How Do You Stop a Toxic CEO From Sinking the Ship? – Part 1 of 2
The August 15 Fortune article, What Happened at Pfizer: The Inside Story of Revenge, Betrayal and Power at the Top of the World’s Largest Drug Company is a sad commentary of the descent of a once great organization under a CEO who was ill-equipped to lead.
In the four and one-half years Jeff Kindler was in the CEO role, Pfizer’s stock price fell from $49 to $17 and its drug pipeline dried up. Kindler’s leadership style was described as micro, micro-management and his abusive, over-the-top temperament as reported in the Fortune article caused the members of his top leadership team (Executive Leadership Team or ELT) to rebel. His management philosophy was described as, “Jeff Kindler seemed to believe he was the only smart guy in the room.”
Kindler was a trial lawyer by background who “sought knowledge through interrogation; he was skeptical of what he was told, even when it came from people who knew far more about a subject than he did; and he bored in relentlessly on small details, always searching for the sort of nuance that could make or break a legal case—but seemed trivial in other contexts. For all Kindler’s talents, he remained palpably insecure, acutely sensitive to anything or anyone he feared might undermine his standing.” He churned his executive team and, despite his lack of Pharma experience, didn’t seem to trust Pfizer executives who were experienced in the industry.
To make matters worse, the individual who should have played a key role in pulling the members of his ELT together and advising the CEO on the sensitive matters of team dynamics and performance, his senior vice president of human resources, Mary McLeod, was widely seen as divisive, dishonest and incompetent. An anonymous senior executive at Pfizer, concerned about the dysfunction of McLeod, Kindler and the ELT, reached out to the Board of Directors. The Board had concerns of their own and their investigation discovered several senior leaders ready to resign with no executive in full support of Kindler. When Kindler was confronted with the findings of the Board, it was apparent the only option was his resignation. Kindler left Pfizer in December of 2010 with $16 million in cash and stock and nearly $7 million in retirement benefits and other stock compensation.
So after nearly five years of billions lost in market capitalization, thousands of jobs shed and a new product pipeline that was barren, the Board of Directors fired their CEO. How could they have not known about the toxic impact their CEO had on the business beforehand?
The role of the Board of Directors of a publicly traded company is to protect the fiduciary interests of its shareholders. If the CEO leads in a toxic way, is unclear about his vision and strategies and paralyzes his executive team and company from operating effectively, how are the interests of shareholders served? Boards are required to annually review the performance of their CEOs. Unfortunately, this review is too often perfunctory. A better option would be to incorporate an approach to evaluate the CEO’s performance, behaviors and leadership annually, using an independent consultant to interview the CEO, his direct reports and each Board Member. This more thorough review would flag potential problems relatively early, allow the CEO to learn from the previous year’s performance and assist in establishing clear expectations for the upcoming year. Smart CEOs should advocate for such a process so they demonstrate to their key stakeholders they view their performance seriously and are open-minded to feedback on how they can become more effective in the future. And Boards should require such a process, to avoid simmering problems that can become major crises in the future. Incorporating our CEO Feedback Process is one way of meeting this objective.
Sadly, because the CEO performed ineffectively and the Board was slow to recognize and act, Pfizer investors lost billions, opportunities were missed, thousands of jobs were lost and a former iconic company has been greatly weakened. While Jeff Kindler had serious shortfalls as a CEO, the onus lies with the Board for their failure to appropriately understand and address how their CEO operated.
Leadership Buzz 
Hello, Chuck:
I enjoyed your post. Do you find that there is, often, a blurred line between a CEO who is pragmatic, firm and demanding, and one who is toxic? Non-performers see toxic; performers see pragmatism. You are right: Boards must pay attention and act against this stock-kicking toxicity. But Boards may delay acting because they are made up of human beings. And human beings often can’t believe what they’re seeing when a bully acts up. Even in the Executive Suite, we are reluctant to call down a bully.
Chuck, I enjoyed the book by Sutton called “The No A**hole Rule”. You may have read it. It quotes studies that confirm the gut feel of many people: bullies cost money, whether they are in the schoolyard or in the Executive Suite.
Wonder what would happen if corporations started a mass initiative to support the elimination of bullying in schools? Forty years from now, we might see less havoc in our stock portfolios!
Tough call, isn’t it? It takes a big ego to rise to CEO. It takes a bigger person to manage that ego. Balance is magic.
All the best,
AHS