So what lessons in particular have you learned through your own personal experiences?

I mean, have there been times that perhaps you’ve made a slightly misjudgment, I should say, and you’ve learned from that, and that’s obviously made you a better chief executive for your next job – your next challenge?

Fred Hassan: Nobody can bat 100, and there have been a few, and the key is then to recognize 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.

And 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.

MTB.TV: Don’t judge a book by its cover, by the sound of it.

Fred Hassan: Right – exactly.

MTB.TV: As an organization 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 Hassan: 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 takes – 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 CEO 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.

MTB.TV: So I wanted 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 that he – for his employees and so forth.

And I know Herbert Hainer actually has barbecues at his house, and he brings everyone around, so he’s very sort of I guess more personable than – as I say, invites.

What has been your most effective approach?

Fred Hassan: 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 to 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 energized 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.

Show them that the strategy they are seeing is the same strategy that’s been shown in the board room.

In other words, treat them as people who are part of management, and show them that you care, and show them 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. And it’s really surprising how little gets done in terms of reaching out to the frontline, and how so many chief executive officers spend time with their division heads or the next level below the division heads, but not really get to the frontline managers.

MTB.TV: Definitely. 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 Hassan: First of all, have a simple strategy. Like at Schering-Plough we had a simple strategy. Grow the top line, grow the R&D pipeline, and 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.”

And we repeated this in different ways through different platforms, whether it was a CEO dialog 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 were about 300 people that we – we kind of talked about the same messages, and then they would pass those messages onto their people.

MTB.TV: And so how would you encourage others in your organization to communicate the vision – your vision for the company – where you want to have it in – let’s say from now to 2013?

Fred Hassan: 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 behavior.

So I expect managers to model the behaviors and the messages that I pass on from my level. But also I get to people at the frontline with my messages and encourage the people at the frontline to expect their supervisors to follow a certain set of behaviors.

And by doing it in that manner, it actually encourages the middle management also to get aligned with the DNA of the new company that we’re trying to form. Sometimes if you’re only relying on the conventional hierarchy and the cascade, you become a prisoner of the hierarchy.

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

MTB.TV:Sure, definitely. So what is your one behavior or trait that you have seen probably derail more leaders’ careers, if you like?

Fred Hassan: In my opinion, people’s – 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, and 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. So when hard times hit suddenly or problems hit, they are left thinking and wondering.

They are not – 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 so to deal with issues.

MTB.TV: Talking about in tune there, I mean, my next question was as a leader, how do you get in tune and stay in tune with your business, but on a daily level? Do you have any things that you do every morning to make sure that you’re in tune

Fred Hassan: 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.

And even in my private decision making, I have one or two confidants at the minimum who are my naysayers in terms of things I want to do.

And I like to bounce those things off of them recognizing that they might have the negative point of view, which might in many cases be a breaking mechanism on what I’m about to do. It’s very important to have balance when it comes to decision making.

MTB.TV: Definitely – very wise words. How would a member of your executive team describe you?

Fred Hassan: 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.

They would also tell me – they would also say that I am very tough in terms of my expectations – sometimes very, very tough in terms of 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 do 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.

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

Fred Hassan: My favorite mistake often is not moving fast enough when I go into a new situation, and then later on regretting that I did not 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 recognize one’s mistake and to learn from it and to get better the next time. The best learning, in my opinion, actually occurs when one makes a mistake.

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

Fred Hassan: I’ve learned from a lot of people – 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 a person who 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 do remember that person very well. MTB.TV:And so what would you say are the principles by which you run your career?

Fred Hassan: 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.

MTB.TV: Definitely. The most important part of a job is – of your job or I think most chief executives’ jobs is never actually written 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 Hassan: The most important part of one’s job is to be a good listener, which is not very clear in any job description, is to be a good diplomat with different audiences.

There are times when one has to fall backwards and 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 officer’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 programs.

MTB.TV: Okay – the final , I know that you were head of a huge corporation, Schering-Plough.

You’ve now sort of, I guess, semi-retired, and you’ve left the big, fast pace of the corporate world. Where do you go from now? Do you – what are your hobbies?

Fred Hassan: So I am obviously very happy with being in this industry – this pharmaceutical industry that I’ve spent my life is a very good industry because it does good things for people.

And I believe that as people are going past the age of 65 – as the boomers start to go past the age of 65, there’s a lot that needs to be done over the next two or three decades.

And 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 at that 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 doable, 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.

MTB.TV: 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 Hassan: 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.

MTB.TV: A well deserved one, I’m sure. Fred Hassan, thank you very much indeed.

Fred Hassan: Thank you.

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