Bringing a less-is-more philosophy home to Novartis
Name: Joerg Reinhardt
Title: Chairman, Novartis
You could call Joerg Reinhardt's return to Novartis the Great Rewind. Now chairman of the Swiss drugmaker ($NVS), Reinhardt has rolled back executive compensation, rethought the chairman's role, and helped refocus the company on its most valuable operations. Essentially, he has made an almost-complete turnabout on key policies and strategies of his predecessor, Daniel Vasella.
Vasella engineered the merger that created Novartis to begin with, and embarked on a series of diversification moves that made his company among the most diversified in Big Pharma. He became one of the highest-paid executives in the business, and the highest-paid in Switzerland, a flashpoint for protest that resulted in new curbs on executive pay approved by voters last May. And he was among the more active, involved chairmen as well, with a hand in M&A, reviewing deals as small as $50 million. He also influenced pay for a wide range of top managers, and kept a keen eye on finance.
Since his arrival in August, Reinhardt has undone much of that, and he's working with CEO Joe Jimenez to undo even more. He's proposing a new compensation system that should end up curtailing pay packages for several top executives, not to mention himself. He's revamping his own job description to allow Novartis executives control over functions that Vasella's board committees once handled. "We are giving greater responsibility to the executive management committee," he told the Financial Times late last year. "As chairman of the board ... the most important [thing] is to make this step out of operational responsibilities to guidance and support."
As for Novartis' diversified group of businesses, Reinhardt champions a more singular approach, with the company focused on its most successful units. Novartis says it started thinking about a strategic review last May, as part of an annual look at its assets, but it was Reinhardt who kicked off the idea publicly, promising a new-and-improved company better focused on delivering value to shareholders.
"Novartis is a diversified business; it will continue to be a diversified business," Reinhardt told Bloomberg as he began his new job. "On the other hand, I believe active portfolio management is part of the strategic management of the company."
Reinhardt's presence at Novartis is a rewind of sorts as well. He left the Swiss drugmaker in 2010, after losing out to Jimenez in a race to replace Vasella as CEO. He landed at Bayer HealthCare, where he's been serving as chairman. His previous stint at Novartis actually began before the company itself was born; he started his pharma career in 1982 at Sandoz, which merged with Ciba-Geigy in 1996 and took on the Novartis name. At Sandoz, he worked his way up to serve as development chief, then climbed the ladder at the new Novartis to head of pharma development, then vaccines and diagnostics chief, and finally COO.
Reinhardt's compensation changes aren't likely to catch on anywhere in the U.S., where attitudes toward executive pay are much more liberal. His reworking of the chairman's job should be a word to the wise at, for instance, Teva Pharmaceutical Industries ($TEVA), which recently lost its CEO in a dust-up with the board. It's the company's slim-down plans, however, that have already helped influence the rest of the industry. Novartis' strategic review put more pressure on other Big Pharma companies to consider selling off or otherwise disposing of businesses that aren't performing up to snuff. The impetus was already there: Pfizer ($PFE) is in the middle of a streamlining program quite popular with investors, and AbbVie ($ABBV) is on its own after a spinoff from Abbott Laboratories ($ABT). But Novartis was among the most committed to the diversification approach. After all, it bought Alcon, an eye-care business, for almost $41 billion in 2010 and beefed up in animal health, over-the-counter products, and vaccines over the last several years, too. So if Novartis is considering major surgery, than shouldn't its peers?
Last fall, Merck & Co. ($MRK) said it was weighing its own underperforming businesses. GlaxoSmithKline ($GSK) has been shedding consumer products and drug brands, with more sales possibly on the way. So far, Sanofi ($SNY) and Eli Lilly ($LLY) appear closely attached to their non-pharma businesses--their animal health units, for instance. Whether major shareholders are urging otherwise? We have no idea. But we wouldn't be surprised.
-- Tracy Staton (email | Twitter)
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