James M. Cornelius was hired as interim chief executive of Bristol-Myers Squibb in 2006 and expected to stay three months. Years later, he is still there, leading the pharmaceutical company as chairman and CEO through the toughest economic times in decades and managing to beat Wall Street’s expectations in the process.
We talked recently with Cornelius about leadership, as part of our series of conversations with chief executives. We asked the CEOs, representing a broad range of industries, not only what they did to pull their companies through the Great Recession but also what they are planning to do in the recovery period.
Cornelius has been a leader in the health care industry for many years. He spent 28 years at Eli Lilly and Company, rising to chief financial officer and board member before becoming chairman of Guidant, a medical devices company and Lilly spinoff, for five years. He retired in 2000 but was pulled back into service in 2005 when Boston Scientific and Johnson & Johnson were battling for control of Guidant. After Cornelius negotiated Guidant’s sale to Boston Scientific in 2006, he retired again.
But then Bristol-Myers Squibb came knocking, following the abrupt resignation of its CEO. Cornelius, then a member of the board, was asked to step into the chief executive’s job. At the time, the company was under the supervision of a court-appointed monitor in order to avoid prosecution for manipulating earnings. It was also facing the expiration of its patent on Plavix, its blockbuster blood-thinning drug.
In his conversation with Grant Freeland, a senior partner and managing director of The Boston Consulting Group, Cornelius describes how he has grappled with leadership issues over the course of his long and successful career.
Cornelius is not one to chase the latest leadership fads and fashions. He believes that leadership qualities are enduring, but that strategy in uncertain times is not. Bristol-Myers Squibb has fundamentally reshaped its strategy during his tenure. Excerpts from the discussion follow.
The last 12 to 18 months have been traumatic for the world economy, maybe a little less so for the pharmaceutical industry. What are some of the key challenges you are preparing for?
We have not been faced with the drop in demand experienced by other companies. On the other hand, we’ve been facing a “patent cliff.” Our blockbuster, Plavix, will go off patent in 2011 or 2012 [an application to extend to 2012 is pending]. Our competitors face the same cliff with some of their blockbusters. We are all facing questions like, “What’s the right size of the company, and how do we get through this period?” This situation has been exacerbated by the possibility of health care reform, so we’ve been trying to get ready for both the patent cliff and the changing environment here in the United States.
The expiration of the patent on Plavix must be emotionally tough for your employees. How are you preparing them?
We’ve been very public with employees, Wall Street, and every other constituency, explaining that this product could go from $6 billion in revenue to zero, literally in months. I think that we’ve gotten high marks from Wall Street about being the first to admit that there was a cliff. We’ve taken a couple of strategic actions to change the cliff into a platform for growth. But there’s no way we can fill in for the $6 billion in revenue. Making the necessary changes now puts us in better shape than just waiting for it to happen.
Could you compare this period versus five or ten years ago? What have you had to do differently?
Times are less certain today than ever before—so you go back and re-examine your strategy multiple times during the year. You have to be much more adaptive.
How do you become more adaptive? Who do you involve? How does the board get involved? How do you involve your senior leaders?
Early in my career, strategy sessions with boards of directors lasted 30 to 90 minutes. Now, at Bristol-Myers Squibb, we might take two to three days of board time to review every element of strategy so that board members are familiar with it, can question it, and influence it. In order to get ready for that kind of showdown, it probably takes a full year of strategic-planning meetings.
We have agreed to target serious unmet medical needs in five or six therapeutic areas. We have an active business-development program, called the “string of pearls,” aimed at those therapeutic areas. So our strategy setting is literally around the clock. Once we get one acquisition done, we move to the next therapeutic class.
As you reflect on your career, what are some of the keys to being a good leader?
You’re not going to be successful without teamwork, so you need a strong supporting cast. You need to have the right team and give the members the responsibility to carry out the strategy.
During this period of turmoil, it can be tempting for a leader to tighten the controls and get more involved in what’s going on. How do you maintain tight controls while encouraging people to be innovative and empowering leaders?
I once had a boss who was very involved in everything that I did, and I didn’t like that. Senior people are paid senior wages and given a great deal of responsibility. They must perform, and only when they need help do I get directly involved in the things they do. If you asked my team members, they’d say, “If he’s not asking me a bunch of questions, I’m doing okay. If he’s helping me, then there are things I need to improve on.”
Sometimes, however, I need to be more involved. For example, for the past few years, you could not hire an employee anywhere in the world without my signature. Why did I do that? Not because I enjoy signing my name, but I wanted people to be more cognizant of the importance of hiring and its effect on profitability. In that process, we have raised the hurdle—we are interviewing better people and slowing down hiring. Before, the attitude was, “We have a job open, let’s fill it.” Over the last 36 months, total head count worldwide has declined every month—and yet sales have increased by probably 50 percent.
In this environment, how do you keep the best people? What are you doing about talent management?
As I mentioned earlier, the keys are having a good team surrounding the CEO and being able to execute the strategy. The retention, promotion, and development of those people are critical. It’s a matter of getting people into the right kind of jobs, giving them the right direction, and then leaving them alone to perform.
Even though we have been shrinking the size of the company, we’ve been uniquely successful at attracting talent from other large pharmaceutical companies.
What portion of your current executives were able to manage the transition to this new way of working?
I’d say the bulk of them. I’m not sure that we have a 100 percent buy-in, but it feels a lot better today than it did three years ago. People are being handed these stretch goals, and I think we’re getting much better effort today.
Can you discuss the benchmarking that was conducted shortly after your arrival at Bristol-Myers Squibb? How did that start, and how did the journey go?
When I joined, I had been out of the pharmaceutical industry working in medical devices for many years, and I wanted to identify the best performers in this industry. I had come from two companies that had been in the upper quartile of performance. We hired BCG to help us benchmark the best performance on almost every line of the income statement. The exercise showed that we were often below the median, so we set targets that could make us a leader.
It took us 12 to 24 months to reach those goals. It was a real stretch and created dissonance. But, along that journey, we decided that we did not need our nonpharmaceutical businesses. In fact, we needed to sell them in order to fund our string-of-pearls strategy. Today, Wall Street would say that we’re the best-performing biopharmaceutical company.
The key to success in the pharmaceutical industry used to be revenue. These days, pricing is tougher, and costs are more important. How did you change the culture so that your people are not focused just on revenue?
Our CFO has added the concept of cash flow management, which has allowed us to build a $7.8 billion cash balance to help fund the acquisition of new technology.
We have moved from an income-statement orientation to a balance-sheet orientation. We literally had to do tutorials with some of our most senior management about what a balance sheet is and why those accounts are important. It was something that our industry has never looked at.
And as you reflect on your time working at Bristol-Myers Squibb, if you could have done one thing differently, what would you have done?
I started out in the job with the shackles of a government program, which made us move at a much slower pace. If I had to do it all over again, I would speed up the clock and do the things we’ve done now, but do them even faster.
Do you find that you’re spending more time dealing with the external world?
Yes. We do most of our lobbying through our trade group, PhRMA [Pharmaceutical Research and Manufacturers of America], and that probably takes 15 percent of my time.
We’re spending a lot of time trying to persuade Congress to give us periods of market exclusivity on patents that run at least 12 years and to stay away from getting involved in setting prices in the United States.
Are you spending more time working together with your executives as a senior team?
My personal style, regardless of the environment, is to meet face to face with executives. Almost every Friday, we spend a half day together, sometimes a full day, addressing both operations and strategy.
And was that a practice of yours 10 or 20 years ago?
Yes. I inherited that from a very good boss at Lilly, and I have continued it throughout my career. So even though I’ve never mandated attendance, it’s amazing how many of the direct reports show up on Fridays.
Have you found that any senior roles have changed over the last couple of years? Has the CFO role, for example, become more important?
I was a practicing CFO for a decade or more, and I think the relationship between the CEO and the CFO has to be very good. We hired a younger CFO from a medium-sized company. As we made cultural changes, he’s been a real asset. So I think our teamwork, particularly between the CEO and CFO, has gotten stronger in this last year or two.
Has your relationship with the board changed? Since this crisis occurred, are they more involved?
I’ve sat on maybe a dozen boards over time, and there’s certainly a trend for boards to be more active—and they are more involved here. Before becoming CEO, I was an independent board member and so, as the new CEO, I probably had the advantage of being viewed as one of them. I’ve gone out of my way to inform them about what’s going on in the company, and I think the relationships are as good as they can be. There is a tendency with active, interested board members to occasionally cross over into management roles, but part of the CEO’s job is to manage that involvement and to direct it in the right way.
As a leader, how do you encourage ethical behavior?
You must have a strong belief in doing the right thing. I’ve preached over my career that you never want to see your ethics being questioned in the right-hand column in The Wall Street Journal. And it really boils down to having the leader walk the talk. Every day, you have to behave ethically, do the right things, be fair, and hope that that trickles down to the rest of the organization.
Are you harder now on unethical behavior than you were before?
Yes. Our company has had a checkered history of being in and out of trouble. We paid enormous fines. I think people today understand that you cannot go into the gray area.
Executive compensation is in the spotlight. Are you doing anything to better match risk with reward?
In our case, stock options have not delivered the target values that are set by the compensation consultants, and we’re in the process of eliminating those and moving to a kind of quasi-restrictive stock that has both a floor and a ceiling. I think we will be the first in our industry to do this. I doubt that the restricted stock would ever go to zero or infinity. We have 28,000 people, and this would cover probably the top 10 percent.
How do you motivate and what are you doing for the other 90 percent?
You must make sure that you have a competitive pay package. In our case, our short-term performance has been extraordinary. We’ve been growing, at the bottom line, probably by about 15 percent, so our cash-bonus program has paid above target. We have been able to make up somewhat for the lack of stock option appreciation with cash bonuses.
As we move into a world where growth is likely to be slower, how do you keep employees motivated?
We struggle every day with trying to keep people performing beyond their capabilities, or at least at their capabilities. Our strategy is built around targeting the most serious diseases, and we think that’s a great rallying cry. We bring in patients who have been cured or who have had their life extended, and half the audience has a tear in their eye after they hear these speeches. The things we do are critical to human life, and I think that gives us an extra degree of motivation during these tougher times.
Is the essence of good leadership timeless?
I support the thesis that good leadership is the same in good times and bad and in changing environments. I have had the advantage of working in a very successful large company, a very successful medium-sized company, and in start-ups. I think that experience and consistency are critical. I’ve seen other companies trying to adopt the flavor of the month, and I don’t believe that works. The consistency that I bring to our management approach should be a plus for our team.