Ex-CEO reflects on years at Lilly

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Perhaps no one oversaw so much change in so short a time at Eli Lilly and Co. as Randall L. Tobias, the drugmaker's chairman and chief executive from 1993 to 1998. A native of Remington, Ind., Tobias was hired by his fellow board members to replace the out-of-favor Vaughn Bryson as company head. In a new book, "Put the Moose on the Table," written with his son, Todd, Tobias tells the story of his tumultuous years at Lilly and the leadership challenges he has faced.

Question: How did you manage to get dustjacket blurbs from both Peyton Manning and a former commandant of the Marine Corps?

Answer: Well, they're both friends of mine. And I wanted to try to illustrate that this is more than a business book. It's really a book about leadership.

A: In the '90s, Working Mother magazine named me CEO of the year because of things we were doing at Lilly to try to get our human resource policies in line with the real needs of people. That generated a lot of publicity, and I was asked to speak at a lot of places. One of my speechwriters said, "When you retire, you ought to write a book about work/life policies." I said, "The world does not need another book by another CEO who thinks he has something different to say." And I still think that's probably true. But about four years ago my son said to me, "I think you ought to write a book about some of your experiences, and oh, by the way, I'd like to help." It was the "I'd like to help" that was appealing to me.

Todd and I had slightly different ideas about the book. He was more oriented toward the leadership lists. I was more oriented to the anecdotal stories about experiences I had and lessons I learned. As a result, we ended up with a book that has all of those things.

A: The board had been anguishing about the deteriorating situation at Lilly for six months or so. It had been having discussions with the CEO about things that needed to be done differently, but there were disagreements about what was important. The board concluded, if we don't do something, there's a risk that things won't get turned around and Lilly's going to end up being a takeover candidate.

A: There was a cultural issue at Lilly at the time. It was something of a surprise to Lilly employees, including the leadership, that it was the board of directors ultimately that was in charge of the company. Vaughn disagreed with what the board was doing and for a short period of time resisted leaving. He just didn't leave. The board informed him on a Friday. By Monday morning, he had figured out the board does have the authority to do what they're doing. So by Monday morning he had cleaned out his office and left me a very nice note in what became my desk.

A: At AT&T, I was used to taking my coat off. My behavior at Lilly was the same. I didn't realize the impact it was having. Lilly people figured it out and said, "That's a really good idea." So we started doing it a little more thoughtfully in order to reinforce some signals. You have to remember that 10 years ago Lilly was a pretty formal place. When the senior-most officers left their offices, if they had their suitcoats off, they put them on. Employees drew from that a sense of formality that probably the senior officers never even thought about.

Q: You wrote that Lilly's culture had an incredible ethical sense but needed freshening. What do you mean?

A: Lilly's value system for a long time had three words: people, integrity and excellence. But people had come to mean, is Lilly going to take care of me? The people referred to were Lilly employees, not customers, or people who've invested money in your business, or suppliers you depend on. What I needed to have Lilly employees understand is, you can't look at the four legs of a chair and say, "This is the only leg that counts."

Another thing that needed to be freshened was integrity. Integrity had come to mean honesty almost in the extreme -- following the law, the spirit of the law, to the degree that the company would sometimes ponder whether it could really do something because it might be seen as a violation of what was intended. It was a wonderful, wonderful strength, but at the same time integrity was limited to meaning that. Lilly had a culture where people danced around all that. It's really where the title of the book came from. But integrity also means we have to be open and honest with each other.

A: Decisions in business involve choices, deciding what is the best thing to do. It involves winners and losers. Part of the Lilly culture was to try to avoid there being any losers and finding a compromise. That was never said, but that was the behavior. As a result of that behavior, things took a lot longer to get resolved.

A: It became clear to me, really in the first week, that there were extensive rumors among the employees of massive layoffs. It had been my experience that when employees are talking about layoffs, more often than not it's because they believe there are too many people there and somebody's got to do something. I already had some suspicions, because of the Lilly culture, that if somebody wasn't carrying their weight, it was the Lilly way to find something else for them to do.

We did a study and concluded we needed to eliminate about 2,500 jobs. I suggested to senior management that I'd like them to just trust me and let's double it. I'd never seen a circumstance where people doing a self-assessment of how many jobs can we get along without had ever come close to being aggressive enough. If you don't do it aggressively enough the first time, it's like cutting a dog's tail off an inch at a time. The dog runs when it sees you coming a second time. People are going to look over their shoulders the rest of their careers. As it turned out, we got to about that number (5,000). That served another purpose. It allowed us to do a little ventilating of the organization. A lot of people chose that opportunity to leave. It provided an opportunity for new thinking, fresh thinking.

Q: What prompted you to make "worker-friendly" changes in Lilly's human resource policies, such as building an on-site day care center and offering flexible work hours and dry-cleaning pickup?

A: In the time I was growing up in Indiana and worked for AT&T here, I had the notion of Lilly being just an incredible place to work. But I became aware that our reputation, which we had come to believe ourselves, had really outlasted the reality. By and large, the company was being run by middle-aged, white, Midwestern men, most of whom lived in a family where they were married, their children were probably gone, their spouse was engaged in volunteer work and didn't have a professional career.

We did a study and found that only 18 percent of the U.S. work force for Lilly at the time lived in that sort of Ozzie and Harriet model. But 82 percent of our people were in some other model. They were going home worrying about what are we going to have for dinner tonight, they were worrying about getting the laundry done and all the other things that make up life. To some degree, those issues were distractions from their ability to be totally and completely focused on doing their work for Lilly.

The question then became, is there anything that's both appropriate and doable that we can do to help? Because not only are we helping our people, we're helping ourselves. One program we did with the cafeteria management let employees order hot meals to take home at night. That was a benefit that people loved, but -- I can't explain this -- very few people ever used it. But we did a lot of other things that really were popular.

Q: Why did you set out to change Lilly's corporate structure, which was based on job functions, and replace it with one based on product areas?

A: You don't find functional organizations in American business very much today. Markets are much more competitive, move more quickly, technology changes much too quickly. So you don't have the luxury of a functional organization, which is terrific if you have the ability to have these silos of deep expertise and you can kind of hand things off. In the book, I illustrated Lilly's insulin business. At that time, there was nobody any of us could look at and say, she or he is responsible for the insulin business. The same was true of other things. People weren't empowered, nor were they accountable, for the results or failures in those businesses.

When I arrived at Lilly, the power was in the geographies -- the people who ran Europe or Japan or Latin America. They really tended to have more power than the product teams. We reorganized the company around heavyweight teams, people who have the expertise and authority to deal with the issues they need to.

A: It provided additional cash we used to invest in R&D (research and development). It made some contribution to the extraordinary pipeline of products right through to the present. Secondly, it really got the board and senior leaders of the company focused on the pharmacy business.

A: Shareholder value increased during that time by nearly 600 percent. I've always viewed that as kind of the ultimate real report card of how we did during the time I was there.

Q: When you told the board you were leaving, Purdue President Steve Beering left the boardroom in tears. How do you explain such emotion?

A: Oh, I think probably Steve was a little more touched than others might have been. A number of us on the board had been through this period of time and experienced the historic greatness of this company and watched what happened as the company's fortunes declined and then been a part of the decisions that brought the company back. At the same time, many of the people on the board were and are friends of mine. They had been there through my wife's illness and her suicide and the events following that. So the emotion was a collection of the surprise of my leaving and the collective impact of reflecting on all of that. I was really touched by Dr. Beering's reaction.

Q: How close did Lilly come in the early 1990s to being an active acquisition target?

A: I don't think we will ever probably know. There was never during that period of time any actual approach by any other company, but I was very prepared to have that happen.

A: Absolutely. I'll tell you what. On the day I came, Lilly stock was worth in total about $14 billion. Let's say somebody came along and offered a 50 percent premium.

You could have bought the whole company for around $21 billion. At the time I left Lilly, the value was close to $100 billion. So the board would have been nuts to have sold the company in the $20-billion range in 1993.

Q: In a footnote in the book, you take partial blame for the FDA-cited manufacturing problems Lilly has faced for the past two years. Why?

A: I think the current problems the company has with the FDA in manufacturing are largely attributed to the fact that the company was too slow in making some changes it should have made. The changes I made in the organizational structure, with the heavyweight product teams and less emphasis on functional structures, may have caused us to lose the crisp focus on manufacturing that we should have had.

A: He's one of the most intelligent executives I've been around. He's very hard-working, has absolute unquestioned integrity, has incredible memory for detail and an appetite for detail. I was very interested in globalizing the business. And Sidney shared that interest. But what really impressed me was Sidney's appetite for and willingness to learn things he did not have experience in.

A: It's where a good deal of what I have will end up and my children will inherit the opportunity to continue with that after I'm gone. My two children and I make up the board. I've seen lots of families get their values distorted and have a lot of other negative things happen by money that was not earned suddenly coming into the hands of future generations that don't have the value systems to deal with it. I'm very comfortable with the values my children have, but my grandchildren are too young for me to know, and I don't want to be the cause of long-term problems. I have a separate foundation that my wife, Marianne, and I are involved in. It will probably terminate at the time the second of us passes on.

A: Its assets are between $5 million and $10 million. Our focus is almost exclusively on early childhood literacy. We're funding a program we created called Literacy for Life. We have about 15 elementary schools in Indiana participating. It's designed to give them tools that are proven to work in teaching kids to read. We made a three-year commitment to this.

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