Thomas Werlen – General Counsel, Novartis

Thoughts And Ideas From The Front Lines

CEOs may set the tone from the top, but they need a capable supporting cast to tend to the day-to-day implementation of the company’s compliance and ethics programs. What are these leaders on the front lines talking about and doing these days?

E: What best prepared you for your job as General Counsel of Novartis?

TW: I joined Novartis in 2006 after more than 15 years of practicing law at firms in New York, London and Zurich. In that context I worked within a large number of diverse geographies and cultures, from North America to Latin America to Asia. At the same time, I gained experience with different industries, including pharma, but also many others including the banking industry, which is obviously on the top of everyone’s mind at this point in terms of ethical behavior. I was also lucky enough to have been involved in quite a number of different practice areas, from M&A to anti-trust to a lot of financial deals, even derivatives, but also litigation and general corporate work.

All that gave me excellent preparation and credibility to deal with the issues at hand in our company, which has operations around the world and faces a wide range of legal issues across divisions.

E: As a large, global company, what are some of the unique approaches you have taken in specific regions in regards to ethics?

TW: Well, there are different laws—and ethics is more than the law—that apply differently from country to country. We deal with the varying legal standards by taking the highest global standard and then implementing it throughout the world. So in the case of the Foreign Corrupt Practices Act, where the U.S. is really leading, we brought our global policy in line with that. And that means in particular countries— and I don’t want to mention specific countries but you can look at the global corruption index and find the usual suspects—we don’t get all the business we want but in the long term we will stand out because of this commitment to the highest standards of ethical behavior.

E: Many global companies have told us that whistle-blower policies are a particularly difficult subject in certain regions of the world. How does Novartis handle its whistle-blower policy internationally?

TW: I think we were in fact one of the first, if not the first, company to introduce whistle-blowing across the world and not just in the U.S. There are some European countries, including France and Germany, which have privacy rules that need to be taken into account when setting up a whistle-blowing policy.. There were initially some people that said whistle-blowing works everywhere but in those countries. When you dig deeper and look at it you see what the issue is and think, “Ah, ok, let’s have two hotlines,” or, “Let the union know about it.” When an issue is important, like this one, you have to dig deeper, find out what the risk is and then find a solution for it. In this case, we’ve found a way to keep one global approach to that issue.

E: Are there any unique techniques that you implement to encourage your employees to act ethically on a global basis?

TW: What I would particularly focus on is our pay for performance system, which actually looks at not just the operational performance but also the ethical performance. So if you are making your sales but you cut corners the sales will not count. Even if you’re paid in a particular year because we didn’t know you cut corners but we find out afterwards—and we do regular audits of what people are doing—we would actually be able to claw back that bonus, even years down the road.

And that means in particular countries—and I don’t want to mention specific countries but you can look at the glob-al corruption index and find the usual suspects—we don’t get all the business we want but in the long term we will stand out.

So that’s obviously a fairly unique policy at this stage, at least in the pharmaceutical industry. We felt it was the right thing to do for our sales force across the world and also particularly in the U.S.

Interestingly enough, [former U.S. Deputy Attorney General and partner at Baker & McKenzie] Paul McNulty actually looked into how companies, particularly pharmaceutical companies, establish their compensation and incentive systems. This is very important for the government in identifying whether a company is an ethical company that truly lives their values. Here I think we stand out, and our clawback pro-vision is a key factor.

E: Do you ever receive any feedback from employees about that policy?

TW: There were some concerns when we introduced it as to whether that was going to give us a competitive disadvantage in attracting and retaining talent in this area. But ultimately… it’s positive for the company because people feel they don’t have to do anything sinister. It’s responsible performance that counts and people feel more comfortable rather than less comfort-able with that.