In our recent publication, “Trends in board composition at top pharmaceutical companies,” we reviewed the background, profiles and experience of board directors of the ten largest (by revenue) pharmaceutical companies in the US and Europe. We have now updated our dataset to include the top 15 of these companies and 180 of their directors. We also interviewed a number of these directors, both executive and non-executive, to gain insight into the ways in which board composition is changing and into the skills and competencies that will be required in the future.
A few insights emerged consistently from these interviews, and from our ongoing consulting to the pharma industry. In this publication, we discuss these insights and their implications for leadership talent in general, and for board composition in particular, providing data-based evidence to support our findings and predictions whenever possible.
These insights can be categorized under the headings:
- Board remit and effectiveness
- Evolutionary (not revolutionary) change
- The digital opportunity
- Greater need for hands-on pharma experience
- Winning in emerging markets
We hope this executive briefing document will resonate and even stimulate ideas on ways to enhance board effectiveness in the current market environment and in the face of the challenges we see ahead.
The driving forces behind healthcare in general, and the pharmaceutical industry in particular, have been challenging and enduring over the past few decades—technology, demographics, consumer expectations and affordability.
Yet the current environment has brought accelerating change and complexity, and by implication, pharma companies need to look for innovative new approaches and cutting-edge strategies for success. The list of potential solutions and still-open questions facing the industry includes such topics as beyond-the-pill services, mobile health and finding new “centers of influence”—people and organizations that can boost market access and credibility—as well as the ways in which the industry will define the “end game” going forward, both as a group and for individual companies.
Big pharma companies face an additional challenge as well: defending their market positions against emerging pharma and biotech businesses. According to EvaluatePharma, the top 15 pharma companies are expected to see their combined market share decline from 56% in 2014 to 48% by 2020. [Ref. 1]
To survive—and even embrace—the changes, large pharma businesses need an honest self-assessment, asking themselves if they have the right mix of skills and experience at board level. This paper offers five key categories of insights into board structure and composition to help answer and resolve that question.
1. Board remit and effectiveness
Top pharma boards are performing—and need to perform—an increasingly vital role in debating and
challenging company strategy
Yet those directors we interviewed indicated that issues relating to governance and financial risk still seem to take up excessive amounts of the agenda and time in board meetings, leaving insufficient opportunity to discuss and debate strategy and innovation, which are the lifeblood of any successful organization
An effective board enables a company to develop and execute robust strategic responses to arising and enduring challenges. Three elements will be important in defining a board’s effectiveness—corporate strategy, board composition and board structure and processes. The board culture connects these three elements together
2. Evolutionary (not revolutionary) change
The mix of challenges that big pharma companies face is rapidly increasing in complexity
In response to particular threats and opportunities, the boards of big pharma companies must be able to bring a diverse set of competencies, experiences and perspectives to bear. They need board members who understand the current challenges and can steer both strategic development and company transformation
Nonetheless, the majority of directors we interviewed feel it is unlikely that changes in board composition will be either revolutionary or dramatic. The size and scale of the top 15 pharma companies, as well as the conservative nature of the industry, lend themselves far more to evolutionary change
3. The digital opportunity
There is a clear appreciation among the board directors we interviewed that digital initiatives can and will radically change the way pharma companies conduct their business
Yet, with some exceptions, the pharma industry has been relatively slow to recognize the importance of digital opportunities to its future, including the vital contribution of digital initiatives to its relationships with payors, physicians and patients
Big pharma will need board members who can tackle not just the “why,” but the “how” of developing powerful, sophisticated data analytics and using social media to reach the patient community, to name just a few key areas
THERE ARE MANY DIFFERENT DEFINITIONS OF A “DIGITAL” BOARD DIRECTOR
There is no single, standard profile of a digital director—as boards evaluate potential digital directors, they should keep the following trade-offs in mind
4. Greater need for hands-on pharma experience
There is a strong feeling among directors that overall board makeup has evolved too far away from successful innovators and business leaders who are steeped in the industry
While there is a relatively high proportion of broad scientific capability on the boards of big pharma, it is primarily offered by academic scientists rather than by experienced pharma-sector professionals
This scarcity may have historically been the result of non-compete clauses in the contracts of former pharma executives, restricting their appointment to the board of a previous competitor. Following the relaxation of these restrictions, recent board hires in the top 15 pharma companies have included a greater number of seasoned commercial leaders from within the industry
5. Winning in emerging markets
Big pharma companies have realized for some time that their previous strategies for extending into nontraditional pharma markets have not always been successful, and need to be revised with input and advice from leaders with successful track records in those markets
Although the current economic challenges facing several of the BRIC (Brazil, Russia, India and China) markets are restricting their growth potential in the short term, in the longer term, emerging markets with growing populations and increasing wealth are strategically critical to the pharmaceutical sector
Current board composition at top pharma companies therefore needs to better reflect emerging-market perspectives and experience
These five groups of insights provide a number of strategic action points for the boards of big pharma companies. However, another insight should also be highlighted—the industry is moving rapidly towards a closer relationship between pharma companies and the end consumer: the patient. While in the past, doctors have always acted as intermediaries, in today’s market, patients are becoming more active in their own treatment plans. As a result, consumer outreach is taking on increasing strategic importance for big pharma.
We note this insight was barely mentioned in our interviews with directors this time around; some even suggested that too strong a focus on consumer marketing could represent a distraction from the focus on genuine, breakthrough scientific innovation as the most important strategic imperative.
Nevertheless, we believe that big pharma companies, and in particular pure pharmaceutical groups, have a growing need to understand the patient perspective. We therefore believe that boards have an increasing requirement to recruit members with successful consumer goods and services leadership experience. This, with the other skills and experience noted above, will help to create a truly diverse board, ready to take on the issues inherent to today’s increasingly complex and challenging pharmaceutical market.
Worldwide prescription drug sales. EvaluatePharma—World preview 2015, outlook to 2020. Evaluate, June 2015.
Board analysis of top 15 pharma companies. Russell Reynolds Associates, April 2016. Companies included in the analysis: AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Gilead Sciences, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Novo Nordisk, Pfizer, Roche, Sanofi, Teva.
Governing for the long term—Looking down the road with an eye on the rear-view mirror. PwC’s 2015 annual corporate directors’ survey. PricewaterhouseCoopers, 2015.
Study of 180 executive and non-executive directors on the boards of the world’s top 15 pharmaceutical companies by revenues. Russell Reynolds Associates, April 2016. Companies included in the analysis: AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Gilead Sciences, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Novo Nordisk, Pfizer, Roche, Sanofi, Teva. Employee representatives not included. Data collected from companies’ websites and BoardEx, status mid-April 2016.
A board director is considered as having digital experience, if s/he has (a) held an executive leadership role in a digital pure-play company, (b) held an executive leadership role in a transformational digital function within a traditional company, and/or (c) held two or more board positions in pure-play digital companies (since 2007).
2016 digital directors study. Russell Reynolds Associates, 2016. Top 100 organizations in the US, Europe and Asia, respectively.
Digital NEDs—A view from the chair. Russell Reynolds Associates, 2015.
Global medicines use in 2020—Outlook and implications, IMS Institute for Healthcare Informatics, November 2015. Pharmerging countries include China (tier 1), Brazil, India, Russia (tier 2), Algeria, Argentina, Bangladesh, Chile, Colombia, Egypt, Indonesia, Kazakhstan, Mexico, Nigeria, Pakistan, Philippines, Poland, S. Africa, Saudi Arabia, Turkey, Vietnam (tier 3).
Financial analysis of 2015 product revenues of top 15 pharma companies. Russell Reynolds Associates, April 2016. Emerging markets are defined as all markets except North America, Western Europe, Australia, New Zealand, and Japan.
Pharma emerging markets 2.0—How emerging markets are driving the transformation of the pharmaceutical industry. Strategy&, originally published by Booz & Company, 2013.
Operational experience in emerging markets refers to general management or senior functional positions in a country/region outside North America, Western Europe, Australia, New Zealand and Japan.
The paper was created by Russell Reynolds Associates’ global healthcare board practice team, specifically authored by:
Christopher Burrows, an active member of the firm’s board practice, global healthcare sector and the digital transformation practice. Based in London, he has advised clients on projects across Asia, Europe and North America.
Saule Serikova, the firm’s global knowledge leader for the healthcare sector. Based in Amsterdam, she provides insights and data-driven analysis on key talent challenges in the global pharmaceutical industry and other healthcare-related market segments.