Chairman, president, and chief executive officer, McKesson Corporation
Born: 1959, in St. Paul, Minnesota.
Education: University of Minnesota, BBA, 1981; Xavier University, MBA, 1987.
Career: American Hospital Supply Corporation, Baxter Healthcare Corporation, and Lyphomed, 1981–1991, series of management positions; Kendall Healthcare Products, 1991–1995, president of medical-surgical division; McKesson Corporation, 1996–1998, president of McKesson Health Systems; 1999, executive vice president as well as president and chief executive officer of supply management; 1999–2001, president and co–chief executive officer; 2001–, president and chief executive officer; 2002–, president, chairman, and chief executive officer.
Awards: Cap Gemini Ernst & Young Leadership Award for Global Integration, 2004.
Address: McKesson Corporation, 1 Post Street, San Francisco, California 94104; http://www.mckesson.com.
■ John H. Hammergren was exalted as "squeaky clean with a knack for complexity" in an era following not-so-squeaky-clean executives of companies such as Enron, Tyco, World-Com, and even former executives of his own company. Hammergren was president, chairman, and CEO of McKesson Corporation, the country's largest supplier of software solutions, technological innovations, and comprehensive services to the healthcare industry and a wholesale distributor of prescription drugs. He took over following McKesson's January 1999 scandal-ridden acquisition of HBOC in which accounting irregularities inflated HBOC's revenues. Although initially Hammergren doubted he could repair the damage, he did so. He also took on the larger task of restoring confidence in company leadership: "The reputation of Corporate America has been sullied and the reputation of CEOs has been tarnished and it makes the complexity of our job even greater" ( Chief Executive , August-September 2003).
Hammergren grew up in a tiny community in Minnesota in a family to which he attributed his strong moral and ethical values as well as his knowledge of business. His father, a traveling salesman in the healthcare business, often took his son with him on business trips, which Hammergren felt was a valuable educational experience. His father's death at the age of 53, when Hammergren was just 16, became another valuable lesson: With his older sisters grown and married, his mother had to return to work. "There was no safety net economically or philosophically, and if I didn't want to cement my path and my moral compass on my own, it was not going to be set for me by anyone," he said during an interview with Daniel S. Morrow, executive director of the Computerworld Honors Foundation (April 6, 2004). He won a scholarship to the Institute of Technology engineering program at the University of Minnesota but discovered that he preferred the mixture of human interaction and fiscal focus of business to the more technical engineering courses, and he graduated with a business degree.
Hammergren was recruited to American Hospital Supply and was with the company for 10 years, during which time he was sponsored through the executive MBA program at Xavier. The company was acquired by Baxter Health Care, which changed the organization's environment enough that Hammergren left and went to work briefly for Lyphomed. In 1991 he went to Kendall Healthcare Products, which was in the midst of a leveraged buyout and in considerable turmoil. Hammergren was aware of but undeterred by the crisis. "I was, and I am, not afraid to take on a risk and I believe that in risk, if you perform, it produces great opportunities," he told Morrow. He explained that he was among the last set of new people to be brought into the business, and they were able to turn the company around by guiding it through a prepackaged bankruptcy and ridding it of junk bonds and high-interest debt. They then refinanced the company and returned equity to many bondholders. "We saved a 90-year-old company, "he said, "and ultimately sold it to Tyco, which became the beginning of Tyco HealthCare" (Computerworld Honors Foundation, April 6, 2004).
In 1996 Hammergren joined McKesson as president of McKesson Health Systems, a newly formed business unit focused on the pharmaceutical supply management needs of healthcare institutions. McKesson had just spun off its pharmaceutical-benefit-management company to Eli Lily for $4 billion, creating an attractive balance sheet. At the time, McKesson distributed drugs primarily to independent pharmacies and wanted to expand into hospitals. They felt Hammergren's experience in health care would serve them well. "Broadening the base is what I was supposed to do," he told Morrow. However, he soon encountered challenges. First, there had been no prior incumbent, as it was a newly created position, and the efforts made by the company to implement the hospital-distribution scheme had been unsuccessful. Second, his training program, he told Morrow, consisted of little more than, "This is your office down the hallway. See you later." Third, there was no strategy in place and no platform from which to launch the effort. He soon came to understand that McKesson had many intelligent people but little or no organization out-side its fundamental focus—retail pharmacy distribution. Finally, many potential customers were satisfied with their suppliers. He knew he had to differentiate McKesson if the venture was to succeed, so he embarked on a two-step program: Create a team that understood the market and its customers, and then deliver value and solutions that met customers' needs. "That's how we started the process," he told Morrow. He took up the challenging task of providing safe and effective drug distribution, from selection to administration to the patient using enhanced technology. He felt that if McKesson could provide a safe and efficient end-to-end channel for medications, they would have developed a unique and sustainable niche in the industry. "Given that I sort of had a green field opportunity in a 170-year-old company to build something from scratch, with a balance sheet and the support structure to make it happen it was like a start-up inside a huge corporation," he commented (Computerworld Honors Foundation, April 6, 2004).
His enterprise became a huge success. In just two years stock prices were high, much wealth was being created, and Wall Street was paying a great deal of attention. Then, Hammergren admits, the management team and employees alike began to lose focus. "We began to believe that we were as good as Wall Street thought we were," he told Morrow, "as opposed to focusing on the metrics of our business" (Computerworld Honors Foundation, April 6, 2004). That loss of focus, he said, began to reflect in their decision making, and one decision in particular almost wrecked the entire corporation.
Hammergren had been heavily focused on the hospital-distribution arm of the business, and the core pharmaceutical distribution was lagging somewhat. McKesson initiated a strategic review, began implementing changes to its operating systems, and decided to further enhance the technological aspects of their business, which already included computerized distribution centers and automated order-entry systems. To that end they decided to acquire HBOC, the nation's largest healthcare software vendor, and the $13.9 billion deal closed in January 1999. Hammergren became executive vice president of the new company and president of McKesson's supply-management business. By April, however, HBOC's inflated earnings—and the conspiracy to hide it from McKesson—had been uncovered, and restated earnings were announced. Revenue figures for the prior three fiscal years were reduced by $327.4 million, $246 million of which was for fiscal year 1999. Share prices dropped from $65 to $34 in one day and to a low of $16 over the next month.
On July 15 seven top executives were replaced: president and CEO Mark Pulido and CFO Richard Hawkins both resigned, and chairman Charlie McCall and four other HBOC executives were fired. Hammergren, along with David Mahoney, former executive vice president and CEO of McKesson's pharmaceutical-service business, were named co-CEOs, with both reporting to returning chairman Alan Seelenfreund. In announcing the decision, Seelenfreund said the changes reflected the company's need to move forward as quickly as possible: "Under the circumstances, strong leadership is essential to this effort: We are extremely fortunate to have two very talented and experienced senior executives … who have the capacity and are committed to rebuilding confidence and strength, integrity and value of our company." He said that Hammergren was a natural leader with a proven track record for creating shareholder value ( Homecare Magazine , April 1, 2001).
Hammergren recalled the time as one of total turmoil with a serious void in leadership and a market-capitalization reduction of $9 billion. "There was no communication plan architected [and] No discussion about the gravity of it," he indicated to Morrow. He said he was naive—being from the McKesson side—and did not realize how HBOC's price-toearnings ratio was structured or how its value had been created. "I was the distribution guy, and they were the software people." He recalled how the then CEO called him saying he was unable to keep his scheduled address with HBOC sales people in Hawaii and telling Hammergren to take his place. The remaining HBOC executives refused to speak to their own sales-people, and Hammergren had a difficult time persuading them to even be with him at the podium while he gave his address. The sales force was in complete shock: "I did the best I could to raise their spirits, at the same time while mine were plummeting. My entire net worth was wiped out … so it was a big deal for me" (Computerworld Honors Foundation, April 6, 2004).
At his first customer meeting after becoming co-CEO, Hammergren and Graham King faced questions for three hours. King was an executive he had just promoted and whom he later credited with becoming a steadfast supporter of his new strategy and being personally accountable for the turnaround of the customer part of the business. Hammergren recalled to Morrow: "You had to dodge and weave the whole time, and clearly we were making commitments about recovery of the business to customers that we didn't realize were this angry, and with problems that were much more severe than we even realized at the time." Those commitments included promises that they would fully understand all the issues, continue to invest in the company's future, make good on HBOC's promises, and—if they could not—compensate for it financially. As it turned out, they had to take a large financial hit later in the year simply so they could look those customers in the eye and say: "'Here's what we promised. Here's why we can't deliver it, and here's your money back.' That discussion earned us a lot of credibility…. We knew that we had to hold onto that customer base so that we could rebuild our enterprise," he explained. He said things were so critical that for two years he was not certain they could turn that part of the business around. "The gravity of the situation was such that I wasn't confident" (Computerworld Honors Foundation, April 6, 2004).
Hammergren and Mahoney got to work, and the company showed a $427.5 million net income for the quarter ending March 31, 2000, compared with a net loss of $61.2 million for the same quarter the previous year. Then, this being the time of much dot-com excitement, they decided to reposition some underperforming assets into an Internet business, iMc-Kesson, with Mahoney as chairman and CEO. However, doctors did not sign up for the service as quickly as was anticipated, investor enthusiasm for dot-coms waned, and after nine months of losses that reached $29 million, the assets were folded back into the core business and expenses were shed. Mahoney resigned in April 2001 and Hammergren became sole president and CEO, with the responsibilities of chairman being added the following year.
Hammergren implemented two fundamental plans that set the stage for the company's revival. First was installing a culture of shared principles under a program called ICARE, which he said he put into place primarily so he could remember it. "I'm a very simple person, so ICARE is integrity, you do what is right, taking the high road and knowing that no matter where you are in the organization that our associates will act with integrity," he explained to Morrow. ICARE was an acronym for customer centered, accountability, respect, and excellence. He said the set of principles was something his totally demoralized employees could rally around.
Second, he established a program of business scorecards that took the focus off stock prices and placed it back where it belonged. Four "metrics" were set in front of all employees: One was scoring customer satisfaction through regular surveys, and Hammergren said that when he saw customer satisfaction rising, he knew recovery was underway. Second was employee satisfaction, which first dropped but then began to rise, with employee turnover ultimately falling below industry averages. Third pertained to process success: He implemented the Six Sigma plan to reduce costs, improve efficiency, and reorganize. (Six Sigma is a rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company's operational performance by identifying and eliminating "defects" in manufacturing and service-related processes.) Fourth was focus on financial success, measured in earnings before interest, taxes, and return on committed capital, as well as asset use and efficiency.
Hammergren said that success with these two plans was central to the company's recovery. For the nine months ending December 2003, revenues rose 22 percent to $51.57 billion and net income from continuing operations rose 14 percent to $432.3 million. And while share prices had not fully recovered, they more than doubled, hitting the mid-$30 range. Justin Martin wrote in Chief Executive : "The age of the imperial CEO is waning. In its place, a crop of new CEOs—humble, team building, highly communicative—are rising." He named Hammergren as one of the new crop.
See also entry on McKesson Corporation in International Directory of Company Histories .
Martin, Justin, "Rise of the New Breed," Chief Executive 191, August-September, 2003.
"McKesson Names Top Exec, Restructures iMcKesson," Home Care Magazine , April 1, 2001, http://articles.findarticles.com/p/articles/mi_m0JHU/is_2001_April_1/ai_74020105 .
Morrow, Daniel S., "John Hammergren Oral History," Computerworld Honors Foundation, April 6, 2004, http://188.8.131.52/search?q=cache:wFxBCq9btX8J : www.cwheroes.org/oral_history_archive/Hammergren/Hammergren.pdf+%22Transcript+of+a+Video+History+Interview+with+John+Hammergren+%22&hl=en&lr=lang_en&ie=UTF-8 .
—Marie L. Thompson