Businesses Exist to Deliver Value to Society
In the Harvard Business Review (HBR), Kenneth Frazier (CEO of Merck) was interviewed about “Businesses Exist to Deliver Value to Society.” Since becoming CEO in 2011, he has earned praise for stabilizing Merck—no easy feat in an industry convulsed by change. He promised new launches, such as the cancer drug Keytruda.
During his interview by HBR, he responded to the questions listed below:
Thinking more broadly about the role of business in society, Milton Friedman once said that a business’s sole purpose is to generate profit for shareholders. Does that seem right?
While a fundamental responsibility of business leaders is to create value for shareholders, I think businesses also exist to deliver value to society. Merck has existed for 126 years; its individual shareholders have turned over countless times. But our salient purpose in the world is to deliver medically important vaccines and medicines that make a huge difference for humanity. The revenue and shareholder value we create are an imperfect proxy for the value we create for patients and society.
What’s the biggest hurdle to innovation in drug development? The science? Regulations? The costs of R&D?
I’d say the main factor is our lack of knowledge about the human body and human biology. People talk about the importance of sequencing the human genome and the fact that we are generating more and more genetic insights. But as Roger Perlmutter, our head of research, says, what that really gives us is a parts list. It doesn’t tell us how those parts are integrated to operate the human body. That’s what we’re now interrogating across multiple disease areas.
Where do you most need to apply your time and attention, and where can other people lead?
I think the CEO needs to focus on critical areas. The first is setting the strategic direction of the company. The second is deciding how to allocate capital across the company to produce the greatest long-term value for the society and shareholders. The third, and by far the most important, is to ensure that the right people are in the right jobs. And CEOs have to be willing to give up power: The most important decisions made inside Merck are not made in my office.
What do you see as your biggest challenges going forward?
First, we want to make sure that our people, who are very good at operating in today’s business model, are prepared to adapt to change. What I worry about most is that we’re so comfortable with what we know that we won’t make the kinds of changes we need to make. My other big concern is whether we’re hiring the next generation of leaders. The ultimate test of a leader is, who are the people who will take over from you, and are they as talented and as committed as committed as they need to be to succeed?
How do you plan for that transition?
You have to fight against hierarchy, which is one of the biggest obstacles to success and innovation. It’s important for leaders to diffuse power to people who are actually in a position to make a difference. I’d love to convince Merck’s people that they already know what to do—that they don’t need to look up to their leaders for answers.
What would you like your ultimate legacy to be?
I’d like people to say that Merck continues to make a difference in the world by harnessing science and translating it into solutions that really matter for human and animal health around the world. It’s that simple.