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(originally published by Booz & Company)


Clarity from Switzerland

For those concerned with the company’s health, there is a 120-page financial section that disgorges a staggering number of statistics, including sales of the top 20 drugs (representing one-half of total revenues of $44 billion); a table showing 17 selected major drug approvals in 2009; a breakdown of sales and income by division, quarter, and geography; and the number of shares owned by each director and members of the executive committee.

In the 2009 report, Novartis highlights China as its “most important market of the future.” Pharmaceutical sales there are expected to nearly triple by 2013, to $70 billion, making China the third-largest pharmaceutical market, after the U.S. and Japan. Novartis plans to invest $1 billion in China over the next five years, and its research center in Shanghai will grow from 160 to nearly 1,000 employees.

When it comes to social responsibility, Novartis reports it is doing all the right things. It belongs to the United Nations Global Compact, the world’s largest corporate citizenship initiative, whose 5,000 corporate participants voluntarily adhere to 10 principles related to human rights, environmental protection, and anti-corruption.

After the World Health Organization declared a pandemic in 2009, Novartis ramped up production of H1N1 flu vaccines, with nearly 300 employees volunteering to relocate to work in vaccine factories in Marburg, Germany, and Liverpool, United Kingdom. The company is also supplying drugs to treat malaria and leprosy in developing countries free of charge or at cost.

Novartis voluntarily committed to the Kyoto Protocol binding companies and countries to specific goals for reduction of greenhouse gas emissions. It’s transforming its headquarters in Basel into a “carbon-free campus” and a mecca of art and architecture.

Critics of “Big Pharma,” especially the most zealous animal rights activists, will never be completely satisfied. Nevertheless Novartis uses its annual report to spell out the high standards it maintains in using animals for drug testing. It also makes clear that its employees have been subjected to severe harassment by activists. Cars of employees have been vandalized, a fire was set at a sports club used by Novartis employees in France, and Vasella’s vacation home in Austria was torched. “In a particularly repugnant incident,” the annual report says, “the graves of Dr. Vasella’s family were desecrated and the urn containing the remains of Dr. Vasella’s mother was stolen.”

It’s unusual for an annual report to include such a cornucopia of information. It bears the earmarks of Vasella, the physician who, in the course of 14 years as CEO, has transformed the sleepy Swiss drug company into a groundbreaking pharmaceutical giant. (In the 2009 report, he announces he is passing the reins to an American, Joe Jimenez, head of the pharmaceutical division.) Vasella never minced words or served up platitudes. In 2006, he confronted U.S. Secretary of State Condoleezza Rice at the World Economic Forum in Davos, asking whether the United States wasn’t “playing into the hands of enemies” by using torture to fight terrorism. He has also spoken forthrightly about the “maldistribution of wealth” in an interview with the New York Times, pointing out that the richest 20 percent of the world’s 6.1 billion people receive 74 percent of the world’s income. Asked by William J. Holstein (an s+b contributing editor) in that interview about the propriety of CEOs speaking out on political issues, he replied: “I know that some of my fellow CEOs believe they should not express themselves on political issues at all. They should just do business. I think that is not the right attitude. First of all, we are citizens of whatever country we are from. We have a citizenship responsibility. Secondly, I do believe we have to examine our own beliefs and value systems regularly. We cannot act in a void.”

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