Medical Device Link.

Originally Published MX March/April 2003

TOPSPIN

Building and maintaining corporate trust starts with transparency and partnership.

Jim Reid-Anderson

Jim Reid-Anderson is chairman, president, and CEO of Dade Behring (Deerfield, IL).

In the dynamics of today's overall business environment, trust plays an important role. Company leaders from a wide variety of industries can attest to the importance of trust between a company and its investors, employees, customers, suppliers, and other stakeholders. But it is certainly nowhere more important than among the regulated companies that make up the medical technology industries—including those of the in vitro diagnostics sector, which is the sole business focus of my company, Dade Behring (Deerfield, IL).

All too often, the current period of business instability is characterized by a significant lack of trust between corporate America and its customers—with damaging effects for both. The key to rebuilding the trust essential for companies to successfully pursue their business objectives lies in the fundamental values of transparency and partnership.

Such a suggestion may sound simple, or even trite, but it is actually not an easy concept for many businesses to accept. This is especially true during periods of crisis or potential crisis, when a company's natural tendency might be to keep a low profile and communicate as little as possible.

As CEO of Dade Behring, I have had recent experience with the importance of trust to medtech companies and their stakeholders. In the course of this experience, we at Dade Behring have learned that the best way to protect a company's customer base and retain the loyalty and commitment of its employees is to communicate actively and consistently, so that people know they can trust what the company says. For us, relationships with customers are our single greatest priority, and our commitment to transparency has made a great difference in our ability to maintain those relationships.

Another key lesson we have learned is that, when faced with a challenge, company leaders must take the difficult but necessary steps early to protect the strength of their business and their company's future. Difficult decisions should be made with great care but, once made, there should be no hesitation about implementing those decisions. In our case, the steps we took early on to deal with our particular challenges—by focusing our business strategy and streamlining and strengthening our business—meant that even more difficult steps did not need to be taken later.

A Targeted Strategy

Dade Behring is the largest company in the world dedicated solely to clinical diagnostics. The company is seamlessly global, with 6000 employees in 43 countries and 24,000 laboratory customers around the world. The company boasts a 100-year history that traces back to Emil von Behring, the first winner of the Nobel prize for medicine.

But the Dade Behring that exists today is also a youthful enterprise, brought together over the past decade from a number of companies and parts of companies. From each of these sources, the company has gained remarkable people, products, and specialized expertise. These predecessor companies and their cultures are a key source from which the current company draws its strength.

Being a young company can have tremendous advantages in terms of entrepreneurial spirit and flexibility—but it also can bring disadvantages in terms of debt. Young companies—often put together through a series of mergers and acquisitions—can accumulate debt quickly. If the enterprise also has a global scope, such problems can be compounded. When interest rates rise and foreign exchange rates soften, such external factors can cause extreme pressure on the business.

That was the case for Dade Behring in 2000, when interest rates hit an abnormally high level and foreign exchange rates—particularly for the euro and the yen—softened significantly. Together, these factors hit the company hard, and ultimately caused us to begin the lengthy and often difficult process of restructuring our debt.

Before embarking on that process, however, we first examined the business as a whole with an eye toward how we might take steps to strengthen the company. The company's overall business strategy came under scrutiny first, and as a result we implemented a much more targeted strategy, aimed at those product lines where we could maintain and establish leadership, and at those customers we could serve best.

At the same time, we also made some strategic moves to improve our business from within. Despite the up-front costs involved, for instance, we decided to take over direct distribution of the remainder of our key product lines in the United States. Some of these improvements resulted in expenses that were difficult to swallow at the time, but they have since paid off for us both financially and in terms of customer relationships.

We also looked for redundancies in the corporation that could be eliminated, and we took the difficult but necessary steps to eliminate those redundancies and streamline our business.

While difficult, the decisions that we made to strengthen the company were clearly the right ones. Dade Behring has now had approximately two years of strong revenue growth and good business fundamentals, in large part because of the steps we took during 2000.

Dealing with Debt

Our next decision was no less difficult, involving a deliberate effort to maintain transparency throughout the debt restructuring process. Early on, we made the strategic decision to let our stakeholders—customers, employees, suppliers, and others—know about our debt-related challenges and how we planned to meet those challenges.

Obviously, this decision involved some measure of risk. We were aware that many of our employees and customers worldwide would not initially understand the concept or the process, and that there was a potential for widespread defections and loss of business. Nevertheless, we determined that this was a risk we had to take if we were to maintain credibility and trust in the company.

Even during the early days, when the situation was most difficult, we began to issue comprehensive press releases, to communicate regularly and thoroughly with our employees, and to address issues head-on with our customers and suppliers. The company's story at that time was not easy to tell, but we chose to communicate the bad news first, confident that we would eventually be able to tell a good story—and one that could be relied on because of the credibility we had established.

With each step we took throughout the lengthy and complex process of our debt restructuring, we told people what we planned to do and then we fulfilled each commitment. Although some skeptics continued to believe that the company's debt problems were not solvable, we continued to make steady progress through the debt-restructuring process. And with each careful step, we took our customers, employees, and suppliers along with us through comprehensive communication.

As we neared the resolution of our debt restructuring through a debt-to-equity swap, it became increasingly apparent that our best option would be to implement that swap by means of a prepackaged Chapter 11 filing. However, undertaking such a step introduced complexities that required explanation to nearly all of the company's stakeholders.

Prepackaged Chapter 11 filings are unlike the more-common filings that come into being unexpectedly, when a company has exhausted its resources and cannot meet its financial obligations. Instead, a prepackaged Chapter 11 filing is one that all parties have agreed to in advance, so that the process is quick and orderly. It is designed to help deal with debt-related challenges such as ours—rather than with serious flaws in the fundamental business—and it applies to only about 1% of all Chapter 11 filings. At the end of the process, the filing company emerges with publicly tradable equities.

In the case of Dade Behring, making use of a prepackaged Chapter 11 filing was a good choice for several reasons. It provided significant tax benefits, offered us the ability to emerge as a public company, and promised a final and speedy resolution to the process of debt restructuring.

Nevertheless, the challenges of communicating our decision to file a prepackaged Chapter 11 restructuring were numerous. Language barriers often interfered with communication, rumors were rampant throughout the industry, and there remained a general lack of understanding about what a prepackaged Chapter 11 filing actually was.

Our solution to these challenges was extensive education and training, an open discussion of issues and concerns, a true global communication effort involving meticulous and extensive translation into the various languages of our employees and customers, and a sensitivity to a variety of cultural issues. We began to educate our people worldwide on what this decision would mean for us and for our customers, and we explained to our employees the role they would need to play in educating and reassuring our customers and suppliers.

Because we chose to bring our employees along first—making them key partners in the process—they were, in turn, motivated to continue the education and communication process in personal conversations with customers and suppliers. Our employees did a phenomenal job of carrying the company's message in personal visits and conversations, supporting and strengthening the corporation's more formal ongoing communication efforts. It was a massive effort—inspiring, heartwarming, and unbelievably successful.

Conclusion

In a year when other corporations might have stumbled badly, faced with the challenges of running their businesses through a major debt restructuring, Dade Behring emerged even stronger. We entered our Chapter 11 in August 2002 and emerged two months later, in early October.

Despite the rigors of the process, we lost few customers (if any), gained market share in our key product lines, achieved the lowest employee turnover rate in the company's history, and lost no suppliers. For all of these achievements we owe a debt of thanks to our 6000 employees worldwide, who rose to the occasion and supported their company through a difficult time, and to our customers, who remained steadfastly loyal.

In many ways, Dade Behring is not the same company today that it was three years ago. With its debt cut virtually in half, today's company is stronger than ever, with a more cohesive global culture and a shared optimism about the future. Moreover, the company is now well positioned for the future, with remarkably loyal customers and employees, and a consistently strong operating business that generates growth quarter over quarter.

Dade Behring's executive team will probably never again face a challenge of this magnitude—and we certainly hope that we will not. But the lessons we have learned about transparency in business and about global teamwork have now become a part of how we do business every day.

Copyright ©2003 MX