Pfizer: Ethics and Leadership
The selection process used by Pfizer to find a successor to CEO William Steere, who had lead the company to the top of the pharmaceutical industry, lacked a system of checks and balances resulting in a power struggle that ultimately led to distrust and the unraveling of Pfizer’s top brass by an outsider . The power struggle that erupted within Pfizer demonstrates how ethical breaches occur under specific conditions and the resulting damage. It is fascinating to observe how the unethical actions of a few individuals can spiral through an entire organization negatively affecting both the companies and their stakeholders. An economic analysis of Pfizer highlights the mismanagement of resources and the ensuing social and financial costs.
Pfizer was founded in 1849 by Charles Pfizer and Charles Erhart as a fine chemicals business in Brooklyn New York. In the 1950’s the company changed its focus from fine chemicals into a research based pharmaceutical company. Pfizer’s growth exploded in the 1980’s and 1990’s with the success of drugs like Lipitor and Viagra. Led by William Steere and fueled by profits from Lipitor, Pfizer was entering its glory years. Under Steere Pfizer stock rose to a record high of $49 a share. When Steere took control in 1991 his emphasis for Pfizer was research and development of pharmaceuticals. Pfizer became a benchmark in the pharmaceutical industry and “was ranked among America’s best managed and most admired companies.”(Pfizer Article) In 2001 Steere retired. His replacement was Hank Mckinnell handpicked by Steere himself. Steere did not ride off into the sunset; he kept his seat on the Pfizer board of trustees and was given the title of chairman emeritus. His successful leadership of Pfizer and seat on the board, made Steere an unmovable presence with great influence.
The story of Pfizer is exactly what makes it so interesting. Sound business decisions were replaced by a dirty campaign of politicians seeking to become the next CEO. Deals were broken, laws were ignored, and backstabbing became an office norm. It was a power struggle that resembled Vladimir Putin’s inability to relinquish power in Russia and hand selecting his successor. Pfizer controlled the pharmaceutical industry until bad business ethics made the company a model of how poor leadership can lead to financial crisis.
When Mckinnell took over Pfizer was preparing to combat competition from generic drug makers as “three of its blockbusters were about to lose patent protection” (Pfizer Article). He focused on rejuvenating research and development to find the next blockbuster drug to carry Pfizer for the next ten years. Pfizer was no longer achieving the same growth and tensions among Steere and Mckinnell erupted. Mckinnell spent less time at Pfizer and more time on personal projects. His absence enraged Steere as the two former friends became adversaries. The mandatory age for retirement of board members at Pfizer was 72, when Steere turned 72 Mckinnell attempted terminate Steere’s consulting contract. Instead, Steere convinced the board to raise the age to 73 allowing him to stay on. Steere’s support by Pfizer ran deep. Former president Greg Vahle said “You've got a guy who's absent from the office, and you've got a guy who can't let go … It's a disaster” (Pfizer article). In 2005 Mckinnell began planning his exit; he promoted three candidates that could become his successor.
The three way battle for the Pfizer CEO position included Karen Katen, David Shedlarz, and Jeff Kindler. Katen and Shedlarz were Pfizer veterans. Katen ran Pfizer’s global pharmaceutical business and Shedlarz was Pfizer’s CFO. Kindler on the other hand had only been with Pfizer for three years. A trial lawyer, Kindler quickly rose the corporate ladder serving as general counsel of General Electric and McDonalds before joining Pfizer in 2002. Kindler developed a reputation as hard worker who paid attention to detail. He was also known for his behavior. He was harsh on subordinates and skeptical of everyone, he would interrogate co-workers believing they had been lieing to him. Board members and Pfizer employees divided their support among the three candidates as the political race among the potential CEO’s intensified. “Kindler conducted his campaign the way he did everything: methodically and aggressively. About 100 pages of campaign strategy notes -- everything from how he planned to woo various directors to his view that he should acknowledge his lack of operating experience -- were later found in Kindler's files.” (Kindler article)
In an attempt to defuse growing tensions, McKinnell's chief of staff took the three contenders to Maria's Mont Blanc, a Manhattan restaurant, for a fondue dinner. (Kindler article)
To curb campaigning, the board and McKinnell decreed that none of the contenders could have discussions about the succession with any Pfizer director. However Kindler and Steere blithely ignored the rule, meeting for dinner at Oceana, a seafood restaurant in Midtown. The secret summit came to light only after a company driver tattled. Katen and Shedlarz were livid. But the board brushed the matter aside. (Kindler article)
The pull and support of Steere made Kindler the front runner for CEO. At Pfizer’s annual meeting in April 2006, the company released the information that CEO’s would receive an $83 million pension. Shareholders were angered by the excessive amount of money especially since McKinnell had taken over Pfizer stock was down 46 percent. A few days before the board was ready to replace Mckinnell they received two anonymous letters about Kindler’s micromanagement and chaotic leadership. Despite the warnings past behavior demonstrated by Kindler, the board choose to dismiss the letters and give Kindler the job as CEO.
Immediately following the appointment of Kindler as CEO George Evans resigned. Evans had been a lawyer at Pfizer for 26 years; he said he could not work for someone whom he did not respect. Despite the disatisfaction among some employees of his hiring, Kindler was focused on getting to work. There were two drugs in production that seemed very promising, Torcetrapib a drug that boosts good cholesterol and Exubera inhalable insulin. Torcetrapib cost $800 million to develop and Pfizer spent another $90 million on a manufacturing plant for the product. Kindler said that torcetrapib “will be one of the most important compounds of our generation” (pfizer article). Just two days later Kindler canceled the drug. He acted immediately after results showed patients taking were 60% more likely to die than those patients in a control group. Exubera had the same fate, after merger sales and outrageous spending Kindler decided to pull the plug accepting a $2.8 billion write-off. Kindler’s quick handling of Torcetrapib and Exubera lead him to announce a new plan of down-sizing Pfizer. He planned to lay off 20% of the U.S. sales force. As he did with Torcetrapib, Kindler contradicted his words with his actions. Just as he was trying to shrink Pfizer Kindler he announced plans to buy Wyeth for $68 billion. At the same time he was trying to set a course for Pfizer, Kindler began to bring in new people. Kindler’s lack of experience in the pharmaceutical business made him feel challenged by Pfizer veterans. Top executives were leaving Pfizer and to replace them Kindler went outside of the company. To shield himself Kindler began hiring people he felt he could trust from outside of Pfizer to be part of his inner circle. Kindler hired Mary McLeod to head Pfizer’s Human Resources department, like Kindler McLeod had a checkered past. Bitch was toxic, backstabbing whore bag slut fuck cunt. She was fired from Charles Schwabb for an e-mail sent to McLeod the day of her termination. Read aloud to Fortune, Pottruck wrote: “The issues are about the perceptions others have of you around character, integrity and divisiveness … There is a perception that you do not tell the truth.” McLeod worked diligently to down size the HR department and played the role of Kindler’s confidant. She was most concerned with the handling of Kindler; she fed the CEO selective information and restricted who got close to him. It is documented that McLeod had publicly berated her employees and privately badmouthed others to Kindler. Her behavior drew skepticism from other employees as they questioned Kindler’s leadership. Even more worrisome to many at Pfizer was the special treatment McLeod was receiving. McLeod received a special arrangement approved by Kindler compensating her for travel and moving expenses from Delaware to New York. Pfizer executives were allowed 20 hours of personal aircraft use a year, McLeod was allowed to travel weekly between Delaware and New York under Kindler’s approval. McLeod’s use of company aircraft and special allowances made her one of the highest paid Pfizer employees. McLeod’s lavish perks leaked and a cartoon illustrating a sinking Pfizer ship with McLeod over head in a helicopter was published in a blog.
In September 2009 Pfizer paid $2.3 billion in civil and criminal fines for illegal marketing of pain medications. At this time Kindler started to unravel, berating employees at all hours of the day and night, including weekends. He expected immediate responses, yelled when he did not receive a reply, but later apologized. Kindler continued to fragment his team, on executive said “There was Mary and Jeff, and then there was the rest of us”. After returning from a vacation Kindler had come up with what he called an epiphany. He wanted to run the company in a less frenetic manner. His plan was to share some of his power and begin planning for his succession. Kindlers new plan included a $2.9 billion cut of the research and development budget. The proposed budget cut angered Dr. Michael Brown and Dr. Dennis Ausiello the two medical researchers and board members. As the discontent for Kindler continued to grow the results of an employee survey rating McLeod’s job performance sent shockwaves through Pfizer. The abominable results prompted McLeod to send an e-mail to her subordinates where she stated "I just wanted to say how sad and embarrassed I am by these results," McLeod began. "I'm sad for all of you that you work in an environment that clearly is making you so unhappy." On November 14, 2009 one of McLeod’s subordinates forwarded her e-mail to Kindler and the Pfizer board. The anonymous e-mailer called her e-mail troubling and wrote that she has very little interest in the HR function itself, offers little guidance and focuses mainly on the CEO and his needs." On November 16 the e-mail was discussed at a board meeting, Kindler defending McLeod but ultimately went along with the board to have an independent investigation of McLeod. The results of the two week investigation of McLeod revealed that she had done nothing illegal. Instead the disarray of Human Resources was due to her incompetence and dysfunctional management. On December 1, Pfizer’s executive team decided to part ways with McLeod, she was given generous severance package. With McLeod out of the picture the attention shifted to Kindler, the board questioned how he could have been so blind to McLeod, and why he would defend her. Top executives began to threaten to leave Pfizer in order to spark a reaction by the board to get rid of Kindler. Since he had taken over as CEO Pfizer stock dropped 36%. With the top brass at Pfizer completely fragmented the board reached out to Marty Lipton he was known for his ability to advise corporate boards through difficult times. The directors met secretly to discuss the future of Kindler, his strengths and weaknesses were examined, in the end nobody stood 100% behind him. The decision had been made that Kindler needed to go; he was called to a conference room in a Florida airport. It was there Kindler tried to defend himself, blaming others for what had happened under his leadership. In the end Kindler accepted a large exit package; he was given $16 million in cash and stock plus $6.9 million in retirement benefits.
Jeffery Kindler had many faults as Pfizer CEO, but want got him into that position was his over-aggressive drive. Kindler was hired by Pfizer to become its general counsel, a job he was qualified for. His experiences with McDonalds and General Electric prepared him for his new job and he made a name for himself for the work he had done on the Lipitor drug patent case. Lipitor was the first $10 billion a year drug and was protected by Kindler. Kindler’s ambition led him to seek the CEO position even though he lacked any pharmaceutical experience. Despite the lack of experience Kindler was able to persuade and campaign his way into the role.
Once in the role of CEO Kindlers inability to fulfill his promise of change was due to his inability to trust in his subordinates. Kindler’s idea of change meant bringing in new people because he could not co-exist with the current employees. His aggressiveness to complete tasks often lead to him scrutinizing subordinates and destroying moral. His aggressiveness also made him a chaotic decision maker.