Why Did The CEO Flinch?

When an outsider is named the Chief Executive Officer of a Fortune 500 corporation, the eyes and ears of employees, customers, shareholders, suppliers, board members, industry followers and other stakeholders are hyper-focused. Everyone is anxious to learn more about this person and their character. Verbal statements and non-verbal cues are paid attention to and interpreted. Both the new CEO’s words and actions receive careful attention as all the stakeholders assess if the “walk” matches the “talk”.

Imagine if you were hired as the new CEO of a publicly-traded medical device company that has deep regulatory, product, financial and legal woes. Central to your problems has been the integration of a company acquired by your firm four years ago. This acquisition has been heralded by many as one of the worst acquisitions in corporate history. The acquisition cost your company more than $27 billion, continues to cost $300 million in annual interest costs and has torpedoed the market capitalization of your company. Today, your company’s market cap is under $11 billion — $16 billion less than what was paid for the standalone acquisition four short years ago. In fairness to you, these problems and headaches were inherited and not the result of your decisions. However, as the new CEO, they are now your problems. You are now accountable and own these problems.

As the new CEO, at some point in year 1 you’ll be on center stage at the annual shareholder meeting. Annual shareholder meetings are typically highly-structured, highly-scripted affairs with tight agendas that are both short and relatively uneventful. But given the state of affairs at your company, this annual meeting might be more challenging. There will probably be attendees who throw some tough questions your way. You could be put on the spot. It could be uncomfortable for you. You will probably be asked to discuss matters you’d rather not address. And you know the print media will be there, too. But as uncomfortable as it might be, as the new CEO it’s critical for you to be visible, transparent and to demonstrate your personal leadership and accountability.

Unfortunately, Boston Scientific failed to allow the media to attend the company’s annual shareholder meeting on May 11. New CEO Ray Elliott flinched by closing the meeting. This is an unheard of action for large publicly-traded companies. Even companies in proxy fights (such as Biogen IDEC and Carl Icahn in 2009) allow the media to attend the annual shareholders meeting. And when asked why the meeting was closed to the media, the chief spokesperson for the company failed to respond to the request. So we can now only speculate why Boston Scientific closed the meeting.

What’s the result of not opening up the annual meeting to the media? More negative perceptions. Fear that Elliott is hiding problems. More mistrust. More fuel to the fire. As if more fuel is needed after the negative spiral in the price of the company’s stock, its continued losses, FDA problems, the $1.7 billion payment for patent infringement to competitor Johnson and Johnson, etc, etc.

Today’s CEOs need to be visible and be seen as trustworthy by their shareholders and other key stakeholders. And trust can’t be created without transparency. So by failing to allow the media to attend the event, Elliott created more skepticism toward Boston Scientific, at a time when shareholders desperately need some reassurance the truck is out of the ditch (or at least will soon be out of the ditch). Furthermore, he role-modeled to other leaders and employees within the company that it’s OK to not be transparent – not the best lesson to teach in a firm beset by FDA and legal problems.

Bill George, retired Chief Executive Officer of Medtronic, a competitor of Boston Scientific, is at the top of the list of high performing CEOs in the medtech, healthcare and life sciences segments. During his tenure as CEO of Medtronic, the company grew on average 35% a year, increasing their market capitalization from $1 billion to $60 billion. And Medtronic is consistently recognized as a premier company for developing leaders, a best company to work for, most admired and many other similar honors. George put Medtronic on a sustainable path. George is now a professor at Harvard Business School and a best-selling author. In his most recent book, 7 Lessons for Leading in Crisis, George offers straight talk and clear guidance – lessons Boston Scientific could benefit from learning.

One of the steps for winning George shares is “Creating Your Company’s Image as the Industry Leader.” That’s a step that should be followed by Elliott: to re-create Boston Scientific’s image as an industry leader. Becoming an industry leader means putting Boston Scientific on a path of predictable performance and being seen as trustworthy by its stakeholders. Of course, this starts with Elliott’s personal leadership and a willingness to be candid and transparent with his stakeholders. Last week’s actions didn’t demonstrate personal leadership, candor or transparency, in my view.

In closing, I’m reminded of a quote from former Supreme Court Justice Louis Brandeis. Brandeis said, “Sunshine is the best disinfectant.” That quote is over 80 years old. It still seems relevant today – especially for the CEOs of publicly-traded companies. Let the sun shine, Ray!