Medical dictionaries tell us that foot-and-mouth disease is a virus that affects cattle, sheep and swine. But then there is the colloquial foot-in-mouth disease, a common term for describing a faux pas in which someone says something that was better left unsaid. There may be a new variant of this fictitious illness. Perhaps it can be labeled CEOFIMD, or CEO Foot-in-Mouth Disease.
In recent weeks, a pair of well-known executives displayed signs that they suffer from this unfortunate affliction. In both cases, they were prompted by questions about their corporate strategies and sought to speak the truth. Their answers, however, revealed an inability to balance the harsh realities of the marketplace — where straightforward responses are required — with a concern for their own troops in a way that suggests problems exercising real leadership.
The first example occurred at the annual CED Life Sciences Conference, where Sanofi chief executive Chris Viehbacher appeared before an industry crowd and was asked about the virtues of investing in internal R&D versus smaller biotechs. This was a reasonable question, of course, given that Sanofi and its peers continue to slash their R&D budgets, and ache for more deals to replenish their withering pipelines.
His answers, though, caused a stir. After readily acknowledging that Sanofi is doing less of its own research these days, he went on to say that, yes, it is cheaper to work with more outside companies and that relying on venture capital firms to assess prospects is important. But Mr. Viehbacher explained his reasoning in a way that, however inadvertently, denigrated not only his own scientists, but sparked outrage from others in the industry.
He remarked, “But research and development is either a huge waste of money or too, too valuable. It’s not really anything in between. You don’t really do things because it’s cheaper. The reality is the best people who have great ideas in science don’t want to work for a big company. They want to create their own company. So, in other words, if you want to work with the best people, you’re going to have to go outside your own company and work with those people.
“There’s two reasons” for relying on venture capitalists, he continued. “One is, they can sometimes bring competencies we don’t have, like for instance in how to help a startup company. The second thing is to give you a second opinion. Somebody in your company is going to love the science and be championing this internally. But you want to have a second opinion. If you have a venture capital company that’s willing to put money in, that kind of gives a little validation of that.”
There were two problems here. The first was that he suggested the best scientists are not working for big pharma, or at least not for Sanofi. And then he intimated that, even if his own staff cautions an investment is not worth pursuing, their opinions will be overshadowed, because the venture capitalist knows best. In other words, layoffs are justified because the best scientists already left? Of course, with so many scientists gone, perhaps he has no choice but to query venture capitalists.
There was more. Mr. Viehbacher then opined about innovation. “Now, big companies, and not just big pharma, big companies, I believe, are not good at doing innovation. There has to be some element of disruptive thinking to have innovation and I can tell you that big companies do everything to avoid any disruptive thinking in their companies,” he declared. “So, you want to work with companies that are little bit more disruptive in thinking, but bring those competencies together.”
The takeaway was hard to miss: big pharma scientists are not the best, they are not good at innovating and their opinions must be validated by outside financiers. When the CEO says such things, it’s hard not to think that the staff scientists are not terribly valued. So why wait for the next downsizing? Sanofi scientists had better start looking now for a new job or money to start their own shop. This was a textbook example of how to lower morale and create a self-fulfilling prophecy.
The next stalwart leader to display signs of CEOFIMD was George Paz, who heads Express Scripts, the big pharmacy benefits manager that has been angling to buy its rival, Medco Health Solutions. During a conference call with Wall Street analysts, Mr. Paz was asked about the fallout from a heated contract dispute with Walgreen, which is no longer part of the pharmacy network run by Express Scripts.
Specifically, one analyst asked him about more the virtues of having narrow networks of pharmacies, which was another way of exploring how Mr. Paz views the ability of Express Scripts to serve its customers when such a large drug-store chain drops out. Like Mr. Viehbacher, however, he addressed a reasonable question with an answer that may well have alienated many of his own employees, specifically the pharmacists who work at Express Scripts facilities.
“At the end of day, as I said earlier, Nexium is Nexium, Lipitor is Lipitor, drugs are drugs and it shouldn’t matter that much who’s counting to 30,” Paz told the analysts. “[W]e believe that the community pharmacists serve a very important role in healthcare, that they do a tremendous amount. But we just don’t see that one pharmacist does it that much better than another pharmacist, at least not by change (sic).”
In effect, Mr. Paz declared that pharmacists are, essentially interchangeable. Of course, he was certainly on point to say that any pharmacist should be able to count pills correctly, regardless of whether they work at an independent pharmacy or a mail-order service. But imagine the impression this creates among Express Scripts pharmacists, who spend their time interacting with doctors, insurers and patients, and ensuring that prescriptions are handled correctly.
Of course, both Mr. Viehbacher and Mr. Paz are paid to make tough decisions, and bruised feelings are just so much collateral damage. Like it or not, layoffs are a fact of life and, increasingly, each employee — certainly, those who work for publicly-traded companies — is ultimately measured by the added value he brings to the bottom line. There is little room for coddling or avoiding the hard truths that characterize the modern-day marketplace.
Yet, there is more to this sort of situation than mere gaffes. A CEO is also expected to be a leader and part of that mission is to maintain a reasonable level of employee morale. Granted, a metric for measuring the pulse of the workplace is hard to come by, but one does not need an advanced degree to know that good morale trumps bad morale. Even during a terrible recession, a CEO has a responsibility not just to level with the troops, but to keep them pointed in the right direction.
This is where Mr. Viehbacher and Mr. Paz failed. They may not have intended to undermine the confidence of some of their own employees. After all, they have nothing to gain by doing so, except perhaps to encourage the discontent to leave sooner than they might otherwise. And we know that mistakes do happen — who among us has not said the wrong thing on occasion? But they have a responsibility to choose their words in a way that demonstrate they know how to lead, not just manage.
Unfortunately, the tendency in this sour economy has been to further minimize the value of employees. Some pharma executives may feel that good scientists or pharmacists are a dime a dozen, as the saying goes. However, they overlook the message they send when failing to respect the contribution each employee makes. No, this is not idealism. This is good business. A workforce with a low morale is less productive. Call it Machiavellian, but a CEO who knows how to lead will not forget this.
Ed Silverman is a prize-winning journalist who has covered the pharmaceutical industry for The Star-Ledger of New Jersey, one of the nation’s largest daily newspapers, for more than 12 years. Prior to joining The Star-Ledger, Ed spent six years at New York Newsday and previously worked at Investor’s Business Daily. Ed blogs about the drug industry at Pharmalot, at www.pharmalot.com. He can be reached at firstname.lastname@example.org.