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 / Winter 2004 / Issue 37(originally published by Booz & Company)


Kenneth W. Freeman: The Thought Leader Interview

Integration Rules

S+B: When you’re making acquisitions, what are you actually buying?

FREEMAN: People.

S+B: Employees or customers?

FREEMAN: Both. You’re really buying relationships with customers as well as talented people who can make it go.

S+B: You don’t think of it as buying a functional area or buying a novel test.

FREEMAN: Not usually, although we’ve made a couple of acquisitions to get information technology that would take too long for us to build internally.

S+B: Can you boil down merger integration into a set of principles?

FREEMAN: Oh yes. Rule No. 1, customers will be served without disruption; don’t do anything to the systems or the processes without making sure the customer is taken care of. Rule No. 2, treat every employee with fairness, dignity, and respect. Traditionally, what would happen when labs would come together was that half the people would be fired. They wouldn’t be treated well on their way out. And people who were survivors, of course, would see what had happened to the folks who lost their jobs. The third rule is deliberate speed: Wall Street says go fast, get me the synergies. You can’t always follow the Street. Don’t go too fast, and don’t go too slow. And the last rule, learn from each other — no winners, no losers.

S+B: How do you realize rules like that?

FREEMAN: When we acquired our biggest competitor, SmithKline Beecham Clinical Laboratories, in 1999, we put everybody through an education process about the four ground rules, followed by the all-important enforcement of the rules. The acquisition more than doubled the size of the company, from $1.5 billion to $3.2 billion. Every part of the combined company was going to have to undergo a change. I ran a selection process where all 200 senior leaders had to undergo an independent assessment, to provide unbiased information that would help me decide who would get the top jobs.

S+B: Did your existing leadership team pass the test?

FREEMAN: Some did, some didn’t. That was one of the first tangible signals that there would be no “winners” and no “losers” due to one’s prior affiliation. And did it cause some ripples in the company!

S+B: You also identified your successor at about this time — only three years after spinning the company off.

FREEMAN: I believe that CEOs generally stay in their jobs too long, to the detriment of shareholders. The SmithKline acquisition and the leadership evaluation helped set up the process to identify the successor. Essentially, two people came through who I thought potentially could be CEO. One was the person who made it, Surya Mohapatra.

S+B: Mohapatra is a Ph.D., a scientist — a very different background from yours. Is that reflective of the strategic evolution you foresaw?

FREEMAN: It was an important element. I saw that there would be a time when medical science and technology would drive our company’s growth. I’m the arts, he’s the sciences. I play the piano and he reads research papers. He’s got patents. He’s been in health care for 20 years. He understands the technologies and can go toe-to-toe with the doctors and research scientists.

Much of our future growth will be from innovative new tests and techniques and information technology. As we’ve evolved, we’ve had lots of people coming to us, startups and established companies. “Here’s the latest test to identify people at risk for colon cancer or a heart attack or stroke.” And so, the needs in the senior leadership generally, and the CEO role specifically, are changing. If I found somebody who was just like me, I don’t think it would be the right skill set or the best skill set to take the company forward.

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