Fred Hassan: Becoming an exceptional leader in the pharmaceutical industry

By Nick Pryke

With the pharmaceutical industry evolving at breakneck speed, having the right leader in front of you is more important now than it has ever been. Fred Hassan, former CEO and Chairman of Schering-Plough, gives NGP his take on what makes a leader exceptional.

“In too many cases in pharmaceuticals, there are two or three good years after a merger, 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”
-Fred Hassan

Big or small, local to international, a company’s long-term success is defined by the quality of its leadership. That chosen one, that metaphorical shepherd amongst sheep, must not only let his or her ideas and visions cascade through all levels with intention and definition, but must also show the light at the end of the tunnel. This is true of all respected companies and their respective leaders, but when a merger takes place, finding the right leader for the job often takes on a whole new dimension of relevance.

In the world of pharmaceuticals, mergers and acquisitions have, in recent years, become part and parcel of progressing the industry; the most recent of which was the merger between Schering-Plough and Merck in November of 2009. The man who led Schering-Plough into this merger was their former Chairman and CEO, Fred Hassan.

When Hassan arrived at Schering-Plough, the company was being investigated by the FDA and SEC for accounting irregularities – not an easy introduction for any new management member, let alone one who was expected to lead it out of turmoil.

“I’ve faced a lot of challenges in my career, but this one was the biggest I’ve ever seen,” admits Hassan. “There were several things that needed to be done right away, so you couldn’t do things in sequence; you had to do them at the same time. There were the immediate issues of the regulatory and legal challenges that the company was under at the time, but there were also financial challenges in the sense that the major businesses were going down. Part of that financial challenge was cash flow – something that is not seen very often in pharmaceutical companies – but Schering-Plough was looking at a big cash burn and something had to be done about it very quickly.”

For Hassan, that meant setting up a “roadmap” as quickly as possible. Working with imperfect data, he anchored this roadmap with the board, shareholders and the entire company at a general meeting so that, from top to bottom, people understood what direction he intended to take. “It also showed that we had a problem, we had to do a lot of work, but we had to break the problem down into bite-size pieces that we could deal with whilst still looking forward for a period where there was going to be strong, solid hope for the company. If people can see the hope – the light at the end of the tunnel – then they do build up a sense of purpose.”

Leadership qualities

However, in order to achieve that sense of purpose, Hassan had to first use his leadership qualities to lead his team through the adversity they faced. “Perhaps the biggest quality that I try to work on is a sense of humility,” he explains. “If one keeps balance in one’s life and a sense of humility, then one becomes a better listener; you stay in tune with both yourself and your environment. If you can anchor yourself well within your environment then you can design a strategy to bring about change.”

“Once you’ve established a sense of direction, you have to build up a sense of urgency. If you can generate energy inside yourself and around you, the whole system starts to generate that sense of direction, letting you get on with undertaking 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 organization comes on board and people start to believe that they can make a difference.”

More often than not, an understanding of how to create change in a commercial context evolves from an appreciation of overcoming a personal experience; Hassan is a prime example of this, growing up with a terrible stutter. “I couldn’t speak in school. I had difficulties and 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 that I, and countless other people, have.

“You have to look at life beyond the challenge. Make a mental picture of how it might look and go for it. If I come into a tough situation in 2010, I have to make a mental picture of how things would look like in 2013 and 2014, and keep bringing it back as I go about dealing with the bite-size problems that need to be solved.

In fact, Hassan once said in an interview that: “No restructuring or strategy will succeed long term unless you get control of your top line.” In order to re-establish control with his top line at Schering-Plough, he needed to ensure solid customer touch and experience prevailed in order to help it grow. It’s relatively easy to get the bottom line to go up by slashing costs, but as Hassan states, that is a finite solution to a long-term problem. 

“If you’re growing zero to one percent and your cost structure is facing an inflation of three to four percent, you might be able to keep your bottom line OK in the short term by reducing costs. But long term, you have to beat inflation when it comes to the top line growth if you’re going to make the business prosper. Wherever I’ve gone, I’ve worked on the cost structure, but I’ve simultaneously worked on building the top line by making good advances with customer experience. If you can do that well, even while going through adversity, then you emerge far stronger on the other side of the difficult times.”

Of course, entering a company during any period, but especially one of adversity, is usually followed by some degree of internal conflict – and Hassan’s experience was no exception. “There are people who immediately see you as somebody who might not be very good for their careers. Some of them might become active resisters – those are easier to deal with. It’s much harder to deal with the passive resisters: the ones who say they’re on your side, but they’re not and you don’t know about them until a lot later. When I develop a new program or introduce 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 make the program 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 against the program? If you’re not with the program then you probably belong somewhere else. That’s where I have been pretty aggressive, and in every place there’s been a wave of change in terms of people leaving the company within the first 18 months. However, not all people who leave the company do so in that initial period, because sometimes it takes a longer time to find out those who really don’t belong with the company long term.

“Usually, the way you find the passive resisters is by listening to the praise they give you; you’re listening for signs on whether it’s real praise or not. Another way is to find out what they’re telling their people about the program. It’s my practice not to be bound by layers. I go to level three and level four. I talk with people in small groups and 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 if specific political things were to happen among departments, then I would definitely start to worry. 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 jobs have a special responsibility to show with their behavior that they are encouraging the culture that you’re trying to create.”

As President of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), Hassan is aware of the most important trait in leadership: listening. “The ability to listen is especially important for those who become CEOs, because they are in a situation where there are not too many people who challenge them and they often end up taking too much time talking and not enough time listening. I go out of my way to structure my time in a manner that I get to listen.

“To give you an example, I joined a company in 1997 that was in great difficulty. There had been a merger between a Swedish and a US company that had resulted in a lot of problems, so I was brought in as a CEO from the outside to try and make this merger work.

The right fit

“I was in place in Sweden on a listening tour, talking to a medical doctor, and he said that the major product that this company was looking forward to for its salvation and future growth was compromised with a company in the US. Had I known that before I joined the company, I might not have taken that risk. But suddenly I realized that the future growth of this company had been compromised in a deal that had to be untangled.

“I got the product back before it got approved by the regulatory authorities and paid a handsome price to do so. But afterward, the product went on to become a very large product in the marketplace. The price that was paid was far lower than if we’d let the problem fester and the product get approved – we probably would have had a totally different story for that company had I not been a listener at that point.”

Indeed, Hassan’s cautionary tale of “being a listener” spans decades. In the 1980s it was the automobile industry, while the 1990s saw a huge boom in home computing – and now we see the dominance of the pharmaceutical industry. The one common denominator is the fact that they’ve all been extremely reliant on mergers and acquisitions for their survival. “Look at the fit,” offers Hassan. “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 aspect first. Does it fit with the strategy that my company is trying to pursue in the next phase of its development?

“Don’t get enamored by the attraction of the object of the target company; instead, find out whether it fits the next stage of strengths, weaknesses, opportunities and threats that the company currently holds. Of course, part of the strategy fit is the culture fit and how one is going to deal with that. The second is 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 are 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 increased earnings and cost reductions – 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. That’s just short-term thinking and it doesn’t lead to shareholder value increases in the long term. I work very hard at the size fit.”

The final ‘fit’ that Hassan highlights is one of finance. “If you go in at a price that is not correct 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. It’s very important that the financial numbers are also correct. Of course, nobody can bat 100; the key is to recognize it early and deal with it. An early lesson I learned was to know who you are and lead from your own strategy – don’t try and grab something just because it looks good.”

Inspiration

Perhaps one of the biggest challenges facing companies involved in acquisitions and mergers is the tendency for the institution to dampen in inspiration as its size grows exponentially. Many companies begin as rising stars within the industry, only to find themselves running into difficulty further down the line. To counteract this, Hassan believes that a reinvention cycle within the company every five or six years will help significantly in stopping the drift toward complacency and arrogance based purely on past success.

“It doesn’t have to mean a new CEO every five or six years,” asserts Hassan, “but it certainly means a new sense of urgency and reinvention within that time period. The other way to deal with ‘bigness’ is to create the sense of a small company within a bigger company. In other words, empower people in smaller groups to innovate and 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.

“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 by supervising seven 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 direct workers will be energized and motivated. Whether you come in as a new CEO or you have a merger and you’re just acquiring a new company force, get to the frontline managers early and get them to understand the strategy.

“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 many CEOs spend time with their division heads, or the next level below the division heads, but don’t really get to the frontline managers.” Unfortunately, the reality is that it’s one thing telling people what you want them to hear, but completely another knowing that they’ve listened and the necessary message has sunk in.

“To make sure it does,” continues Hassan, “have a simple strategy like we did at Schering-Plough. Grow the top line, grow the R&D pipeline; reduce costs and invest wisely. Once the strategy is clear, execution becomes the strategy. We repeated this in different ways through different platforms and stayed the course; as long as you don’t shift on strategy, people then start to believe and execute on it. In the end, execution is what holds companies back. Strategy is not that difficult to formulate. It’s the execution that really makes a difference.”

In order to get to the stage of execution, it’s pivotal to encourage others in the organization to communicate the vision that will lead to that execution point – and that encouragement needs to come from all levels, or the “top and bottom” as Hassan puts it. “From the top, I expect managers to model the behavior and messages that I pass on from my level. But I also get people at the frontline with my messages and encourage them to expect their supervisors to follow a certain set of behaviors.

“Doing it in that manner encourages the middle management to align themselves 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. If you can go around that hierarchy to the frontline managers and show them the expectations they should have of their leaders, that creates its own positive cascade too.

“In my opinion, the biggest derailer of leaders’ careers is a sense of complacency – which is also 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 skills they have and they believe those skills will make them just as successful once they’re at a senior level. What they start to miss is being in tune with the environment and with themselves. Many times, people get derailed because they don’t have a good balance and sense of what the reality is when they face challenges. If one stays in tune then one can stay flexible and nimble so to deal with issues.

“One approach I use for group decisions is to encourage one of the group to play devil’s advocate and to show the other side of the case. As we discuss a problem it’s always good to look at the other side and help prevent bad decisions. 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. I like to bounce things off of them, recognizing that they might have the negative point of view, which may in 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.”

This idea of balance seems to permeate through the majority of Hassan’s principles. He says his executive team would think of him as a good person to work for – as proof, he points how many people have followed him throughout his career – he is also quick to suggest that they would also think of him as a “tough” leader with extremely high expectations for both himself and his staff. Indeed, these high expectations stem from making mistakes in the past – the only true way to create a successful business. For Hassan, his favorite mistake is an easy one to recall.

“My favorite mistake is not moving fast enough when I go into a new situation,” reveals Hassan, “and then 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 because the opposite happened when I was at Upjohn in 1997. I was taking my time on the cultural changes and transformation. In Schering-Plough I didn’t lose a lot of time; even though I had imperfect information, I moved pretty fast. The key is to recognize one’s mistake and to learn from it in order to get better. That’s when the best learning occurs.

“I’ve learned from a lot of people and am very fortunate to have good mentors along the way. My style is not to have a single mentor dominate, but to learn from many. One of those people was a former schoolteacher who happened to become my boss. I was in Lincoln, Nebraska, and he used to say things to me then leave the points he made on a little card, which I kept, and that was a very good way to learn. I still remember that person extremely well.”

It is from such experiences and lessons that Hassan has formed his principles by which he runs his career and, perhaps as you would expect, they can be applied to the wider context of life principles: “Treat people with respect, make people want to come to work and succeed, make people want to have fun and they will succeed. If people are having fun, they’re likely to succeed. If they’re not, they’re most probably not likely to succeed as a team. 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; that means dealing with external audiences on public policy matters, customers, with one’s own board and with one’s own executive management team.”

One would presume that after the Schering-Plough merger, Hassan would be willing to put his feet up for a bit and watch the world go by. In reality, nothing could be further from the truth. For the former CEO of Schering-Plough, the present involves him working with a private equity firm. For the future, who knows? Hassan certainly doesn’t: “I’m looking for a time when I might be able to take a break, but it seems as though people are always interested in accessing me as soon as possible.” Perhaps this level of focus is the greatest characteristic of a leader – and the biggest lesson to be learned from Hassan.

Biography

Fred Hassan is the former CEO and Chairman of Schering-Plough.

How to manage a pharma company through a merger

Make it fit
Make sure that the fit with the other company is good. Look at the strategic aspect first: does it fit with the strategy that your company is trying to pursue in the next phase of its development? FInd out whether it fits the next stage of strengths, weaknesses, opportunities and threats that the company currently holds.

Communicate
When you have a merger and you’re just acquiring a new company force, get to the frontline managers early and get them to understand the strategy. Once people are challenged and encouraged, it’s surprising how much they can do.
 
Keep it simple
Grow the top line, grow the R&D pipeline; reduce costs and invest wisely. Once the strategy is clear, execution becomes the strategy. As long as you don’t shift on strategy, people then start to believe and execute on it.

Focus on execution
In the end, execution is what holds companies back. Strategy is not that difficult to formulate. It’s the execution that makes a difference.

Avoid complacency
Complacency is also a form of arrogance. You can rise to a certain level because of the skills you have, but then get derailed because you’re lacking balance and a sense of reality. Staying flexible and nimble is the key to dealing with challenges.

Know who your friends are
Four types of reactions CEOs may experience when implementing a new strategy:

Active resisters
Relatively easy to spot and deal with; they make their objections obvious.

Passive resisters
Trickier to spot; say they’re on your side when they’re not. One way to flush them out is to listen for insincere praise, or talk to their staff directly to find out what they’re saying about the program.

Fence-sitters
Could go either way; you need to work on them to convince them.

Boosters
On your side from the start; show their support early and work with you to make the program better.