Fred Hassan
Jonathan:
Fred Hassan, thankyou very much, and welcome to Meet the Boss Television. Thank you very much for coming today. I wanted to start really with when you firsttook over the reins at Schering-Plough back in 2003. And I know that you inherited a company thatwas sort of being investigated at the time by both the FDA as well as the SECfor irregularities – accounting irregularities.
That must have been areal challenge when you first took in, and not just from a management point ofview. But from day one, what was yourbiggest challenge?
Fred:
Jonathan, I’ve beenfacing a lot of challenges in my career. This one was the biggest I’ve ever seen. And perhaps the way to describe this challenge – there were severalthings that needed to be done right away, and it was so you couldn’t do thingsin sequence; you had to do things at the same time. So there was the immediate issues of theregulatory challenges and the legal challenges that the company was under.
But it was also undera financial challenge in the sense that the major businesses were goingdown. And part of that financialchallenge was something I did not know about before I got there, and that was acash flow challenge. That is somethingwhich is not seen very often in pharmaceutical companies. But this company was looking at a big cashburn, and something had to be done about it very quickly.
Jonathan:
Okay. And so I suppose what did you go – how didyou meet that challenge? How did youovercome that?
Fred:
So I set up a roadmapas quickly as I could. I had to moveforward with imperfect data, and that’s where experience and insightshelps. I anchored it with the board. I anchored it with the shareholders at ourgeneral meeting, which occurred a few days after I came. This was the annual meeting of thecompany. And I anchored it with theentire company in a global town hall.
All this happened inthe first week I got there. So from topto bottom, people understood the roadmap. It was a very simple roadmap of five different phases. And also it showed that we had a problem, wehad to do a lot of work, but we had to break the problem down into bite-sizepieces that we could deal with, and we still had to look forward to a period whenthere was gonna be a lot of good hope for the company.
If people can see thehope – the light at the end of the tunnel, then they do build up that sense ofpurpose that I was trying to build.
Jonathan:
Fantastic. I mean, certainly, you had a new team, andwhen you came onboard there was a management team in place, and I knowobviously that they were suffering as well from what was going on withinSchering-Plough. What would you say yourleadership qualities enable you to lead teams through adversity?
Fred:
Perhaps the biggestquality that I try to work on is a sense of humility, because if one keepsbalance in one’s life and a sense of humility, then one becomes a betterlistener. You stay in tune withyourself, with your environment. Youlisten better, and if you can anchor yourself well with your environment, thenyou can design a strategy to bring about change. So it always begins with a sense ofhumility.
Then also there is asense of urgency. Once you’ve built up asense of direction in terms of where you’re going, you have to build up a senseof urgency. And if you can show that youcan generate energy inside yourself and generate energy around you, the wholesystem starts to generate energy around that sense of direction, and then onegets about doing some very purposeful things.
So bringing aboutchange is not easy, but once it starts to happen, it’s a very good feelingbecause the whole organization comes onboard, and people start to believe thatthey can do – make a difference, and then change does happen.
Jonathan:
So are there anyinstances of personal hardship that you’ve actually confronted in your life, inyour career, not necessarily at Schering-Plough, and how did you overcomethose?
Fred:
I’ve – I’ll tell youone personal hardship. I grew up with aterrible stutter. I couldn’t speak inschool. I had difficulties, and the moreI worried about stuttering, the worse I got. I still have it, but it doesn’t hold me back anymore. I decided I was gonna think past it and workat the job that had to be done and not worry about this problem that Ihad. Several people had thisproblem.
So that is a personalexample where I feel very proud that I did not let something hold me back.
Jonathan:
Is that somethingthat you’ve almost kept in your mind when you’ve even gone into bigcorporations and – you know, there are always a solution to every problem.
Fred:
There arehurdles. There are challenges. You have to look at life beyond the challengeand kind of see it. Make a mentalpicture of how it might look like, and then go for it and keep that mentalpicture in front of you. So if I comeinto a tough situation in ’09, I have to make a mental picture of how thingswould look like in 2013 and 2014, and keep bringing that mental picture back asyou go about dealing with the bite-size problems that need to be solved.
You can’t solve allthe problems, but you can break them down into pieces that need to be solved.
Jonathan:
Definitely. You once said in an interview, “Norestructuring or strategy will succeed long term unless you get control of yourtop line.” How did you successfully gaincontrol of that top line at Schering-Plough? You’ve mentioned that there was a cash flow problem.
Fred:
This is a very commonproblem with people who come in in a hurry and try to make some big moves. It’s relatively easy to get the bottom lineto go up by slashing costs. It is verydifficult to make customer touch and make a good customer experience so thatyou can grow the top line. And what Ifeel is that the math is very clear.
If you’re growingzero percent or one percent, and your cost structure is facing an inflation ofthree percent or four percent, you might be able to in the short term keep yourbottom line okay by reducing costs. Butlong term, you have to beat inflation when it comes to the top line growth ifyou’re going to make the business prosper. So wherever I’ve gone, I’ve certainly worked on the cost structure.
But I’vesimultaneously worked on building the top line, on making good advances withthe customer experience. If one can dothat well, even as one goes through adversity, then one emerges a lot strongeronce you come out of the difficult time.
Jonathan:
I mean, there is asaying that you can never make an omelet without breaking a few eggs.
Fred:
Right.
Jonathan:
There must have beensome forms of internal conflict when you first took over. Can you give me an example of where you’vewon that conflict for the best of the company?
Fred:
Yeah, I’ve come intomany new situations, including Schering-Plough, where I’ve run into someresistance. There are people whoimmediately see you as somebody who might not be very good for their owncareers. And some of them might becomeactive resisters, and those are easier to deal with. It’s much harder to deal with the passiveresisters.
These are the oneswho say they’re on your side, but they’re actually not on your side, and youdon’t know about them until a lot later. So when I try to develop a new program, a sense of change, I try to makea judgment about those people who are the fence-sitters, those who are thepassive resisters and those who are the boosters. The boosters really make the program work alot better.
The fence-sitters youcan work on. You can try to convince them. It’s those passive resisters that you have tofind and ask them to make a basic judgment. Are you with or are you against the program? And if you’re not with the program, then youprobably belong somewhere else. That iswhere I have worked on pretty aggressively, and in every place usually there’sbeen a wave of change in terms of people leaving the company within the first18 months.
But not all thepeople who leave the company leave in the first six months because sometimes ittakes a longer time to find out those who really don’t belong with the companylong term.
Jonathan:
It must be verychallenging to obviously try and find who those passive resisters are. Is there any telltale signs that you’velearned over the years of sort of identifying them?
Fred:
Usually, the way youfind them is generally when people give you praise, you want – you’re listeningfor signs on whether it’s real praise or not very real praise. Another way to find out is what are theytelling their people about the program? 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 arenot reflecting the values that I want in the new company, then I do get veryconcerned about those supervisors.
For example, if Isay, “I want a spirit of transparency and building trust,” and the supervisorpasses on a message that they want information to be hoarded in a certain departmentor that certain political things would happen among departments, then I wouldstart to worry whether that supervisor has the values that I’m trying to bringinto the company. And you cannot succeedin a company if you’re management layers are not totally inline with thevalues. If there’s toxicity in thesystem, it’s not gonna work.
And people inmanagement jobs have a special responsibility to show with their behavior thatthey are encouraging the culture that you’re trying to create.
Jonathan:
Definitely, Icertainly agree with all of that. Youare the President of the IFPMA, and I know as income President you remarked,and I quote you, “I believe that one of the most important traits in leadershipis to take the time to listen and to learn.” Can you give me one example where this approach has served you well?
Fred:
I think listening andlearning is so important, and it’s especially important for those who become chiefexecutive officers, because chief executive officers are in a situation wherethere are not too many people who challenge them or check them, and they oftenend up taking up too much time talking and not enough time listening. So I go out of my way to structure my time ina manner that I get to listen.
I’ll give you oneexample. I joined this company in 1997that was in great difficulty. There hasbeen a merger between a Swedish company and a U.S. company, and that merger hadresulted in a lot of difficulties, and I was brought in as a CEO from theoutside to try to make this merger work. I was in place in Sweden in Uppsala on a listening tour, and I wastalking to a medical doctor, and he said that the major product that thiscompany was looking forward to for its salvation, for its future growth, was compromisedwith a company in the U.S.
This is the firsttime I heard that. Had I known thatbefore I joined that company, I might not even taken that risk. But suddenly I realized that the future growthproduct of this company has been compromised in a deal that had to beuntangled. So at that point, havinglistened to that, I verified it, and it was true, and then I got about the taskof dealing with it. And I dealt withit. I made a deal.
I got the productback before it got approved by the regulatory authorities, and paid a handsomeprice. But afterward, the product wenton to become a very, very large product in the marketplace, and the price thatwas paid was a lot lower than had we let this problem fester, the product getapproved, we would probably have had a totally different story for that companyhad I not been a listener at that point.
Jonathan:
Definitely. I mean, certainly, I wanna talk about sort ofthe ‘80s and ‘90s, and I know in the ‘80s we had sort of…bills, and in the ‘90sit was a big boom on home computing, and now pharmaceutical, and I guess wherethey share a common ground is that they’ve all been very reliant on M&A fortheir survival – for mergers and acquisitions. I mean, as a CEO and certainly a man that’s had a huge amount of experiencein both mergers and acquisitions, what are your words of advice for anyonethat’s looking to – for an acquisition to expand their business?
Fred:
I would say be verycareful about a transaction because when one does a transaction, one changesthe system, and one can have unforeseen consequences. So look at the fit. Make sure that the fit with the other companyis good. When I look at a situation inmy industry, I look at the strategic fit first. Does it fit with the strategy that my company is trying to pursue in thenext phase of its development?
In other words, don’tget enamored by the attraction of the object of the target company, but does itfit the next stage of strengths, weaknesses, opportunities and threats that mycompany has at present? Does it fit thestrategy? And of course, part of thestrategy fit is the culture fit and how one is gonna deal with that culturefit. The second is the size fit. In a size-driven business likepharmaceuticals, you want to make sure that the size engine will be stronger asa result of this combination so that the combined sales that would be generatedwould be properly supported by the size engine.
In too many cases inpharmaceuticals, the merger occurs, the financial community applauds, there aretwo or three good years of earnings increases at costs are reduced, and thenthe stock price starts to go down again because the R&D pipeline is notsupporting the larger sales base that’s been created. And that’s just short-term thinking, and itdoesn’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 thefinancial fit.
If you go in at aprice that is not the right price, and you overpay, then no matter how good a jobyou’ve done on the operational side after the merger, it takes a very long timefor the shareholders to get their money out of the transaction. So it’s very important that the financialnumbers also be right. These are thethree hurdles that I always look at, and if a target matches those three, thenI move. And it’s true that in myindustry among all the CEOs I’ve probably seen more transactions than the otherbig pharma CEOs.
Jonathan:
Definitely. So what lessons in particular have youlearned through your own personal experiences? I mean, have there been times that perhaps you’ve made a slightlymisjudgment, I should say, and you’ve learned from that, and that’s obviouslymade you a better chief executive for your next job – your next challenge?
Fred:
Nobody can bat 100,and there have been a few, and the key is then to recognize it early and todeal with it. Very early in my career, Igot into the sunscreen business, and I bought a brand name called Sunbrella, whichlooked like a very good name, and I brought it into the business, and it turnedout to be a total failure. And thereason it turned out to be a failure is that the sunscreen business that I wasinvolved with was a dermatology driven business, and this Sunbrella trade nameand the Sunbrella approach was based on selling it on the beaches or in totallydifferent environments, and I missed it totally.
And so the lesson Ilearned there was know who you are and lead from your own strategy, and don’ttry to grab something just because it looks good. It’s an early lesson.
Jonathan:
Don’t judge a book byits cover, by the sound of it.
Fred:
Right – exactly.
Jonathan:
As an organizationgets larger through either acquisition or mergers, there can be a tendency forthe institution to dampen the inspiration. Is that something you agree with, and, if so, how do you prevent thatfrom happening?
Fred:
This is always thechallenge with bigger companies. Manycompanies are rising stars for a long time, and ultimately they start to runinto difficulties. So managing bignessis really a challenge, and I think it takes – it almost takes a reinventioncycle inside a company every five or six years to make it happen. Otherwise, companies drift towardscomplacency and sometimes even to arrogance just because they have been sosuccessful in the past.
It doesn’t have tomean a new CEO every five or six years, but it certainly needs a new sense ofurgency, a sense of reinvention in the company every five or six years. The other way to deal with the bigness is tocreate a sense of a small company and a big company. In other words empower people in smallergroups to innovate, to drive the business forward while still taking advantageof the financial strength and the infrastructure of a larger company. That’s not easy, but that’s the job of theCEOs of larger companies.
Jonathan:
So I wanted to quoteyou again. You said, “We make it apriority to educate people on the frontline about the company’s strategy. That means letting them in on what I’ve beentalking about with top management.” Thisreminds me very much of two recent interviews that I’ve conducted, one withHerbert Hainer, the CEO for Adidas, and also Tony Shay, the CEO for Zappos. And I know from Tony’s point of view, he encouragedthe use of Twitter and other social media networks that he – for his employeesand so forth.
And I know HerbertHainer actually has barbecues at his house, and he brings everyone around, sohe’s very sort of I guess more personable than – as I say, ___________invites. What has been your mosteffective approach?
Fred:
I believe that in alarge operation it’s impossible to get complete energy and alignment witheverybody unless you get the energy and alignment of the frontlinemanagers. A typical frontline managermight be supervising 7 to 12 people. Ifyou can get them on your side, if they can become ambassadors of the center tothe people that they supervise, then the people who are directly the workersare energized and motivated.
So let’s say atypical company of 50,000 global employees – it’s much easier to get to 7,000frontline managers than to get to 50,000 global employees. And my whole approach has been get to thefrontline managers very early. Whetheryou come in as a new CEO or if you have a merger and you’re just acquiring anew company force, get to the frontline managers early. Get them to understand the strategy.
Show them that thestrategy they are seeing is the same strategy that’s been shown in the boardroom. In other words, treat them aspeople who are part of management, and show them that you care, and show themthat 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 outto the frontline, and how so many chief executive officers spend time withtheir division heads or the next level below the division heads, but not reallyget to the frontline managers.
Jonathan:
Definitely. So what would you say is your personalstrategy as a leader to make sure that everyone hears? It’s all well and good telling people, buthow do you actually make them hear and let it sink in?
Fred:
First of all, have asimple strategy. Like at Schering-Ploughwe had a simple strategy. Grow the topline, 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’tchange over the years, and basically what we said is, “Once the strategy isclear, execution becomes the strategy.”
And we repeated thisin different ways through different platforms, whether it was a CEO dialog thatmight have – the CEO might have with a few people, or email messages coming fromthe CEO, or different messages coming at country manager meetings. Our country mangers meetings were about 300people that we – we kind of talked about the same messages, and then they wouldpass those messages onto their people.
We just stayed thecourse, and as long as you don’t shift on strategy, people then start tobelieve it and execute on it. And in theend, execution is really what holds companies back. Strategy is not that difficult toformulate. It’s the execution thatreally makes a difference.
Jonathan:
And so how would youencourage others in your organization to communicate the vision – your visionfor the company – where you want to have it in – let’s say from now to 2013?
Fred:
Well, it’s both fromthe top and from the bottom. So from thetop it’s, of course, my expectations of managers and leaders that – being amanager is a very important responsibility because they lead by their ownbehavior. So I expect managers to modelthe behaviors and the messages that I pass on from my level. But also I get to people at the frontlinewith my messages and encourage the people at the frontline to expect theirsupervisors to follow a certain set of behaviors.
And by doing it inthat manner, it actually encourages the middle management also to get alignedwith the DNA of the new company that we’re trying to form. Sometimes if you’re only relying on theconventional hierarchy and the cascade, you become a prisoner of the hierarchy. So if you can go around the hierarchy to thefrontline managers and show them the expectations that they should have oftheir leaders, that creates its own positive cascade as well.
Jonathan:
Sure,definitely. So what is your one behavioror trait that you have seen probably derail more leaders’ careers, if you like?
Fred:
In my opinion,people’s – the biggest derailer is a sense of – it’s not arrogance, but a senseof complacency that also is a form of arrogance that starts to creep in whenpeople have been very successful, and they have risen up to a level because ofcertain very strong project management skills or certain quantitative skillsthat they might have had, and they believe that those skills are going to makethem very successful once they are at a senior level. And what they start to miss is being in tunewith the environment and being in tune with themselves.
So many times peopleget derailed because they don’t have a good balance and a good sense of whatthe reality is when they face challenges. So when hard times hit suddenly or problems hit, they are left thinkingand wondering. They are not – they’renot ready to move with speed and flexibility that hard times and adversityrequires. This, I think, is the biggestissue. So if one stays in tune, then onecan stay flexible and stay nimble so to deal with issues.
Jonathan:
Talking about in tunethere, I mean, my next question was as a leader, how do you get in tune andstay in tune with your business, but on a daily level? Do you have any things that you do everymorning to make sure that you’re in tune or –
Fred:
There are manydifferent ways. Of course, one can reada lot. One can meet people in theindustry. One needs to be a listener –always engaged. One approach I’ve usedwhich works is that when a group makes a decision, it’s almost a good idea toencourage one of the group to be a naysayer or to be the devil’s advocate andto show the other side of the case. Soas we discuss a problem, it’s always good to look at the other side and preventthis group-think problem from creating bad decisions.
People like to be affableand 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 otherside. And even in my private decisionmaking, I have one or two confidants at the minimum who are my naysayers interms of things I want to do. And I liketo bounce those things off of them recognizing that they might have thenegative point of view, which might in many cases be a breaking mechanism on whatI’m about to do.
It’s very importantto have balance when it comes to decision making.
Jonathan:
Definitely – verywise words. How would a member of yourexecutive team describe you?
Fred:
Probably a goodperson to work for because if you go back to my different changes, it’s amazinghow many people have followed me. Soobviously they enjoy working with me. They would also tell me – they would also say that I am very tough interms of my expectations – sometimes very, very tough in terms of what Iexpect, but that I’m also tough on myself. I put very high standards for myself, and I work pretty hard.
They would also saythat I am caring about people, and that I do connect on an emotional level withpeople, and that makes them want to root for me because if they do connect onan emotional level, then they will be boosters, and most people would say thatthey would want me to succeed because they do connect on the emotionallevel.
Jonathan:
It’s said that makingmistakes makes a successful business. What would you say is your favorite mistake?
Fred:
My favorite mistakeoften is not moving fast enough when I go into a new situation, and then lateron regretting that I did not do it fast enough, but then hopefully learning sothe next time I see something like that I would move faster. In the case of Schering-Plough, I movedfaster than I normally would have because I did not move as fast as I wouldhave wanted to in pharmacy in Upjohn in 1997. I was probably taking my time on the cultural changes and the culturaltransformation.
That happened a fewyears after I was there. InSchering-Plough, I didn’t lose a lot of time; even though I had imperfectinformation, I moved pretty fast. So thekey is to recognize one’s mistake and to learn from it and to get better thenext time. The best learning, in myopinion, actually occurs when one makes a mistake.
Jonathan:
Can you name me oneor two people in business that you’ve probably learned the most?
Fred:
I’ve learned from alot of people – very, very fortunate to have good mentors along the way. My style is not to have a single mentordominate, but I’ve learned from a lot. One person I learned from a lot was a person who was formerly aschoolteacher who happened to become my boss. I was in Lincoln, Nebraska, and he used to say things to me, and thenleave the points that he has made to me on little cards, which I kept, and thatwas a very good way to learn. So I doremember that person very well.
Jonathan:
And so what would yousay are the principles by which you run your career?
Fred:
Principles arebasically treat people with respect, make people want to come to work andsucceed, and make people want to see you succeed, and also people should havefun. If people are having fun, they’relikely to succeed. If they’re not havingfun, they’re probably not gonna succeed as a team.
Jonathan:
Definitely. The most important part of a job is – of yourjob or I think most chief executives’ jobs is never actually written in theirjob description. Would you agree withthat, and, if so, what would you say is the most important part of your job?
Fred:
The most importantpart of one’s job is to be a good listener, which is not very clear in any jobdescription, is to be a good diplomat with different audiences. There are times when one has to fallbackwards and give way to the other side. There are times when one needs to move forward as a persuader and get themto change their point of view, and that means dealing with external audienceson public policy matters, customers, with one’s own board, with one’s ownexecutive management team.
Dealing with peopleis perhaps the most important part of any chief executive officer’s job. It’s not a very clear item in the jobdescription, and it’s not a very clear item that gets taught in the businessschools and MBA programs.
Jonathan:
Okay – the finalquestion – you’ve always been a ______, and obviously, I know that you werehead of a huge corporation, Schering-Plough. You’ve now sort of, I guess, semi-retired, and you’ve left the big, fastpace of the corporate world. Where doyou go from now? Do you – what are yourhobbies?
Fred:
So I am obviouslyvery happy with being in this industry – this pharmaceutical industry that I’vespent my life is a very good industry because it does good things forpeople. And I believe that as people aregoing 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 processthat’s needed to bring innovation to the forefront. So I’m at present working on many projects inthis private equity firm that I’m at that is involved with the innovationcascade.
Only in some cases itmay be at an earlier stage than what you might see in many larger moreoperational companies. But at least it’spart of the innovation cascade. I alsolike to help mentor people. Many peoplein the smaller companies that are the portfolio companies are successful CEOs,but they need a mentoring hand, especially on important matters like successionplanning, like having goals that are doable, having good performance reviewsfor the people – practical tools that young CEOs may not get very easily in theplaces 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’vegot a little bit more time on your hands now than when you were working in abig corporate business?
Fred:
I think I will getmore time on my hands at some point. It’s surprising. In my wholecareer, I have left one place and have started at another place almostimmediately. And I’m looking for a timewhen I might be able to take a break, but it seems like people are alwaysinterested in accessing me as soon as possible. And in this case, too, once the merger occurred on the third ofNovember, I ended up in this private equity firm that I work at very soon afterthat. So I did not get the break. But I know in due course, I will get the timethat I’m looking for.
Jonathan:
A well deserved one,I’m sure. Fred Hassan, thank you verymuch indeed.
Fred:
Thank you,Jonathan. Thank you.