The Constraints and Responsibilities of a CEO

How does a CEO of a major pharmaceutical company balance growing bureaucracy, the needs of researchers, the demands of investors, and the company’s place in society? The Globalist’s Stephan Richter posed these important questions to Daniel Vasella, the former CEO and recently departed chairman of Swiss drug giant Novartis.

Stephan Richter:

There are those who say that the pharmaceutical industry really suffers from immense bureaucracy. True or false?

Daniel Vasella:

Every big organization has a tendency to become bureaucratic. It’s unavoidable, so it’s not abnormal. It is normal.

And if we use the word “bureaucratic,” we mean inefficiency. Of course, there also is efficiency in bureaucracy. So you want a certain organizational discipline, you want transparency and you want certain control mechanisms. By the way, the corporate value system is a great control mechanism in companies.

But you also have to go through cycles where you stop and you destroy. Sorry for the brutal word, but you undo and you rebuild. And you have to do that in certain cycles so that the organization grows in a sound way.

You have to give people freedom, especially in research. I believe a lot depends on choosing the right people and then letting them work.

What one shouldn’t do is to create a stifling work environment. You need to create an environment where people are at ease, like it, enjoy it, come to work and really enjoy the environment. As soon as you start to have too many rules, it turns into a problem.

Now, at the same time, I have to say that, if we as a global company have a problem in, say, Korea or in Uruguay or in Siberia, it will be known everywhere tomorrow. So we have to have certain caution and certain controls.

In fact, as a board member, you have a feeling that you always have half of a foot in prison, you know, because you don’t know everything that’s happening. You hope you know, but you don’t know.

So it’s a challenge. I think in many companies, bureaucratization has taken place. I am very skeptical about business people wanting to manage research.

Richter:

What about the feedback loop with the financial markets? Part of a CEO’s job is permanent pressure always to create some “music,” some new information about new drugs in the pipeline and innovation.

Vasella:

Financial markets are a reality. You can’t live as if they didn’t exist, but you have to go your own way. I am absolutely certain of that.

Everyone who asks you to do X, Y, Z. I saw a few investors last fall and afterwards my investor relations team said, why did you spend time with these people? We know you hate it.

But you have to listen. And you have to know what they would like you to do, buying back shares, to leverage more and so forth. Of course, shareholders want to see value creation.

I also know the first moment you have a problem, the same people will say, why did you leverage so much?

So you have to run things according to your own deep convictions. How do you form your convictions? You form your convictions by listening to different people internally and externally, and try to come to a conclusion that really makes sense.

But if you are at the helm of a company, you have to think about sustainability and you have to think about the long term. You have to think about the purpose of the organization in society.

And if we don’t fulfill our purpose in society, we will forego the license to operate. It’s as simple as that. But if we don’t provide a return on the investment, investors will withdraw the financial support and your company will disappear, too.

So you have to find these different stakeholders in society, activists and others. Where do you set priorities? Who do you serve first? Who’s second? To what degree? Often, these agendas are incompatible.