What the Pfizer (IV)? - One Board to Rule Them All

The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post here).  We then discussed lack of transparency in Pfizer's communication about management performance here, and how bad management was rewarded with outsize compensation here.  To continue what has become a lengthy series, let us now discuss the board of directors who were responsible for "stewardship" or governance of what turned out to be a very troubled company.

Let us focus on the membership of the boards that appointed the two CEOs Fortune described as failed.

Henry A "Hank" McKinnell - 2001

In 2001, the board appointed Henry A "Hank" McKinnell CEO.    Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.

In 2001, the board is as listed below.  (I include their current positions, any former positions as chairman, CEO, president or the equivalence, and current leadership positions in health care or finance.)  -

- Michael S Brown -

Distinguished Chair in Biomedical Sciences, Texas Southwestern Medical Center...  Director of Regeneron Pharmaceuticals

- M Anthony Burns -

Chair of the Board, former CEO of Ryder System Inc ...  Director of JP Morgan Chase and Co...  Trustee of the University of Miami

- Robert N Burt -

Chairman of the Board and CEO of FMC Corporation...  Director of the Rehabilitation Institute of Chicago and Evanston Hospital Corp

- W Don Cornwell -

Chairman of the Board and CEO of Granite Broadcasting Corporation...  Director of CVS Corporation

- William H Gray III -

President and CEO of the College Fund/UNCF...   Director of JP Morgan and Co...  Trustee of the University of Miami

- Constance J Horner -

Guest Scholar at the Brooking Institution...  Director of the Prudential Insurance Company of America

- William R Howell -

Chairman Emeritus and former CEO of JC Penney Company Inc... 

- Stanley O Ikenberry -

President of the American Council on Education...  Former President of the University of Illinois...  President of the Board of Overseers of Teachers' Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF)

- Harry P Kamen -

Former Chairman of the Board and CEO of Metropolitan Life Insurance Company...  Director of Banco Santander Central Hispano SA, BDirect Capital ...  Metropolitan Life Insurance Company

- George A Lorch -

Chairman Emeritus and Former CEO of Armstrong Holdings Inc...

- Alex J Mandl - 

Chairman of the Board and CEO of Teligent

- Henry A McKinnell -

CEO of Pfizer...  Director of Moody's Corporation

- Dana G Mead -

Retired Chairman and CEO of Tenneco Inc...  Director of Zurich Financial Services

- John F Niblack -

President of Pfizer Global Research and Development

- Franklin D Raines -

Chairman and CEO of Fannie Mae... 

- Ruth Simmons -

President of Brown University... Director of Goldman Sachs Group Inc, Metropolitan Life Insurance

- Michael I Sovern -

Chairman of the Board of Sotheby's Holdings Inc...  President Emeritus of Columbia University 

- Jean-Paul Valles -

Chairman and Former CEO of Minerals Technology Inc

- William C Steer Jr -

Former CEO of Pfizer...  Director of Metropolitan Life Insurance Company...  Director of New York University Medical Center....  Member of the Board of Overseers of Sloan-Kettering Cancer Center

The box score is...  Of 19 directors, 17 were current or former chairpeople or CEO/ Presidents of large organizations. 

Eight  had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations.  1 had a leadership position at a potentially competing pharmaceutical company.  1 had a leadership position at a pharmacy corporation.

Furthermore, 10 had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Jeffrey Kindler 2006


In 2006, the board appointed Jeffrey Kindler CEO.  Mr Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.

The board in 2006 appears below, with information formatted as above.  Note that all were members in 2001, although some members from 2001 were no longer there. 

- Michael S Brown -

Distinguished Chair in Biomedical Sciences at University of Texas Southwestern Medical Center at Dallas...  Director of Regeneron Pharmaceuticals.

- M Anthony Burns -

Chairman and CEO Emeritus of Ryder System Inc....  Life trustee of the University of Miami

- Robert N Burt -

Retired Chairman and CEO of FMC Corporation...

- W Don Cornwell -

Chairman of the Board and CEO of Granite Broadcasting Corporation....  Director of CVS Corporation.

- William H Gray III -

Chairman of the Amani Group...  Director of JP Morgan Chase and Co, Prudential Financial Inc

- Constance J Horner -

Former Guest Scholar at the Brookings Institute...  Director of Prudential Financial Inc

- William R Howell -

Chairman and CEO Emeritus of JC Penney Company Inc...  Director of Deutsche Bank Trust Corporation and Deutsch Bank Trust Company Americas.

- Stanley O Ikenberry -

President Emeritus University of Illinois...  President, Board of Overseers TIAA-CREF

- George A Lorch -

Chairman and CEO Emeritus of Armstrong Holdings Inc....  Director of HSBC Finance Co and HSBC North America Holding Company.

- Henry A McKinnell -

CEO of Pfizer...   Director of Moody's Corporation.

- Dana G Mead -

Chairman of Massachusetts Institute of Technology Corporation.  Former Chairman and CEO of Tenneco Inc...  Director of Zurich Financial Services.

- Ruth J Simmons -

President of Brown University...  Director of Goldman Sachs Group Inc.

- William C Steere Jr -

Chairman and CEO Emeritus of Pfizer...  Director of Metlife Inc and Health Management Associates...  Director of New York University Medical Center...  Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.

The new box score is similar to the old one, as expected, since none of the directors in 2006 was new since 2001.  Of 13 directors, 11 were current or former chairpeople or CEO/ Presidents of large organizations.

Five had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation. 1 had a leadership position at a for-profit hospital operating company.


Furthermore,  9 had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Summary

The board that acquiesced to huge compensation for very dysfunctional leadership arguably provided dubious "stewardship" of the company and the interests of its stockholders.  The composition of the board suggests some reason for this.  The board itself was mainly composed of current and former CEOs, and hence may have felt more in common with the executives whom it was supposed to supervise than the stockholders.  Many board members had conflicts of interests, also leading organizations that were supposed to be dealing at least at arms length with Pfizer.  Many of the board members were likely influenced by the corporate culture of the financial services industry, since they were in leadership roles there as well.  That culture, which let unaccountable, hugely remunerated executives gamble with other peoples' money, personally benefit when the gambles went well, and unload their losses on others, including tax-payers when their gambles failed, seems to have infected health care.

We have often discussed how conflicted, overpaid, and/or unaccountable leadership can damage non-profit health care organizations, like hospitals and academic medical institutions.  I would suggest it can also damage for-profit health care corporations, sapping their ability to create new and useful products, and undercutting shareholders.

I submit that all health care organizations would benefit from leadership and stewardship that cares more about patients' and the public's health, and the values of health care professionals than it does about the welfare of CEOs; that is accountable for and receives incentives proportionate to its effect on health and health care; and that is free from conflicts of interest and corruption.  True health care reform would reform health care leadership and governance.