Croissants, Leadership & Reflection with

Dr. Daniel Vasella, CEO, Novartis AG, received the HBS 2003 Alumni Achievement Award last week. He has had an extraordinarily successful career, switching from the medical field to the management sector in 1988 and rising to become CEO of Sandoz in eight short years. After Sandoz and Ciba-Geigy merged, he was made CEO of the new company, Novartis AG, which he led to ever greater heights with his inimitable vision and leadership. I had an opportunity to speak with him last week and came away absolutely impressed by his unique combination of thought and pragmatism, and compassion and action, which gave me a glimpse of what makes a truly great leader.

The Harbus: Dr. Vasella, you’ve had a very interesting career and a lot of it stems from your decision in 1988 to join Sandoz, thus, switching from the medical to the management field. What made you suddenly join the corporate world, especially, the pharmaceutical industry?

Dr. Vasella: It was not such a sudden decision. I was mid-career, around 35, at the time, and I had to decide whether I wanted to stay in medicine or do something else. I found that I wanted to learn something new and I didn’t understand anything about business or politics, and both interested me. So despite the fact that I loved medicine, I finally decided to take a chance and to at least try to go into business for two years.

The Harbus: What exactly prompted you to learn more specifically about business management?

Dr. Vasella: If you think back, this was in the 1986-87 period and that was the time when the financial markets collapsed and were much in the news.

All this impressed me quite a bit. I wanted to understand its mechanics, how it would impact the economy, impact us and the world but obviously, I had never learned anything about it. Also, the whole question of economics in the healthcare system had just started to become a topic then. So it was interesting to understand the implications of business more broadly.

The Harbus: You became the CEO of Sandoz in eight short years. So your rise through the Sandoz ranks was meteoric, to say the least. What would you attribute that to?

Dr. Vasella: I think I am a fact-based person and I made a lot of effort to learn quickly. And secondly, I’m not shy to work. I enjoy working and put a lot of energy into the work. Thirdly, I think the medical profession, especially interacting with patients, taught me a lot about interpersonal relationships and their dynamics. This combination was a desirable one on the business side and this gave me a special positioning, especially since there were not that many physicians who wanted to be on the business side.

The Harbus: You are said to have a very “American” style of management. What do you think people mean by that when they say this and conversely, what is a more traditional Swiss style of management?
Would you elaborate on that?

Dr. Vasella: I have, of course, been influenced by the US because my initial years in the management field were spent at Harvard Business School in the Executive Program, the PMD. As to the characteristics, I would say, the American management style comprises a can-do attitude, a realistic optimism, a desire to succeed, a certain belief that one can succeed and also a certain pride in being competitive and in succeeding, all of which is also present in the Swiss management style but is much more hidden.

The Harbus: When Ciba and Sandoz merged, you were left with the difficult task of integrating two different cultures. What challenges did you face and how did you overcome them?

Dr. Vasella: First of all, we did not let ourselves get preoccupied with past cultures but concentrated on identifying what we wanted to stand for in the present and the future. We formulated a mission statement and a vision statement. We were very explicit about what we wanted to be and that we wanted to be competitive and to optimally exploit the capability and the resources that we had. We did very much, in some ways, respect the past but not to maintain it but rather to put it to rest. There were many people who explicitly embraced the way we wanted to go forward and there were those who didn’t and left.

The Harbus: You instituted a number of changes in the work methods at the new Novartis. One of them was the cross-functional team approach, which you once said, had its roots in what you learnt at HBS. Can you expand on this approach and on how it helped Novartis?

Dr. Vasella: When I was first confirmed it was in product management and I observed that we did not work properly across different functions, meaning research and development, marketing, manufacturing and on a global basis – so not only across functions but across nations. I asked Kim Clark if he would be willing to help us to work on that and we did then establish a global cross-functional project team in development. This allowed us to have many more things going in parallel and also to have a common agreement in the beginning about what we wanted as the output.

So it was not that somebody would just have a technical objective and then in the end, marketing would say that they can’t sell it because it’s not a meaningfully differentiated product versus that of the competition, for example. By integrating this early on, we became much faster, more productive and came up with products that were of better quality.

The Harbus: You once said that the way to keep growing was to – go where there is no path and leave a trail. What did you mean by that?

Dr. Vasella: Simply that one is better advised to do what one thinks and concludes is right than just to follow the established path thinking that well, everybody does it this way, it’s always been done this way. If we want to improve and if we want to contribute to society, we shouldn’t be too preoccupied about what the established paths are but rather do what we think is correct. So we started several initiatives which some people would have probably felt were risky or not right. For example, the Research Institute in Singapore. This requires courage and I think courage is absolutely needed at every level, that people stand up for their views and are able to explain why they take certain points of view.

The Harbus: In fact, you were very hands-on during the development of Gleevec, the anti-cancer drug. It was stupendously successful in the phase one trials and there was a huge public demand to enlarge the scope of the phase two trials. Despite the fact that many in your company thought it was a huge risk to invest so much in it so soon, what made you go ahead with investing such a lot behind it?

Dr. Vasella: The belief that it was a potentially life-saving drug for people. In such a situation, we could not do anything but move quickly and consistently forward.

The Harbus: Did you face a lot of resistance within the company?

Dr. Vasella: No, not a lot. Some people were concerned but the majority of the people were absolutely supportive. Fundamentally people did not disagree, it’s just that some people had more economic concerns.

The Harbus: Under you, Novartis also instituted a number of programs to reach necessary drugs to people who need them but did not have access to them. Can you elaborate on some of these programs and the reason you initiated them?

Dr. Vasella: We have one program to provide free drugs through WHO for leprosy patients across the world and we will continue it till the disease is eliminated. Then, we have our new malaria drug which we sell at cost to WHO. And we have tuberculosis medication, of which we give around 100,000 treatments per annum for free. Finally, we have a research program for dengue fever and tuberculosis at a dedicated research institute for tropical diseases in Singapore. We also have a drug supply program for indigent patients in developed countries, especially for Gleevec. The reason why we did it is, I would say, fundamentally from the compassion many people have for patients who can
not afford any therapy.

The Harbus: What viewpoint does Novartis subscribe to in the Intellectual Property Rights debate?

Dr. Vasella: There are two aspects to the intellectual property rights debate; one is the concept of intellectual property in general, an absolutely incredible invention which has been applied from early fifteenth century in Venice and which has really set the foundation for innovation, in the sense that any invention that requires resources, time, money, ideas, creativity gets implemented and becomes broadly available only if it is being protected and the inventor can reap a benefit from it. All the investments we are making now, about a billion for one drug, will only be made if the investors believe that one day they can make a profit from them. Without intellectual property rights that hope is gone forever. So basically by undermining intellectual property, you are trading in the long term for the short term benefit.

But the other side is – one has to view it differently in relation to developing countries. We have had patent infringements and copies on the market in many markets of the developing world and there has been really no effort to enforce IPR as long as these products were used for local markets and were not exported to developed countries. So I think that the agreement which has been reached now thanks to the WTO negotiations is beneficial, because it is now putting these countries in the position where they can break or disregard intellectual property provided it is to help their citizens and they are having a severe crisis or situation in their country. So our view is a differentiated one. We believe that intellectual property and patents are essential to maintain the investment in innovation but we also believe that one has to make exceptions in emergency situations where large numbers of people are suffering.

The Harbus: Today the world is in the middle of a growing and urgent debate on ethics, both in terms of the boardroom and the lab. In terms of the boardroom, under you, Novartis has become increasingly transparent.
Can you tell us what practices you initiated to improve the standards of corporate governance at Novartis?

Dr. Vasella: I think you mentioned the most important one, which is transparency and in fact, we were just named in a global survey – our annual report got the best rating out of a thousand companies which were rated – and corporate governance and transparency, these were the two factors which were specially mentioned. I think it is basically the desire and the belief that we have nothing to hide and to describe, not passively but actively, how we operate at the board level and at the various committee levels. We have also been very stringent about having very few internal directors, in fact, there is just me and another person, all the others are outsiders. All the committees, audit, compensation and governance, are being led by outside directors and have only outside directors. So I think it’s also a question of having the necessary checks and balances and a spirit of candor and openness in the board. It has worked till now but obviously you see how well a board really works in times of crises, which I hope never to discover.

The Harbus: Again with respect to the board room, you once mentioned that most of last year’s corporate scandals had their roots in the pressure on those companies to deliver on short-term results. How do you manage to balance the pressure for short-term performance with the need for long-term sustainability, good corporate governance and corporate social responsibility, especially now that Novartis is a listed company on the NYSE?

Dr. Vasella: First of all, I do believe that outside pressure does a lot but it only becomes a problem when it finds fertile ground in the executive’s own motivation or maybe even a group of people – a management group or a board of directors or whoever. I think it becomes difficult when you are disappointed or are disappointing others and it can be very challenging when you have to stand up and say, well, it didn’t turn out how I hoped for – that happens to everybody at some point in their career. We have to recognize that we will never satisfy all short-term expectations, the investors will always hope for more and ask for more. So we, meaning the board and the management, have to balance what one can deliver and wants to deliver in the short term and what we have to have to achieve in the long term. I believe that you can deliver the greatest short term results but if you fail in the medium to long term, you haven’t done a good job.

Also, I believe that over time, companies get the investors they deserve. For example, we invest very substantially in Research and Development and we do so because we believe that this is the best approach to ensure long-term success. Now, that, of course, doesn’t please everybody. So people who are looking for just short term improvements or short term upsides divest in these shares and go to the next company, because they will not invest in a company which is focused more on the long-term. On the other side, we have long term investors who are satisfied with our approach. Having said all of that, I do believe that short term pressure plays a positive role as well because it forces us to leave no stone unturned to improve our short term results. However, we have to trade-off between the short and long term in a very determined and conscious manner. We shouldn’t do it blindly or myopically but we have to take both into consideration and have to make trade-offs, sometimes for one side and sometimes for the other.

The Harbus: With respect to the lab, what role does Novartis see for itself in the fields of embryonic research, genetically modified crops and animals and xenotransplants? What role do you see internal ethics committees (like the one you instituted to oversee embryonic research) playing?

Dr. Vasella: First of all, I believe we need to be open about all kinds of fields of research. However, we also have to make a conscious decision where we want to engage and where we don’t. Obviously we have a society where we have people who are completely in favor of doing anything at all and others who are fundamentalists on the opposite extreme and don’t want anything being done which sounds technical. I don’t see any issues in using, for example, genetics in plants to improve the performance of crops and I think genetic research, in general, is something which we need to tackle and integrate into our toolbox.

But there are certain things like reproductive cloning which I’d be opposed to for philosophical reasons and I wouldn’t want embryos being produced for harvesting stem cells. I think that is something I personally would not support. On the other side, I do support using surplus embryonic cells from aborted fetuses. So I think it all depends on the premises under which these things are being done and also, that it should be done for a therapeutic end which will eventually help people.

In general, I would say, one is well advised to listen to people with different beliefs and then try to make a fair judgment about the upsides and downsides of embarking on a certain type of research. In order to be as objective as we can, we have established an outside board which is an ethics board consisting of people who are not from research but from various areas of philosophy and theology and who give us their point of view. But in the end, it is our responsibility to make the decision.

The Harbus: Your family history has been described as a transplanted version of the American dream with you grandparents leaving their farm in an isolated valley, and moving to Chur, where eventually seven of their children earned professional credentials. Is this part of where you derive your drive and inspiration from?

Dr. Vasella: Yes, even if I never knew my grandparents, the stories I heard from my parents and my uncle form a certain mental picture and that has been that if you work hard, you can make it. It
doesn’t matter where you come from or who you are, you can make it. I think that it is true that this is a very American-like attitude.

The Harbus: What are some of your hobbies?

Dr. Vasella: I like to ski and both my wife and I love art, especially Asian and African art. This year, for the first time, in February, we went to India and we bought our first Indian art piece, from the fourteenth century. It was a fantastic experience. We started in Mumbai and ended in Katmandu and went across the entire country. It was superb and it is such a fantastic culture. From Buddhism to Hinduism, I thought it was a great experience.

The Harbus: Greenpeace once used a helicopter to land barrels of allegedly toxic water, as a mark of protest against water contamination by Sandoz drugs, in your garden. What was going through your mind at that point and how did you handle the situation?

Dr. Vasella: It was stressful because it was very early in the morning and we were still sleeping and we got up because of the noise and the very loud music which they’d put up. We decided to keep to our normal routine and to not get agitated, and to check what was going on. We got showered and dressed and just as I was going to talk to the activists and ask for the representative, my wife brought some croissants and we thought, instead of being defensive and aggressive, which was our initial impetus and which is a normal reaction, we would just try to establish a dialogue and understand what their point was and what they wanted to discuss, which we subsequently did. And it turned out to be the right approach.

The Harbus: You also once said that you don’t rule out another abrupt career change especially since you are, at a very young age, at the top of your current profession. What other fields do you find interesting and given your love for your current work, how will you know when it’s time for a change?

Dr. Vasella: Certainly, it will be a decision in which several people will be involved, from the point of view of the board and from my point of view, my family. But if I think about what I would do, probably it would be non-profit, and to do something especially for children. This probably has to do something with my own history but I find that children who suffer are just heart-breaking, so if I can one day to do something for children in need, I think that would be very fulfilling.

The Harbus: What message would you give to the young people of today, especially those entering the corporate world?

Dr. Vasella: First of all, I believe that the corporate world can be a fantastic experience and that if one looks at what you can learn from others and move across cultures and countries and businesses, I think it is incredibly enriching. Secondly, I think, if one enters into a profession, one needs to be competent and one needs to be rooted in one’s area. I would encourage anybody to be highly competent in one area. And then obviously if you are just technically competent, you may be very good in a specific area, but for more general management or for leading groups, interpersonal skills become very important and at one point, more important than technical skills. So I would say do everything you can in order to get to know yourself, how you react and what your strengths and weaknesses are and then work on your interpersonal skills.

The Harbus: Everybody wants to balance the twin responsibilities of contributing to the world and taking care of the interests of the shareholders. How do you do this, especially, being in the pharma sector?

Dr. Vasella: I think it is a balance which is never perfectly found and one needs to accept that there will always be trade-offs and never a perfect solution. I think the way to move forward is to be open and ask if what we are being asked for by various groups is reasonable, to respond to the best of our knowledge and capabilities but accept that sometimes we will make mistakes and accept that we cannot fulfill each and every one of everybody’s desires and demands.