Splitting Image

Big Pharma has become a complex place lately. Or should I say Big Healthcare? The recent trend toward diversification reduces risk by moving away from dependence on the pure play model. In a world beyond pharmaceuticals, these businesses include diagnostics, generics, OTCs, devices, vaccines, nutritionals, medical equipment, biosimilars—or even electronic medical records, as in GE's growing healthcare business. Managing a wide range of operating units is a new kind of task that may require a new kind of leadership.

Clifford Kalb

Diversification may be the leading trend behind the recent "title splitting" at the top of some of the industry's biggest drugmakers. Traditionally, the board chair, CEO, and president titles have all resided in a single individual. However, a number of high-profile cases suggest that these titles are increasingly being separated into multiple roles: Daniel Vasella/Joe Jimenez at Novartis; Franz Humer/Severin Schwan at Roche; Jean-Francois Dehecq/Gerard Le Fur (and later Chris Viehbacher) at Sanofi-Aventis; James Cornelius/Lamberto Andreotti at BMS; and, most recently, Richard Clark/Kenneth Frazier at Merck.

Another, more subtle driver of title splitting may be board and shareholder discomfort with too great a concentration of unchecked power in one leader, accompanied by weak share performance in the market during an executive's tenures. Hank McKinnell and J.P. Garnier, former top execs at Pfizer and Glaxo, respectively, exemplified this problem.

Developing as a leadership alternative appears to be "team" governance, which is designed to accommodate the dual trends of increasingly complex healthcare business models and the establishment of strict checks and balances in strategic decision-making that supports power sharing and healthy internal debate.

The new model, in theory, requires each business unit president to have a unique skill set. While core competencies in personnel and financial management are both expected, deep knowledge of the business, its competitors, customers, regulators, and relevant science and technology might also be necessary. This likely has to be coupled with years of demonstrable success in the specialized nature of the unit's ecosystem. Negotiating goals—and the resources to achieve them—with the CEO and board chair is critical as well.

In practice, the road to the top of a global healthcare conglomerate is not quite so straight. Jimenez came from consumer products, Schwan from diagnostics, and Frazier from law. No longer reserved for a pharma-unit veteran, the role of president is largely focused on achieving short-term objectives to support the stock value, regardless of relevant background or experience. It may be that these roles are merely additional steps in classic succession planning.

The CEO function is also morphing. Traditional internal roles include setting the vision and mission, elucidating a clear strategy and assuring proper management, allocating resources and developing synergies and alignment across a broad portfolio of businesses. Now, however, the CEO's external roles are becoming more prominent. Quarterbacking a team of c-suite players in communications with the press, the investment community, government, and other key stakeholders is becoming a bigger line on this job description. Unfortunately, the duty of crisis management has been dropped on this doorstep as well.

The role of chairman of the board alone remains largely unchanged—he or she is responsible for oversight and approval for major strategic decisions. For most publicly held, US-based multinationals, the board is primarily composed of external directors whose wisdom serves—or, at least, should serve—as a guiding light on matters of business ethics, policy, operating principles, and as independent representatives of shareholder interests. However, when the positions of CEO and board chairman are split into separate roles, the two leaders may well see the world from "different sides of the aisle." In this context, the interests of employees, stakeholders, and consumers will lead to divergent opinions, internal tension, and possible conflict. And in the c-suite, the chairman of the board is boss.

Title splitting offers a credible management structure for pharma's increasingly complex business models. The separation of roles and responsibilities—and the delicate balance of power—is designed to bring a diversity of opinion to strategic decision making; checks and balances should result in better long term decisions, albeit at a slower pace due to the greater difficulty of internal consensus building.

As pure play pharma becomes diversified healthcare, there will be growing pains. Consultants will be engaged, major restructurings will be implemented, and unintended consequences will be frequent. New forms of leadership will, in turn, challenge traditional corporate cultures. New competitors may enter the space. Some traditional players will adjust, while others will resist change—resulting in new industry leaders and laggards and, potentially, a vastly different competitive landscape.

Clifford Kalb is the president of C. Kalb & Associates, and can be reached at ckalb55205@aol.com