Novartis Named Holmes Report's Company of the Year
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Holmes Report

Novartis Named Holmes Report's Company of the Year

Novartis understands that a good corporate reputation is forged by actions rather than words; that effective public relations is about behavior, not just communication.

Paul Holmes

Five years ago, Novartis chief executive Daniel Vassella woke to find his home under assault by activists from the environmental group Greenpeace. Speakers outside the Swiss lakefront property blasted Wagner’s Gotterdammerung loud enough to rattle the windows, while a boat filled with protestors delivered a barrel marked with the skull and crossbones insignia to his lawn.

The activists were protesting an old industrial site near Basel that they said was leaking chemical waste into the groundwater.

Rather than calling the police, Vassella invited the group’s leader and two of his colleagues into his home for breakfast, while his wife served croissants to the remaining protestors outside. After chiding them for frightening his two children, he listened patiently while the activists explained their concerns—demonstrating a willingness to listen that continues to distinguish his company from many of its rivals in the beleaguered pharmaceutical sector.

Novartis, created in 1996 following the merger of Sandoz and Ciba-Geigy, is in many respects a reflection of Vasella’s personality. It was he who came up with the name, which derives from the Latin “novae artis” (new skills) and who shaped the company’s culture, which reflects both his drive to succeed and his personal values.

So while Novartis is not afraid to make difficult decisions to secure its own future in a highly competitive industry, it also understands the human and emotional consequences of those decisions. The merger of Ciba and Sandoz, for example, meant downsizing. Novartis let about 12,500 people go. But it also set up an $80 million venture capital fund to help many of those former employees set up their own businesses.

In other words, Novartis understands that a good corporate reputation is forged by actions rather than words; that effective public relations is about behavior, not just communication.

Unfortunately, until relatively recently Novartis had assumed that actions alone would be sufficient to build its corporate brand. Like many European companies, it was reluctant to brag about its good works, and as a result familiarity and favorability in the U.S. were lower than the company felt it deserved.

Novartis had invested in a major research and development capability in the U.S. at a time when many others were cutting back, and had been achieving steady double-digit sales growth, with more drug approvals—including breakthrough oncology treatment Gleevec, and Zelnorm, a treatment for irritable bowel syndrome—than any of its high-profile competitors.

But the company had commissioned research firm Penn Schoen & Berland to benchmark brand awareness, and found that many people did not recognize the company’s achievements, or differentiate it from the rest of the pharmaceutical industry—a potentially risky positioning at a time when the reputation of the pharmaceutical industry was at an all-time low.

Working with longtime public relations agency Ruder Finn—RF president Kathy Bloomgarden had counseled Novartis through the Ciba-Sandoz merger—the company analyzed several messages and launched a corporate advertising and public relations campaign around the theme “Think What’s Possible.” Senior Novartis executives made themselves available for media interviews, underscoring them company’s thought leadership.

Specific stories focused on the approval of breakthrough oncology drug Gleevec; the company’s positive financial performance; profiles of key executives; the introduction of a patient assistance program; and the establishment of Novartis Institutes for Biomedical Research in Cambridge and of the Novartis Institute for Tropical Diseases in Singapore. All of these stories served to underscore the idea of Novartis as an innovative, but caring industry leader.

Novartis was clearly outperforming its competitors. It shares in the U.S. were up 10 percent at a time when the Morgan Stanley Capital USA Health Care Index—a basket of big drug stocks—had fallen by 25 percent. Its sales in the U.S. soared

But at the same time, the reputation of the sector as a whole was in dramatic decline. There were questions about the cost of pharmaceutical products; questionable marketing tactics; the absence of regulatory oversight; the lack of innovation as the new drug pipelines at many of the industry giants began to dry up; and about social responsibility, with diseases such as AIDS ravaging African nations because effective treatments were not affordable.

In one way or another, Novartis set out to address each of these issues. On the pricing front, it joined with seven other pharmaceutical companies to introduce a U.S. drug discount program that saves qualified patients between 20 and 40 percent on their prescriptions. On the marketing front, Novartis implemented company-wide guidelines for drug marketing practices, including guidelines for developing countries where regulations are nor nearly as stringent as they are in the U.S.

The company’s corporate citizenship initiatives, meanwhile, included a program to make its anti-malarial drug Coartem available to not-for-profit prices to the public sector in African nations where the disease is endemic, and to educate patients about proper dosage and compliance. Working with a team from Ogilvy Public Relations Worldwide—including personnel in London, Washington, D.C., the company has worked to get the word out about the Coartem story, generating coverage of the initiative in top-tier media ranging from CNN International to USA Today as the company provided the drug to more than 3 million patients.

Professor Richard Feachem, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, says: “I regard Novartis as an extremely significant partner in the fight against malaria… The company has taken the lead to provide at cost as extremely valuable new effective drug against the killer disease. That commitment by Novartis is really translating into lives saved across the world, and I applaud that. It’s a relationship that we regard as important, to be further developed and strengthened, and we look forward to that collaboration.”

Novartis was also one of the first signatories to the U.N.’s Global Compact, which requires its corporate signatories to commit to the highest environmental, human-rights and labor standards wherever they operate. That move drew praise from leaders in the corporate social responsibility field. Vasella “epitomizes a kind of leadership that puts equal emphasis on the social value created by the product and its economic value,” says Rosabeth Kanter, a consultant and professor at Harvard Business School.

The company also continued to make senior executives, led by Vasella, available to the media to discuss issues that most pharmaceutical industry executives preferred to avoid.

Discussing the industry’s reputation, for example, Vasella rejects the notion that it is “in ruins” as overly generous.

“In ruins, that means it has been destroyed and is now historic and attractive again,” he says. “It is not really in good shape. The problem with our industry is the products are so desirable, are so needed, by so many people, and so many people can’t afford them, that it creates a tension. We as an industry have clearly made mistakes.” As an example, he points to the infamous attempt by more than 30 pharmaceutical companies to sue Nelson Mandela in 2001 after the South African premiere tried to get cheap AIDS drugs for patients in his country by breaking international patent laws.

To show another side of the industry, Vasella invited more than 50 journalists from around the world were invited to Singapore to inspect Novartis’s new “corporate citizenship” project. The Novartis Institute for Tropical Diseases, with a $12 million a year budget, promises to discover new drugs that will be sold without profit to developing countries.

Vasella’s willingness to tackle thorny issues won him praise from ordinarily skeptical media. Said Fortune’s Clifton Leaf, who interviewed Vasella during the World Economic Forum in New York two years ago, “I began to wonder if Vasella… was really a CEO. He seemed too, well, candid. Too trusting of a journalist. Lord, I thought, doesn’t he know what I do for a living?”

So when Fortune produced a special CEO issue in November of 2002 and wanted a “bigtime executive to speak boldly and honestly about the pressures that Wall Street analysts put on the leaders of public companies,” it turned to Vasella.

He didn’t disappoint, taking the opportunity to articulate the management philosophy that has set Novartis apart from many of its competitors.

“There is nothing inherently wrong with delivering consistent results, quarter after quarter—that is the mark of a great company, after all, when it is done over time. But… once you get under the domination of making the quarter—even unwittingly—you start to compromise in the gray areas of your business, that wide swath of terrain between the top and bottom lines. Perhaps you’ll begin to sacrifice things—such as funding a promising research-and-development project, incremental improvements to your products, customer service, employee training, expansion into new markets, and yes, community outreach—that are important and that may be vital for your company over the long term….

“The culprit that drives this cycle isn’t the fear of failure so much as it is for many the craving for success. For the tyranny of quarterly earnings is a tyranny that is imposed from within… For all of the faults ascribed to Wall Street these days, CEOs can’t really blame research analysts or institutional shareholders or other investors for the pressure of short-term performance. Rather, for many of us the idea of being a successful manager—leading the company from peak to peak, delivering the goods quarter by quarter—is an intoxicating one….

“It is not enough to be truthful to yourself only. To me transparency means that I will communicate truthfully what I do and don’t know about my company’s performance and prospects, the doubts that I have, and the things that I don’t doubt. The goal of transparency is to give the shareholder an opportunity to form an opinion about you, to make a judgment. That’s not to say one has to be naive and publicly share information that will harm your company from a competitive standpoint. But in general one has to be transparent to a degree that allows fair judgment of both the company and the strength of the underlying business.”

As a result of the company’s proactive public relations activity, awareness of and favorability toward Novartis increased among all target audiences, despite the generally hostile media environment.

The most dramatic gains in awareness over the past 12 months were among the general public (32 percent to 41 percent) and opinion elites (46 percent to 58 percent). The most dramatic gains in favorability were among the general public (52 percent to 66 percent) and the media (69 percent to 94 percent).

Today, Novartis is viewed more favorably than the pharmaceutical industry by members from all target audiences (14 percent more favorable) and has a drastically lower rate of unfavorability than the industry as a whole (25 percent less unfavorable).

Novartis was named Pharmaceutical Company of the Year and Brand of the Year by Med Ad News, and Company of the Year by DTC Perspectives, and was awarded the Most Innovative Pipeline award by R&D Directions. Vasella was named the 2nd Most Powerful Businessman in Europe by Fortune; the Most Influential Business Figure in the last Quarter Century by Financial Times; and Executive of the Year by Pharmaceutical Executive.

And now, Novartis is selected as Company of the Year by The Holmes Report.

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