||Mr. Freston was interviewed by Randall
editor-in-chief of the quarterly business magazine Strategy+Business
and editor-at-large at Advertising Age.
Tom Freston, co-president and co-chief operating officer of
Viacom, received his MBA from NYU Stern in 1969. He has been
with the pioneering music channel MTV since its founding in 1981
and served as CEO of MTV from 1987 until last spring. MTV Networks,
a division of Viacom, operates cable networks MTV, VH1, Nickelodeon,
Country Music Television, Spike TV, Comedy Central and TV Land.
The company also controls MTV films in association with Paramount
Pictures and licenses consumer products. MTV currently broadcasts
to 314 million of the world’s households in 136 countries
and territories. MTV has branched out from its original fare
of music videos to offer original programming, such as Real World
and Newlyweds, and has engaged young audiences with its “Rock
the Vote” and “Choose or Lose” campaigns. In
June 2004, Freston was promoted to co-president and co-chief
operating officer of Viacom, and is now responsible for the company’s
cable, publishing and theme park units.
RR: What television moments influenced
you growing up in Connecticut?
TF: I grew up in the '50s and '60s, which must seem like ancient history
now, and I saw those iconic moments: Elvis's first time on TV and the
Beatles and the Kennedy assassination. But I spent more time listening
to the radio, and I was really touched by the Beat movement of the
late '50s, early '60s, and the rise of the counterculture. I wasn't
a hippie, but I was right here in Washington Square Park. And the late
'60s was a real interesting time to be going to business school in
New York City. There are certain themes from those movements that resonated
with me. One was the notion that you should experience as many different
things as you can, that travel would be a very important journey to
take in your life.
RR: So what motivated you to go to business school in the first place?
TF: I couldn't really see myself being a doctor or a lawyer or a dentist.
If I went to business school I thought I could find something that
I liked, although it was really hard for me to figure out what that
would be. It was also helpful at the time to get a deferment and
stay out of the war in Vietnam. But I was very pleased to get into
NYU. I was lucky enough to have Peter Drucker as one of my professors.
RR: Do you remember
anything that he specifically taught you?
TF: I always remember him talking about innovation. Invention is creating
something totally new. But the real thing in life is innovation, which
is taking two things that already exist and putting them together in
a new way. That's where most businesses come from.
RR: What did you do when you left here?
TF: I took off a year and a half and sort of bummed around. I was a
bartender in Aspen. Then I went to Mexico and worked around the Caribbean.
Then I decided I better get a job. I wanted to do something really
creative. So I got a job at an ad agency, Benton & Bowles. They
put me on a Proctor & Gamble business. I was assigned to the
Charmin toilet paper account. But I was very alienated at the time.
So after a year and a half I quit, and I spent a year traveling around
the world. I ended up in Asia, and I was just so enthralled with
everything I saw there. So I made up my mind that I would like to
live there and work, and figured out a way to support myself.
I came back to the States and found a friend who had some money. And
in 1973, with the advent of air freight, it was possible to make something
in a country like India or Afghanistan, and sell it 24 hours later
in New York City. We set up factories to design and make clothes in
India and Afghanistan. I had a house in each place. We sold our clothes
through a network of showrooms here and in Europe and Australia. We
did that for seven or eight years. It was an excuse for me to live
an adventurous life in Asia.
RR: Why didn't you stay there?
TF: Well, the U.S. put in place a system of quotas on textiles and
garments. Then the Russians invaded Afghanistan. And I had this epiphany
one day. I was on a motorcycle in New Delhi. It was 110 degrees,
and some gas from a diesel bus was blowing in my face, and I said, “I'm
out of here.” We had made and then lost a lot of money, so
I came back to New York with my tail between my legs.
“And I had this epiphany one day. I was on a motorcycle
in New Delhi. It was 110 degrees, and some gas from a diesel bus
was blowing in my face, and I said, ‘I’m
out of here’.”
RR: So you get to Warner Amex Satellite Entertainment
in 1980. That’s
a pivotal year for cable. USA Networks started, CNN debuts, Showtime
and The Movie Channel merge. What did you think this industry was going
TF: I was really lucky to get in when I did. There was a vision of
an alternative television universe other than the three broadcasters – based
on cable rolling out across the country and the idea of narrowcasting.
Almost all the incumbents said it would not work – the ad agencies,
the broadcasting companies, producers. You had this melting pot of
people, none of whom had any experience doing it. I was on the development
team of MTV and we all had a passion for music and the belief that
a network like this would work. We emerged at what became MTV Networks
as a real brand-oriented powerhouse.
RR: You went from new recruit, to
a company that didn't exist, to CEO in about seven years. What were
the touchstones along the way that led you to the point of leading
TF: One of the good things about being in a new company in an industry
that didn't exist is that no one knew what they were doing. The people
ahead of you often got fired because they usually did a few things
wrong. So it was easy to rise, if you had your head up, if you were
able to learn. In those days, you'd go from a secretary to vice president
in six months. I was the marketing guy at MTV. Every time someone would
get fired, they'd give me his job too. So then they put me in charge
of affiliate sales, and I had never had a sales job in my life. But
we did well, and then they moved me after a year of that to general
manager of MTV. Then VH1 came along. And at this point, I’m only
at the company four years. Then we were sold to Viacom and a lot of
people left. They made me co-president, for no good reason. Then the
guys who bought us got blown out in a takeover battle with Sumner Redstone,
and he came in and they made me the CEO. That was in 1987 and I've
just been there since. I have a distinct lack of ambition. When you
have a good job, just keep it.
RR: Reflecting back on the almost 17 years now of being in charge
of MTV, is there a difference between running a company and leading
TF: If you were in a mature business, like you make the reflectors
that go on stop signs, you could run the company, make it work more
efficiently, and get everyone to do a slightly better job. If you're
in a world that changes a lot like the media, the organization really
has to mutate and move quickly, and it requires strong leadership.
That doesn't just mean leadership from me, but a model where there
is good leadership coming from a whole bunch of places.
RR: How do you do that?
TF: There are five people who report to me, and there
are maybe 15 people or so that report to them. And we talk a lot. I
really believe we're a bottom-up company. You periodically will do
a strategic plan that looks at how this world has changed, and to focus
on, say, the Internet or on international or on digital services.
RR: Can you give an example of an idea that bubbled up from below?
Is Spike TV an example of that?
TF: When Viacom merged with CBS, they had two channels: TNN and CMT.
TNN was the Nashville Network and the average age of those viewers
was 66. They wanted to make it a general entertainment network like
USA Network. That's not what we do. So we decided, look, there’s
Lifetime and Oxygen for women. It's understandable to advertisers and
cable operators. And there is no channel for men. We thought maybe
we could make this a channel for men that would include everything
from men's health and finance to documentaries on sports figures. It's
off to a good start.
RR: Would you call that primarily a research-based process?
TF: It was based on research and then looking at product availability.
But at the end of the day it's about gut. There were one or two people
standing up, pounding the table, saying this is a fabulous idea.
You need people working for you who are passionate about the audience
and have great instincts.
RR: Where do you find those kinds of people and how do you nurture
them so they stay around and don't move off and start their own companies?
TF: There is a sort of self-selecting process. You either find someone
who is very obvious, who is banging down your door. Or sometimes you
just find somebody you take a chance on and you nurture them; you allow
them a certain amount of freedom. We have 94 channels we run around
the world, so it's very decentralized. Each is run by somebody who
has a team under them, and they make most of their decisions.
RR: I think a lot of people here are interested in how you manage
a global company. What's the trick of globalization in a cultural industry?
TF: Coca-Cola can basically make the same bottle of soda and sell it
everywhere. But in the entertainment world you really can't do that
because most culture is local. When we went into Europe in 1987 we
had a pan-regional signal. We didn't have the amount of homes to develop
the scale to have specialized services in each country. The VJs were
people who spoke English as a second language. That worked pretty well
for a while because it was a novelty. But the local competitors really
said we had to change our model. So we decided to regionalize and now
we have 45 different feeds of MTV around the world.
“We have 94 channels we run around the world, so it’s
very decentralized. Each is run by somebody who has a team under
them and they make most of their decisions.”
RR: Do you have programming and leadership flowing between or among
these units? Do you find great executives in France?
TF: Every general manager can pick and choose for MTV or Nickelodeon
or VH1 whatever they want on the worldwide feed. In doing so, they
get to know each other. On the management side, outside the United
States, there is a great interchange of people moving from region to
region. I've been disappointed continually in the States by the number
of people who are here who don't have any interest to leave. I always
think, God, I'd be banging on the door. Send me to Singapore or somewhere.
What I do find is you're probably better off having locals run your
business than bringing in some expatriates, except in the early days
when you want to do what I call the DNA transfer.
Q: I’m a part-time MBA student and a full-time
employee of your sister network, Showtime Networks. When we look at
the consolidation in both programming and distribution, what advice
would you give to your 26-or 30-year-old MBA student who would like
to start their own MTV one day?
TF: Most of the good ideas are taken for television networks where
the economics are such that you could actually make money from advertisers
and distribution. If you have great ideas for a real niche, there are
a lot of great online applications where you have more control over
your destiny and you can get started with a lower base of capital.
Q: I am employed at MTV Networks and have been
there for five years now and am a part-time student. I’m curious
to hear your thoughts on some of the threats that we currently face
with the emergence of digital cable?
TF: On digital cable, we're trying to be at the
forefront. I look to the U.K., which is the testing ground. There
are 28 music channels in the U.K., if you can imagine that, and we
have about 11 of them. What we've done is basically do brand extensions
or bring in new brands. And they capture about 65 percent of the
viewership and the lion's share of the money. Despite all this competition,
able to increase our market share, increase our overall ratings, and
increase our business. That's a strategy we're set to put in place
in a bunch of other countries. Having a strong brand in a world of
endless choices becomes even more valuable.
those days you’d go from a secretary to vice president
in six months. I was the marketing guy at MTV. Every time someone
would get fired, they’d give me his job too.”
Q: How about another technology trend: music downloading and Napster?
TF: We believe that that business is about to rationalize and become
a viable pay business. The turning point was with iPod. We didn't want
to be the first one in there because for the last several years there
have been so many failed technologies. I didn't want to attach our
brands to one of them early. In the next few months, we are probably
going to announce a music subscription/downloading service.
Q: It seems the record industry is not really signing and willing
to promote new artists. Where do you see the music industry and MTV
headed in breaking in and promoting new artists?
TF: There is all this talk that the music industry is down because
of downloading and file sharing. I think it's fair to say one of the
reasons the music industry is down is because the willingness of labels
to take chances and nurture artists isn't what it should be. Bob Dylan
had six albums out before he had a hit single. That wouldn't happen
today. You'd be dropped after two albums if you don't have a hit single,
and that's unfortunate. I see the record industry as mutating, surviving,
and actually I see good days ahead for it. It’s going to be easier
in many ways for independent labels to get started online and to market
and merchandise and promote their artists to consumers.
Q: You went from exploring the world to 17 years in the same position
at the same company. What makes you want to stay at the same place
for so long?
TF: I guess I traveled around for a long time because I never really – and
this sounds like a real cliché – found myself. I came
into this company and all the things I love are here. Just when it's
getting boring, there is a new thing that keeps your interest – new
services or going international or starting a huge online operation.
I just think I'm still in the middle of the things I love. I work with
a great team of people. And I get all these free CDs all the time.
||Mr. Pascarella was interviewed by Michelle
co-anchor of CNBC’s Morning Call.
Carl Pascarella has been president and CEO of Visa USA since
1993. Mr. Pascarella attended the University of Buffalo and
received a MS in Management from Stanford University. He worked
at Bankers Trust and Crocker National Bank before joining Visa
International in 1983, where he served as president of the
Asia-Pacific region for a decade before being named CEO of
Visa USA. With more than one billion Visa, Visa Electron Interlinked
Plus, and Visa cash cards in the market today, Visa cards are
the world’s most widely used form of plastic payment.
In the past 10 years, Visa USA, owned by 14,000 U.S. financial
institutions, and based in San Francisco, has seen its payments
volume grow at a 17 percent annual rate, from $277 billion
in 1993 to more than one trillion dollars today.
MCC: Visa is very different from most
financial companies. Can you explain the Visa business model?
CP: One of the things that we never ever utter at
Visa is the word "association." We
drive to a bottom line; we drive to make sure that our customers, whether
they’re the banks or the merchants or the consumers, are receiving
value. We are a for-profit. We’re responsible for, and are owned
by, approximately 14,000 banks, and we’re all about delivering
value to everyone who is touching a Visa card, wherever they are. But
the banks that govern us are also regulated by us. If you use our brand
or you use our systems, you’ve got to abide by the rules that
we put in place. I report to a board of directors that is composed
of 14 members, representing 10 of the major banks throughout the United
States. At the same time, our customers are these same banks, and we
regulate them as well. It sometimes is a very, very complex arena to
operate in. One of the things that has made us successful is making
sure that we understand that the needs of a bank like Chase are much
different than the needs of a smaller bank. And that the dynamics a
merchant goes through are much different from those of a bank. They’re
interested in getting paid, and we’re guaranteeing that payment
for them, and making sure that Visa is available 24 hours a day, seven
days a week, and that it never, ever fails. For consumers, it’s
making sure we’re there any time they want to buy anything, wherever
they are, any way they want to buy it. And making sure they have zero
liability, so they don’t have to worry about fraud.
MCC: How do you divide up the profits?
CP: We take a majority of our top-line income and reinvest it. That’s
why we’re able to bring new products into the market; that’s
why we’re able to look over the horizon and perhaps take a much
more strategic look at the payments environment than other companies,
like American Express or First Data. Those companies have to return
funds to investors, in the form of higher share price or dividends.
MCC: Who is your biggest competitor? Is it American Express? MasterCard?
CP: At the risk of being immodest, I don’t think
moved market share for the last five quarters against all competitors,
against all product lines. But since about 1994 or 1995, we’ve
really transcended being a credit card company. We’re going after
cash and checks. And when you stop and look at the way the pie is divvied
up today, we’re 54 percent of the payment systems market. We’re
14 percent of the $12 trillion that American consumers use to pay in
cash and checks every year. And that’s the real
market. We want to displace cash and checks. Seven or eight years ago,
the debit check card arena – debit cards that access your checking
account – was about 6 percent of our volume. Today they’re
over 41 percent of our total volume. So we’ve made significant
inroads to make people aware that you can access your checking account
or your savings account through a Visa card, and get that same level
of service without having to write checks.
MCC: How do you teach a consumer to want something
CP: The first thing we did was use the power of the Visa brand. There
are two things that are sacrosanct at Visa – our systems and
our brand. We had the capability to expand our systems, to be able
to offer a debit or a check card product. Then the question was: How
to get folks to change behavior? We started with educational advertising,
and it was two old men up on a porch in 1993, or ’94. One says, “You
know, I use this card to access my checking account.” And we
walked through it. We wanted to make sure that everybody understood
that this was going to be a universal product, that it was safe and
secure. Then there was a lot of collateral material that went out to
the branches of the banks, and they did a lot of training at the branch
And then it got to be all about the facility of the product, and that’s
when we started doing the ads with Yao-Ming, Derek Jeter, and Senator
Bob Dole, who say, “Hey, you know, they may not know who I am,
but I can use this card because they don’t take checks.” So
it migrated from the educational side to a message of: “Look
how easy this is.”
MCC: I want to take a step forward. When you talk about the revolution
in the electronic payments that you initiated and created, 10 years
down the road what does the landscape look like?
CP: If you go back 30 or 40 years ago, credit cards were non-existent.
Today you can’t rent a car, go into a hotel, or buy an airline
ticket without one. So it really is important for us to look at this
$12 trillion and how it’s spent today, and how we can change
the behavior to help the consumers and the merchants address this.
We look at things today like automated payments and recurring payments,
we look at quick-service restaurants. Those are the markets that we’re
really going after very strongly right now. And in 2003, the growth
rates were 100 percent plus in terms of entry into that market.
since about 1994 or 1995,
we’ve really transcended being
a credit card company. We’re going after cash and checks.”
MCC: You’re talking about quick-service
restaurants being willing to take the debit cards?
CP: Yes, that’s right. And credit cards, for that matter. And
people being able to pay their utility bills, their mortgages, their
health club and cable bills. It’s a great benefit for the consumer,
because they don’t have to sit and write checks all the time.
But the important thing from the standpoint of the merchant and the
bank is that it makes it a stickier relationship. And today in the
financial services industry, the cost of acquisition is so high, that
you’ve got to do everything to retain every customer that you
have. We introduced a product in 2003 that allows companies – instead
of issuing paychecks – to issue Visa cards to their employees
and then just automatically update them whenever they’re paid.
So many of the people in the United States that work don’t have
a banking relationship. These people have to stand in line, pay user’s
fees to get their checks cashed, and then have the lack of security
of walking around with cash. Now they get a card, the money is put
onto their card, it’s safe, secure, and they can use it everywhere
Visa is accepted, or they can go to an ATM and get cash, so they’ve
got total flexibility.
MCC: How about the technology?
CP: About two years ago we employed Oracle and Sun Microsystems to
put in an IP front end into our legacy systems. And so today, whether
it’s a PDA or a cellphone, or whatever the latest technology
that Michael Dell wants to put out, you can use that device and access
your Visa account and exchange value. But we are totally device-independent,
and we are able to route messages and information anywhere the parties
want it to go. And that’s a significant breakthrough, because
now we’re only limited by our creativity. We keep looking at
this tag line all the time, “It’s everywhere you want
to be.” We’re about ubiquity. People are more demanding
today, they’re smarter, they know much more about technology.
MCC: You have a lot of experience in Asia. What are the particular
issues that you face in Asia in terms of Visa?
CP: The first time I went to China in 1983, the Bank of China picked
me up in what they called the red flag car – a black car with
a red flag on it. And there was one Chinese hotel where I could stay.
None of the Chinese could socialize with you individually. You always
had to be in a group. And from the airport to downtown Beijing, we
never passed a car. Now today, it’s gridlock. Then, everything
was done at the provincial level. We signed an agreement with the Bank
of China. Then we found out, well, that’s good for Beijing, but
if you want to do any business in Guangzhou, you’d better sign
the provincial leader, because he runs the province. There were no
telephones from province to province, so we had to put up a satellite
to do authorizations. The way we broke into China was to say “We
can bring you a lot of foreign income in terms of accepting Visa.” And
they got that right off the bat. The Chinese are the most entrepreneurial
people in the world, and I think we’re going to see that as soon
as the infrastructure is built. But you have to be careful not to get
too far ahead of the curve.
MCC: How does it feel as a company to have essentially changed the
way monetary policy works around the world? I mean, have you thought
CP: I have. And you know, I joined Visa for all the
wrong reasons. I had been with banks, and I wanted to get a couple
of chevrons on my sleeve in the overseas environment, and come back
and run a bank. I went over there for Visa, and it was in disarray.
We had markets where Diners Card had more market share than we did.
When I look back, I have got to be one of the most fortunate individuals
in the world, because you are able to change the way people live. With
that comes such a huge responsibility, not just personal, but also
corporate as well. Because if you misstep, and if you just try to get
numbers, and if you get egotistical about this thing, it can blow up
in your face at any time.
“Today in the
industry the cost of acquisition
is so high, that you’ve got to do everything to retain
customer that you have.”
MCC: How about one piece of advice for these folks to close?
CP: I think the most important thing is to be passionate,
and to really and truly love what you do. And if you don't really want
to get up every day and win in the market, or win at what you're doing,
or enjoy the people that you're working with, I think you're missing
the boat, because life isn't a dress rehearsal. That's very, very
important. When I was at Stanford a professor of organizational behavior
told a bunch of us, “You folks kill me. You've spent all your
time on economics, on statistics, on policy, on accounting. Those of
you that are going to end up running businesses, you're going to hire
economists and CFOs and IT people and statisticians. But what it's
all about is motivating people; it's getting to know people.” That
was one of the best pieces of advice that I ever got. Don't lose the
human side of business, don't lose the organizational side. Because
if you do, you're only going to get so far.
“And if you
don’t really want to
get up every day and win in the market or win at what you’re
doing, or enjoy the people that you’re working with, I think
you’re missing the boat, because life isn’t a dress
Q: I would assume that credit cards are a terrific target for counterfeiters
and criminals, given the high value associated with them. What's Visa
doing to stay ahead of the curve in security?
CP: We've spent hundreds of millions of dollars in
terms of what we call “neural networking.” Today, we can recognize aberrant
behavior at the point of transaction. So if you have never come to
New York or you've never gone to a jewelry store, we'll at least stop
that transaction and ask the merchant to do a little bit more checking.
And the consumer response to that is very, very positive. We're launching,
as we speak, the advanced authorization system, which is going to let
banks put further information into the authorization. In terms of hacking,
we've got very, very strict rules in terms of who has our data and
whether or not it's encrypted. And we always make sure, above anything
else, that the fire walls are up and that we’re always ahead
of the curve in terms of fraud risk and credit risk.
Q: What kind of threat do you see from companies like Pay-Pal, which
are doing electronic payments?
CP: Pay-Pal and other aggregators are certainly interesting to us.
In a lot of cases, the people that load their Pay-Pal account load
it with a Visa card, and so that's volume that we get on the front
end. With our relationship with Yahoo! and Amazon and all of the leaders
in the Net, we certainly are aware of what's going on. Is it essential
that we look at the $2 or the 20 cent transaction? It isn't. But what
is essential is that the consumer is protected, and that we work with
these aggregators to make sure that they are protecting the consumers.
Q: You talked a lot about business, but you didn't mention what kind
of person you are. What were the personality traits that made you what
you are now?
CP: You know, you look back on your childhood and early jobs, but I
think the most important thing is to have confidence. To be sure you
know who you are and what you want. You've got to be able to make that
tough call. You know, it was a tough call going to Asia in 1983. I
had been to Asia three times in my life. And I had enough confidence
at that point in time to say “That’s an opportunity, I
want to do that, and I will succeed.”
Q: Can you talk about how securitization has affected the credit card
industry? And how does Visa assist its member banks with securitization
CP: With securitization, you’re selling the risk. And it's done
a great deal in order to grow the business. But there are a lot of
contingencies that go along with this. The quality of the portfolio
has got to be maintained at a certain level. If you have a downturn
in your credit quality in your portfolio, you've got to replace those
accounts, or you're going to have a capital call. So we help in terms
of making sure that a portfolio is up to speed.
Q: In terms of emerging markets, how do you balance the decision to
go into these markets when you know that risk exists?
CP: You make sure that the systems infrastructure is there before you
do anything. Because if you can't handle an authorization, and you
can't clear and settle the account to get the payment, it's not going
to work. And then you've got to work with the regulatory agencies that
are there. You might go in with a debit card, or a secured card first.
You don't go in and give lines of credit to people that don't understand
how to use them.
||Mr. Weldon was interviewed by Michelle
Caruso-Cabrera, co-anchor of CNBC’s Morning Call.
William Weldon is chairman and CEO of Johnson & Johnson.
Johnson & Johnson, founded in 1886 and based in New Brunswick,
N.J., manufactures health care products, pharmaceuticals, and
medical devices. J&J, which has annual revenues of $42
billion, comprises more than 200 operating companies that employ
more than 100,000 people and sell products in more than 175
countries. Born in Brooklyn, Bill Weldon graduated from Quinnipiac
University, where he serves as a member of the Board of Trustees.
He joined J&J as a sales representative in 1972 and, after
a 30-year career at the company in the U.S., Asia, and Europe,
rose to become the sixth chairman in the company’s history
MCC: This is a wonderfully timed opportunity.
Johnson & Johnson
was the lead story all day on CNBC, because it signed a big deal with
Guidant. Tell us about the stent wars and about your deal with Guidant
WW: A stent is a small device that is inserted into the aorta to keep
it open. It was a huge medical breakthrough about six or seven years
ago, and J&J actually developed the technology. It’s a huge
and growing market, because stents really help eliminate a lot of heart
attacks. Recently drugs have been put on the stents, which keep the
aorta open longer. For about the last nine or 10 months, J&J had
the first drug-alluding stent, with a drug named Sirolimus on it. Boston
Scientific has another drug-alluding stent, which may get approved
shortly. Today the deal we signed was with another maker of stents,
Guidant, which has excellent delivery systems. Putting these two top
companies together will be an advance for patients.
MCC: All day long we’ve talked about how Johnson & Johnson
was moving higher. What’s it like to be at work on a day like
WW: It’s fun. Innovation is what it’s all about. Whether
it’s in devices, or drugs, or consumer products. We were the
first company that came out with stents, but very quickly other companies
came out with better stents, and we lost a lot of the market. Then
we came out with the drug-alluding stent, which has really taken the
world by storm. And it’s continuing with this acquisition.
MCC: Your entire industry has really been under
siege. People ask why we can’t get cheaper drugs from Canada.
Do you feel drug companies are being treated fairly?
WW: I don’t think there is a really good understanding
of the drug industry. At J&J, about 50 percent of our volume
is in drugs, about 35 percent is in devices, and the rest is in consumer
products and diagnostics. I don’t think people appreciate the
amount of time and energy and cost that goes into bringing a drug
to market. There are literally thousands of products you have to
synthesize in the lab to do so, and only one out of every three products
that comes to market pays for the investment made in it. You could
argue it costs $800 million to a billion dollars to bring a drug
to market in 10 years. And the actual time in which you can recoup
your investment is shortening every year. I think the investment
is really to help patients and to bring these significant breakthroughs
into the marketplace. You have to put it into perspective – namely
that these drugs are having huge impacts. If you take cholesterol-lowering
drugs, and you look forward, you’re going to eliminate a lot
of open heart surgery. With stents, you’re going to eliminate
open heart surgery, which is tens of thousands of dollars of cost
that will be taken out of the system.
think people appreciate
the amount of time and energy and cost that goes into bringing
a drug to market. There are literally thousands of products you
have to synthesize in the lab to do so, and only one out of every
three products that comes to market pays for the investment made
MCC: What do you do as a CEO to try to deal with that?
WW: We try to talk to people and try to explain the investments that
are necessary. We work with the government and we work with payers
to help them understand. And of course we work with patient groups.
If someone is a diabetic, she doesn’t want us to stop spending
in research and development on new medicines.
MCC: You started as a sales rep at McNeil Pharmaceuticals
more than 30 years ago, and now you’re the CEO of Johnson & Johnson.
Essentially, you’ve been at the same company for 30 years. Why
do you think you got to where you are now?
WW: In every opportunity you’re given, you do the best job you
possibly can. I think too many people have their sights focused on
what’s the next job, and they forget to do the best job where
they are. It’s doing a little bit extra, it’s trying to
look at new programs, new opportunities and capitalize on them, and
to take advantage of everything that’s put before you.
MCC: Do you think being at the same company for three decades is a
good idea for Stern students?
WW: I think it’s a great idea, and obviously I’m biased.
To be able to go into a company and build your career within a company
is really extraordinary. You build a network, you understand the workings
of the organization. At J&J, there are lots of opportunities to
move from company to company. Few companies have such a broad breadth
of businesses and such global opportunities. I started as a sales rep,
then worked in New York City, then went into the home office and worked
through various jobs. I then went overseas, and I spent time in Asia
for about four years working for groups of companies. I went to Europe,
then came back to the U.S., worked in a device business and ended up
back in pharmaceuticals. Then I moved into the office of the chairman.
I think I’ve moved 13 times, and I’ve had I don’t
know how many jobs. You can do everything within a company like J&J,
or a company like General Electric.
MCC: In the last 10 years J&J has bought 52 businesses. How do
you determine whether or not you’re going to buy a company?
WW: We have about 12 criteria. We’re in health
care, and we’re
going to be in health care. We look at the products the company has;
are they compatible with our products? And is it going to take us into
areas of new technology, new product opportunities? We ask if it will
accelerate our growth, both short and long term. We look at the management
and ask if it is compatible with the values embodied in the J&J
Credo. We’ve walked away from very good companies, with very
good people, where we just didn’t feel the cultures were compatible.
You never get all 12 of them, but we go through them and then assess
the returns we expect to see over time on a financial basis. We don’t
go in with the attitude that we’ll buy a company
and throw everybody out on the street. We bought a company called DePuy
in 1998 that was a leading orthopedic company. We took our orthopedic
company and merged it with DePuy. The reason you want to acquire companies
is because they’re great companies. So why would you want to
gut them and get rid of them, other than to get cost synergies?
MCC: About half your profits come from pharmaceuticals, compared with
consumer products and devices. Is the mix going to stay this way?
WW: Ten years ago, consumer was the biggest piece and pharmaceuticals
were the smallest. Because of the technological advances and the growth
of the market, pharmaceuticals have grown to become the biggest part.
The pharmaceutical industry is growing at 15 percent and the consumer
industry is growing at 3 percent. Right now I think devices are the
fastest growing segment of the health care industry, not just at J&J.
I think we will probably have a mix that will be somewhat similar to
what we have today, as far into the future as you can see.
MCC: A lot of companies got rid of their consumer
products divisions because they wanted to be pure-play pharmaceuticals
or device companies. Johnson & Johnson didn’t. Why not?
WW: We see real value in being broadly based. If you look back, there
have been periods of time where consumer products are more highly valued
and pharmaceuticals are down, and then devices come up. So having a
mix of businesses provides some stability. And if you fast forward
and look into the future, you’ll see a convergence of skills
and technologies. We’ve got a stent called Cypher that really
came as a result of an engineer working in our device business and
a scientist working in our pharmaceutical business. Even our consumer
business is becoming so much more dependent upon science and technology.
We’ve moved scientists from our pharmaceutical business into
our consumer businesses. We have a company called Aveeno, which is
based upon natural ingredients. The scientific work on natural ingredients
has been able to expand that business.
MCC: There are three CEOs on trial this week in New York City: Martha
Stewart, John Rigas and Dennis Kozlowski. Any thoughts on that?
WW: It’s unfortunate that a few people try to take advantage
of situations and then it gets extrapolated out into the broader industry.
I think it’s our responsibility to build the reputation of business
executives up again. People who tried to abuse the system should be
punished, and I really feel for the people who were secretaries and
janitors – people whose whole lives were dependent upon these
organizations. I think that we have a moral and ethical responsibility
to try to do what's right. I'm not saying J&J's perfect, because
as our general counsel says to me all the time: “We've got 112,000
people. It's the size of a city, and there's crime in the city.” At
J&J it really does tie back to our Credo and the values embodied
MCC: One of the results of the scandals has been the Sarbanes-Oxley
law, which creates more regulations and mandates that CEOs sign off
on corporate earnings reports. Does it make you nervous?
WW: No. We go through half a day with internal auditors and our legal
people to make sure that what we're signing is as accurate as it can
be. You have to have confidence in the people that work for you. I
keep going back to the Credo. It's been around for 60 years. It's an
extraordinary document. And we do practice it. J&J holds that the
ante to play in the game is the value system that we have. We have
to deliver results, but never at the cost of the values.
Q: I have a small Internet company called E-Health-Care
Solutions. How do you think the Internet is going to impact marketing
and advertising going forward? And how many hours a week do you personally
spend on the Internet?
WW: Consumers are using the Internet to learn things
about our products, and I think they need to be informed. We don’t want to usurp
the professional's responsibilities but we want consumers to be able
to have an intelligent dialogue. My own personal use is very minimal.
I have a 26-year-old son, who spends an extraordinary amount of time
on the Internet. When I want to find something, I just either ask him
or my secretary. But I have to admit, I'm internet illiterate by and
think I’ve moved 13 times, and I’ve had I don’t
know how many jobs. You can do everything within a company like
Q: I'm a first-year student at Stern, and I'm going
to be interning in your personal products company. What are some of
the main challenges you see in the consumer products business?
WW: There's a lot of consolidation. Companies like
Wal-Mart are pushing, looking to get the best deals. As every company
does, we've got a whole organization down in Bentonville, Arkansas
working with Wal-Mart. In 2003, our consumer business had its best
year in the past decade. And I think a lot of it has been this movement
away from consumer oriented products that don’t differentiate
themselves in the marketplace. Neutrogena, one of our companies, is
making huge advances in the area of healthy skin and healthy hair.
I think Neutrogena is the most highly recommended product by dermatologists,
and that's because we have a professional group going to dermatologists
who are recommending these products and are creating value in the market
Q: How do you motivate all of your employees across the different
divisions and companies?
WW: Motivation is personal. I think it comes down to treating people
fairly. And you need to have a sense of urgency. It's not the old management
style of beating people over the head. You have to support them. You've
got to give them the tools to be able to do their job. You've got to
make sure that there is fair recognition. I think the other thing that
is critical, and it is embodied in our Credo, is treating people with
respect and dignity. I recently asked our public relations people to
get together people under the age of 30 who have been with the company
for less than five years. I was impressed at their commitment to the
Credo and how many people came to J&J because of the values. Our
reputation is the most important thing that we have.
keep going back to the Credo.
It’s been around for 60 years.
It’s an extraordinary document.
And we do practice it.”
Q: I’m an employee of J&J and a first-year
student. In our first class on ethics, I find that a lot of what
I add to the discussion is the Credo-based decision-making. I wonder
if you can articulate or discuss some examples where you resolved
that conflict between fiduciary responsibility to the shareholders
and making Credo-based decisions.
WW: I think the best example is Tylenol. The Credo of J&J says
first and foremost, patients, people use your products. That's who
you take care of. Second are the employees and making sure that employees
are treated with dignity and respect. Third is the environment we work
in. The fourth thing is, if you do those three things, then there's
a fair payback to the shareholder. When we had the Tylenol poisonings,
we pulled all the Tylenol off the market. We'd never even discussed
the financial implications. The Credo actually allowed us to make that
decision very clearly, to see that this was in the best interests of
the people that consumed our products. Obviously, Tylenol has come
back, and it's a huge brand, probably one of the biggest brands out