The Outsider

September 1, 2003
Paul J. Anderson

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-09-01-2003,

In his new book, former Lilly CEO Randall Tobias explains his ideas about management. Do they work? He'll have a chance to prove it as he takes the reins of America's $15 billion global campaign against AIDS.

In management jargon, "the moose" is the problem no one wants to talk about. It's big, it's ugly, it's looking right at you, but nobody does anything about it. The trick, says Randall Tobias, is to get it onto the agenda, to "put the moose on the table"-a motto that is also the title of the new book he published this past spring with his son Todd.

Put the Moose on the Table: Lessons in Leadership from a CEO's Journey through Business and Life (Indiana University Press) tells the story of challenges Tobias has faced, most notably as CEO of Eli Lilly from 1993 to 1998. Now that President George W. Bush has nominated him America's global AIDS coordinator, he faces a new challenge: putting to work the $15 billion that the President has pledged toward fighting the disease in Africa and the Carribbean.

"Randy Tobias has a mandate directly from me to get our AIDS initiative up and running as soon as possible," Bush told reporters at the White House. "We will set up a broad and efficient network to deliver drugs to the farthest reaches of Africa, even by motorcycle or bicycle."

Shake-up at the Palace

At press time, Tobias' appointment still awaited Senate confirmation. Concerned that he was slated for the job mostly to protect pharma, AIDS activists have pointed out that he has no previous public health experience. Conservatives worry that he isn't sufficiently in line with their abstinence-based strategy for fighting the disease.

It isn't the first time a Tobias appointment has inspired controversy. When he took the reins at Lilly, for instance, he was only the third chairman and fourth CEO to join the company from outside the Lilly family. Despite growing up in Indiana and serving on Lilly's board of directors since 1986, he was an outsider. The press greeted his selection as CEO with skepticism even though his career at AT&T had been long and successful. One analyst said, "This smells like a 'shake-up at the palace.' On the surface, this management change does not make good sense."

Those were turbulent times for the historically stable, 126-year-old company. Twenty years of explosive growth had culminated in a year and a half of decline. The company's market value had fallen from $24 billion to $14 billion. Rumor had it that Vaughn Bryson, Tobias'

popular predecessor, was being replaced by a hatchet-wielding miser. The company's employees feared for their jobs.

At the time of his appointment, Tobias had some unfinished business with AT&T, so he hoped to make an easy transition into his new role. But on June 26, 1993, the day after he became CEO, Lilly faced a new crisis. In a clinical trial of fialuridine, the company's promising new treatment for hepatitis B, a patient had experienced profound liver failure. The next Monday, Tobias held his first conference with the company's top executives and scientists.

By then, several more patients in the trial had developed severe liver toxicity and were in grave danger.

Tobias describes the scene in his book: "All eyes from the two dozen or so in attendance moved in the tracking, collective stare found often at tennis matches and funerals. The mood in the room felt considerably more like that of the latter."

But Tobias made a speech that day that would set the tone for his leadership at Lilly. "I want to be sure we are focused on doing the most we can for these patients and their families," he said. "Certainly I want to understand the potential legal and financial exposure that could result from this situation. But the patients are our top priority. I would like their well-being to be the driver of our decisions, first and foremost."

In the following weeks, five of the fifteen patients involved in the trial died of liver toxicity. But meanwhile, according to a 1995 report by the Institute of Medicine of the National Academy of Sciences, Lilly gave more than $2 million for services to the patients and their families, including the cost of several liver transplants. The report exonerated Lilly, calling the deaths "uniquely and totally unavoidable."

As Tobias' career continued, the bottom line would get its share of his attention. But as he tells it, "doing the right thing" goes hand in hand with Wall Street's demands. Companies that keep standards of ethics with or without the law looking over their shoulder, he says, will thrive in the long run.

A Friendlier Lilly

In his book, Tobias writes that, although the fialuridine patients were his first priority, the task of informing the public about Lilly's situation was his second. He turned to Clyde Lee, a local television news anchor. A media relations worker from Lilly called Lee and asked him if he would like to interview the new CEO with cameras rolling. At first, Lee thought it was a joke.

Lee's previous encounters with Lilly had not been so inviting. Before Tobias became CEO, any reporter who asked the company a question could expect the query to become tangled in a spider's web of red tape. Getting answers on a timely basis was out of the question. Lee had become so frustrated in his attempts to get information from the company that he had given up altogether.

But as questions surrounding the new CEO'S plans loomed over a vacuum of information, Tobias maneuvered to ease the public's worries by allowing Lee to interview him in a company cafeteria with employees looking on. He used the opportunity to share his optimism for the company. "It was a wonderful breath of fresh air when Mr. Tobias came on board," says Lee.

A more candid-and prepared-approach to the media was only part of Lilly's change of attitude toward the public following Tobias' appointment. Consumers, not just physicians and shareholders, began to receive Lilly's attention. As chair of the company's policy committee, Tobias personally oversaw Lilly's direct-to-consumer communications. (See "Lilly Harvests Its Fields, PE, February 1998.)

"There's no real in-depth, long-term understanding on the part of consumers about what pharma companies are and what products they are associated with," says Tobias. "The general public still does not have much understanding about why branded pharmaceuticals cost what they do and why generics are less expensive. I think it's going to take a very aggressive effort on the part of the industry to get consumers to really relate to the benefits that they get from the pharmaceutical industry."

Creating a Comeback

"When employees are concerned about layoffs, more often than not they are telling you, 'We have too many here and we are afraid that somebody is about to find out and do something about it,'" Tobias told PE in 1998. Among his first actions to revive the company's finances was the elimination of 4,000 jobs. To calm the employees, he implemented a voluntary early retirement program. Though the company lost some good people, the program set the stage for the changes Tobias sought to implement. Any employee who wasn't ready for those changes was free to leave.

Next, Tobias refocused the company on its pharmaceutical projects by divesting it of non-core businesses. He was concerned that medical device operations drained management time and contributed little to stock value. So Tobias' team established the device enterprise as a wholly owned subsidiary called Guidant and sold 20 percent of its stock in an initial public offering. Lilly then offered its own shareholders the remainder of Guidant's stock in exchange for Lilly stock. With nearly $1 billion in cash, Lilly was ready to beef up its pharma R&D, partner with other companies, and expand its global operations.

The Human Element

When Tobias arrived at Lilly, he writes, its work–life programs were antiquated. They were geared toward single-income nuclear families, even though a survey showed that only 18 percent of the company's employees fit that category. In response, Tobias and his human resources team developed on-site services such as a credit union and a convenience store, child care programs, medical services, flexible leave, and other ways to help employees enhance their lives.

Tobias jokes that some employees might consider the coffee bars he installed his greatest legacy. But Lilly's work–life initiatives also won Tobias national recognition. In 1996, Working Mother magazine named him CEO Family Champion of the year. The honor earned him an appearance on NBC's Today.

"We recognized at Lilly that everything we did was really the product of our people," says Tobias. "In the pharma industry, most of the value that you are selling is intellectual capital. There's not a social agenda in the work–life initiatives; it's purely a business agenda designed to get the company a competitive edge over companies that are not doing those kinds of things on the theory that we will attract and retain people and enable them to do their jobs more effectively."

Private Suffering

Nevertheless, becoming the industry's rising star did not shield Tobias from tragedy at home. On May 16, 1994, Marilyn Tobias, his wife of 28 years, committed suicide.

In his book, Tobias describes trying to help Marilyn in her struggles with clinical depression. She had even begun to take Prozac (fluoxetine), the product that had made her husband's company the first name in antidepressants. But Marilyn, like 30 percent of patients who take Prozac, failed to benefit from it.

Personally and professionally, Tobias now works to destigmatize depression and other mental health concerns. In his book, he shares his thoughts on the subject. Within days of its release, he received letters of praise from depression patients and their family members. He says, "I think we all need to recognize how difficult it is for patients and their families who discover that they are dealing with mental health issues to find the right door into America's healthcare system to get help."

Taking Risks

At Lilly, not all of Tobias' management decisions came without criticism. Most notorious was the 1994 acquisition of pharmaceutical benefit manager PCS for $4 billion. But the driving force behind Lilly's merger with PCS-the Clinton healthcare plan-evaporated. Then, concerned that pharma companies would use their PBMs to block competitors' products from the market, the Federal Trade Commission placed a "firewall" between PCS and Lilly products. Lilly eventually sold PCS at a price much lower than it had originally paid for it.

"The president had made clear that his number-one priority was a new healthcare plan," says Tobias. "Had it gotten implemented in the form in which it was proposed, then having the capabilities that a pharmaceutical benefit manager would have brought to a pharmaceutical company would have been indispensable. As it turned out, that's not what happened. Sometimes the biggest risk is not doing anything."

But plenty of Tobias' decisions clearly paid off. Before his 1998 retirement, the company's market value had surged to more than $77 billion. During his tenure, Lilly launched Zyprexa (olanzapine) for schizophrenia, Gemzar (gem-citabine) for pancreatic cancer, ReoPro (abciximab) to prevent complications of angioplasty, and Humalog (insulin) for diabetes.

Although Tobias has retired from Lilly, he hasn't stopped seeking new challenges. He currently serves on the boards of Kimberly Clark, Conoco-Philips, and Knight Ridder, as well as those of several smaller companies. Soon, if the Senate approves his appointment, he'll be waging an international battle against AIDS. Tobias declines to comment about his upcoming role until he is confirmed by the Senate. In the meantime, he says, "Life is busy and enjoyable and I'm having a good time."

During his five years at Lilly's helm, Tobias proved his quibblers wrong, but he remembers those who believed in him. In his book, he reflects on the day that Clyde Lee first interviewed him. After Tobias answered Lee's questions and shared his vision for the company, a longtime employee stepped forward. "I knew Mr. Lilly," the employee said, referring to one

of the early leaders of the Lilly dynasty who was known for his rapport with the company's workers. "I worked here when Mr. Lilly was in the company and watched him as he would make his way around and talk to employees.

I want to say that the things I just heard are exactly the things I think Mr. Lilly would have said. Welcome aboard, Randy."

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