Chapter 13 presents us with a wide array of leadership perspectives and theories

Question

Chapter 13 presents us with a wide array of leadership perspectives and theories. In order to synthesize the information, it is best to look at a real-life situation and analyze the leadership styles. Case 14 on page W-123 in the OB Skills workbook at the back of our text is on Novo Nordisk. Please read the case and we%u2019ll begin the discussion with the first review question.

What leadership style dominates at Novo Nordisk? Cite examples from the case and specific information from the text to support your opinion.

How doe Novo Nordisk%u2019s leadership influence its organizational design and shape its competitive strategy?

For additional information on Novo Nordisk, follow the link below.

http://www.novonordisk-us.com/documents/article_page/document/Greetings.asp

Explanation / Answer

Novo Nordisk has architected its growth to reflect the fundamental belief that the company, and every employee must %u201Cact responsibly.%u201D The Novo Nordisk Way is central to innovations in the company%u2019s structure, business proposition, communications and reporting.

Their guiding principles:

In 1988, John Elkington and Julia Hailes, the co-founders of the campaigning think-tank and consultancy SustainAbility, published %u201CThe Green Consumer Guide%u201D. The book warned consumers to %u2018beware of enzymes%u2019 in detergent products. This was not the first time enzymes came under attack. Novo Nordisk faced an image and publicity challenge. In our view our enzyme products were natural, totally biodegradable, and environmentally sound, yet %u201CThe Green Consumer Guide%u201D took a different stance.

The Head of Novo Nordisk%u2019s BioIndustrial Group, Steen Riisgaard (now CEO of Novozymes), invited John Elkington to visit Novo Nordisk and tour the company%u2019s Copenhagen facilities. This was the start of a long relationship with John and SustainAbility. They have helped us shape and hone our Triple Bottom Line principle.

This is the %u2018Novo Nordisk Way%u2019. It frames and guides every strategic decision we make. It is rooted in the basic belief that we must %u201Cact responsibly%u201D as managers, employees and as a business. Every day we make difficult choices, always keeping in mind what is best for patients, employees and shareholders in the long run. We know that the right choice is not always apparent. We have guidelines and mandatory training on ethical behavior. 99% of relevant employees partake in e-learning, supplemented by face-to-face workshops, designed to help them make the right decisions when faced with an ethical dilemma.

In terms of how we express our values to the market, we believe that access to essential medicines is a human right. We sell human insulin (the most basic kind) to 36 of the world%u2019s poorest countries, as designated by the UN, at no more than 20 percent of the average price in the western world. And we estimate that 24 million people all over the world are being treated with Novo Nordisk injectable products, of these more than 40% live in Asia, Latin America and Africa. We advocate for more public awareness of the socio-economic burden of diabetes and the costs of inaction. And, we educate doctors and nurses to better diagnose and treat diabetes; in China, for example, we have educated more than 50,000 doctors. These are examples of our principles in play.

The Novo Nordisk Way has been central to innovations related to corporate structure, our communications and our financial reporting. Here%u2019s how:

1. Corporate Structure

Novo Nordisk is majority owned by a foundation. Although the company trades on the NYSE, the foundation controls the lion%u2019s share of voting rights. This means that Novo Nordisk management is largely shielded from the short term performance pressure wrought by traditional investors. The company has more latitude to make decisions that might trade-off short term returns for a longer term or non-financial gain.

The impetus to %u2018act responsibly%u2019 is directly linked to our roots and the foundation ownership structure; both better enable us to %u201Cact responsibly,%u201D weighing long-term benefits and considering how to best make balanced decisions.

In 2004 our Board of Directors updated the company%u2019s Articles of Association, the bylaws, and specified in the objectives that %u2018the company seeks to conduct its business in a way that is financially, environmentally and socially responsible%u2019. This is unique, and a clear signal to investors, employees and business partners that this is how we do business.

Novo Nordisk%u2019s mission plays out in a number of unusual ways for a corporation. Our commitment to establish the World Diabetes Foundation is a good example. We presented the idea at our annual meeting, and requested shareholder supported, even though the Foundation votes would have been sufficient. The shareholders applauded the proposition.

2. Communications and stakeholder engagement

We take a different approach to many partnership and communications efforts. We do not just work to singularly advance the Novo Nordisk brand. We take a holistic look at the communities in which we operate, and we consider our opportunities to benefit not just our business, but society at a local and global level.

The company believes our outreach efforts build trust, provide a basis for establishing common ground on tough issues, and help inform executives about emerging trends with the potential to affect the business. Our stakeholder engagement process is not static. Difficult issues, such as how to ensure equal access to health or how to approach stem cell research, are presented as interactive challenges on the company%u2019s website.

One of our regional managers commented that Novo Nordisk is more likely to pick up early signals about market opportunities or how products are doing because of our involvement: %u201C%u2026when we are with [stakeholders] on a regular basis, working on projects, discussing all kinds of things .. if anything comes up in discussion, we will know about it...%u201D

In April 2010, Novo Nordisk launched %u201CThe Blueprint for Change Program.%u201D The intent was to facilitate stakeholder engagement and demonstrate how the company delivers value to business and society. So far three cases have been made: one on the Climate change challenge, one on changing diabetes in China, and one on creating shared value in the US. Built on the same methodology, they assess the business case for the company%u2019s Triple Bottom Line approach and document with numbers and facts how this way of doing business also benefits society. (Reference the %u2018Blueprint for Change%u2019 document in the Materials section.)

Our emphasis on Triple Bottom Line is reflected in consistently high employee engagement, reputation and physician satisfaction. We believe that maximizing shared value requires investing in societal issues that are aligned with our business strategy; the right capabilities enabling success; and leveraging the Triple Bottom Line principle as a competitive advantage. And we firmly believe that our emphasis on Triple Bottom Line is reflected in our strong company growth.

Importantly, when we reviewed our progress on these initiatives, we looked back at the value it was creating for Novo Nordisk and the value it was creating for society. For example, in assessing climate change challenge, the benefits to Novo Nordisk were largely energy savings and risk reduction. For society, the benefits included not only CO2 reductions, but also the long-term impact of helping kick-start a massive wind energy investment that would supply power to businesses and households.

I was asked to explain the rationale for the climate change blueprint and the blueprint series as a whole. This is more than a communications effort. Fundamentally, it is a way for us to hone and describe our triple bottom line approach to doing business and how it%u2019s benefiting both Novo Nordisk and society. It is an example of how acting responsibly can drive new and better approaches to our diabetes work, our operational productivity, and our communications with partners, customers, and communities.

3. Reporting

In 1994, Novo Nordisk became the first company in Denmark, and one of the first in the world, to publish an environmental report. Five years later, we published our first social report. In 2004, Novo Nordisk became the third company to publish an integrated financial, environmental, and social report.

Reporting is another example of how our values drive an innovative approach to managing our business. It compels us to reevaluate and restructure our process and metrics to reflect human, social, and environmental impacts. We%u2019ve often had to pioneer and invent these new reporting structures. In turn, the new reporting structure better enables us to convey how we deliver long-term returns, and apply responsible business practices.

Our former CFO, Kurt Nielsen explains the business case for linking our values to our reporting:

%u201CWe have never ever said that we are conducting our business in accordance with the triple bottom line for other reasons than good business reasons. What does %u201Cgood business reasons%u201D mean? It means to preserve your license to operate. We want to make sure that customers value our products and continue to buy them. We want to make sure neighbors will not close down our factories, that society will not say no to the development of new products, and so on. We think we can best do that by being open and honest, and explaining what we%u2019re doing. That%u2019s the best way we can develop new products.%u201D

Our focus on multiple impacts has been good for our business. We are trusted and respected. We can recruit and retain top talent. It strengthens our ability to expand our presence in current markets and build new ones.

Our practices are increasingly recognized by industry. We top sustainability indices across a broad array of categories - energy, carbon and water productivity; employee innovation capacity; leadership diversity; worker safety; fair remuneration standards; employee turnover.

More importantly, we propose criteria that are not yet part of these indices %u2013 such as the linkage between CEO compensation and compensation. We do this because it%u2019s relevant, and we think it can positively influence the way business is done. Take the remarks of this analyst last month:

%u201CNovo Nordisk excels not just in the parameters that landed it in 1st place, but also in the ones that are not included. The company scored top quartile performance in [the given indices]. It is also the only pharmaceutical company in the Global 1000 linking CEO remuneration to corporate performance in sustainability measures.%u201D

- Raz Gozelnik of Eco-Libris.

-- Challenges and benefits

We faced cultural and logistical challenges in applying triple bottom line thinking to the realities of corporate reporting.

In the Corporate Accounting Services group, with a staff of 45, half of the people come from a Big Four accounting firm. The former CVPshares some of the very basic challenges in transitioning this team to a new approach:

%u201CThe integrated reporting process was a cultural challenge. Everyone in the department had the same background. They shared a common approach about how to do things, how you prepare, how to plan.%u201D

Some of the regulatory requirements further complicated the transition. Because Novo Nordisk was required to comply with the internal control reporting requirements of the U.S. Sarbanes-Oxley Act of 2002, the team shared an understanding about the need for robust controls, processes, and systems to ensure data quality. From an accounting and finance perspective, sustainability and other non-financial information generated by systems that were not Sarbanes-Oxley compliant did not belong in the annual report.

There was also a challenge related to internal controls. In finance and accounting, data was subject to preventive and detective controls. This thinking was not prevalent amongst groups compiling non-financial data. Preparers of non-financial information asked whether they had done something wrong when subjected to the same reviews.

Another cultural dilemma was posed by differences in determining materiality for financial and non-financial information. Financial materiality is often defined as a percentage of income before taxes or as a percentage of an account balance. In the financial world, you generally have a fixed amount, but how do you define materiality for the other information%u2014rate of employee absences or for CO2 emissions?

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