The Knives Are Coming Out

Only a day ago, Hank McKinnell was Pfizer CEO and one of the most powerful men in the world.

Few newspapers wrote negative reports about his leadership at the Pfizer juggernaut. After all, advertising revenues could be impacted.

That changed overnight.

And now the media is filled with comments about Hank McKinnell's "autocratic management style" and poor leadership.

The New York Times writes, "In the last few months, analysts and people in the industry said, Pfizer’s board has grown increasingly concerned about Mr. McKinnell’s autocratic management style and the company’s struggles to bring new drugs to market."

"Mr. McKinnell, who took over Pfizer in 2001, has been viewed by many analysts and investors as arrogant and out of touch with Pfizer’s problems, at least publicly. His pay package fueled further anger both inside and outside the company. While Pfizer’s stock has declined 40 percent since Mr. McKinnell took over, and it has laid off thousands of employees, Mr. McKinnell has received $60 million in salary and other compensation. He is also eligible to receive an $83 million pension."

"In a report yesterday morning, before the announcement, an analyst at Merrill Lynch, David Risinger, wrote that Pfizer “stock could react positively to the prospect of a change in management.”

“Investors have been frustrated,” Mr. Risinger wrote, “that McKinnell has run the company in somewhat of an autocratic fashion and has denied some of the company’s problems. A new C.E.O. should be perceived positively.”

The Star Ledger states, "Now, by showing McKinnell the door, Pfizer's board is hoping to restore investor confidence in a company whose stock has languished while most other drugmakers have largely succeeded in convincing Wall Street of a better future. "

"At the same time, the board is hoping to alleviate some of the heat it has taken. Thanks to the $60 million in compensation McKinnell received over the past five years -- and news of an $83 million pension payment when he retires -- the outgoing chief executive became a poster child of excessive CEO pay. "

"Pfizer watchers say Kindler's elevation marks a distinct break from the past, when long-standing employees were tapped for the top spot and other choice jobs. Instead, the Pfizer board backed a relative newcomer -- and one whose background is in law and fast food, not drug marketing."

"This is a major shift," said one former Pfizer executive who asked not to be named. "It's not how Pfizer normally operates."

Bloomberg writes about McKinnell, "``He also didn't help his cause by being the type of leader that people would rally behind, that people would have tremendous confidence and respect for,'' she said. ``He was caustic in his addresses to shareholders and analysts and often seemed unrealistic.''

``One of the problems we've always had on Pfizer is management just wasn't all that accessible to the financial community,'' said Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in a telephone interview yesterday. ``I think McKinnell would have been better served if he had done that. I think it would have made his life a little easier.''

Investors lost confidence when McKinnell ``made statements like `we're going to grow Lipitor to the end of the decade,' which was unrealistic to put it mildly,'' said Deutsche Bank's Ryan. ``It was a bunker-down mentality, and don't tell anyone anything.''

Reuters concludes, "Hank McKinnell helped build Pfizer into the world's largest drugmaker through two major deals, but the company's poor stock performance, a paucity of big new drugs and his abrupt departure leave a tarnished legacy."

"He contributed a great deal, but unfortunately in our culture when senior management are paid as much as they are and given as much autonomy as they are, they get the sense of being able to walk on water," said Viren Mehta, a principal at Mehta Partners."

"Although his departure appeared sudden, Pfizer months earlier had awarded McKinnell a lump-sum retirement parachute of $83 million -- a sum that drew criticism in light of Pfizer's sharply declining earnings and share price."

"Give it back, Hank," became a rallying cry among some irate shareholders at the company's annual meeting in April."

And the Wall Street Journal hints that former Pfizer CEO Bill Steere, may have been instrumental in ousting McKinnell:

"Pfizer directors began their all-day huddle early Friday morning at the midtown offices of Cadwalader, Wickersham & Taft, one of the company's outside law firms. Though it wasn't a regularly scheduled meeting, the special board session had been arranged a month ago, one person close to the situation said late Friday.

"Nobody knew coming into the meeting today that [directors] would reach consensus on a candidate" nor reach consensus on the timing of Mr. McKinnell's departure, the informed individual said. Board members hadn't previously discussed the possibility of moving up his departure date, but directors quickly reached agreement, the person added. "There were no extended arguments."

Some directors favored Ms. Katen because she has more operational experience than Mr. Kindler, according to this individual. Other directors were eager for a decision because they had become increasingly perturbed by the protracted horse race launched in February 2005.

"Once you start the [succession] process, it gridlocks the organization," another knowledgeable person said. "You want to make it done as fast as possible. The only thing worse than that is making the wrong decision."

Pfizer named Mr. McKinnell as successor to CEO William Steere in January 2001. Mr. Steere remains a Pfizer board member and is also a board member of Dow Jones & Co., publisher of The Wall Street Journal.

The stock of Pfizer began 2001 at $41.19 and Friday was at $26.11 in 4 p.m. New York Stock Exchange composite trading, a decline of nearly 37%. Growth in net income at the company has slowed; Pfizer earned $7.79 billion in 2001 and $8.09 billion last year.

Mr. Steere remains a major force in the Pfizer boardroom, people familiar with the situation said. The retired Pfizer leader "still thinks he's Mr. Pfizer [and] Hank works for him," said an acquaintance of both men. It wasn't immediately clear, however, whether Mr. Steere had a role in the drive for Mr. McKinnell's early replacement.

Mr. Steere played an influential role in recruiting many Pfizer board members. Ten of the 13 current directors joined the board before he gave up the CEO spot -- including seven prior to June 2000.

"Bill had quite a legacy there," and so is respected by board colleagues, the acquaintance noted.

"They're almost all buddies of Bill."