Stryker's MacMillan Gone?! | Orthopedics This Week
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Stryker’s MacMillan Gone?!

Source: Morguefile and jppi

The number one news story at the American Academy of Orthopaedics Surgeon’s (AAOS) annual confab was not a paper or a product but rather a single person—former Stryker Chairman of the Board and CEO, Stephen MacMillan. The successor to legendary Stryker CEO John Brown, Stephen MacMillan is no longer employed at Stryker—eight and a half years after his arrival as its new President and Chief Operating Officer. Stryker’s press release regarding MacMillan’s departure came on the second day of the AAOS meeting and it said, in part:

“The Board of Directors of Stryker Corporation (NYSE: SYK) announced today that Stephen P. MacMillan has resigned as Chairman, President and Chief Executive Officer for family reasons, effective immediately. Curt Hartman, Vice President and Chief Financial Officer, has been named Interim Chief Executive Officer and William U. Parfet, Lead Independent Director, becomes Non-Executive Chairman. The Board has begun a search for a permanent successor to Mr. MacMillan and will consider both internal and external candidates.”

On the floor of the convention, MacMillan’s departure was by far the #1 point of discussion. And since a large portion of the orthopedic community was together in one place updates and rumors spread rapidly.

At the core of all the rumors was one story—that MacMillan, who is married, was embroiled in overly public marital discord. From everything OTW has been able to learn, that story is essentially correct.

Reaction From Around the AAOS Water Cooler

Reaction from the floor of the conference was mildly critical of Stryker’s Board but ran the gamut from blistering to forgiving in its assessment of MacMillan. There were no positive statements for the entire mess. Here are some of the more common reactions from the AAOS convention floor:

  1. “All the CEO’s do it, why make a big deal.”

  2. “Extremely distractive to Stryker employees trying to promote new products.”

  3. “Why did the Board announce during AAOS?  They should have waited.”

  4. “MacMillan failed the CEO intelligence test.”

  5. “In Europe this would have been no big deal.”

  6. “MacMillan should be judged as a manager, not on his personal life.”

  7. “The analysts knew and didn’t care so why create the disruption.”

    Apparently, the news that Macmillan was dealing with “family reasons” was known to a growing circle of people in and around Kalamazoo from around Christmas time to just before the Board announcement.  

    We’ve Seen This Movie Before

    CEOs whose personal lives prompt board action are not new. But a Stryker CEO falling into such a situation is a surprise. As one person who knows former Stryker CEO John Brown well put it, “I don’t think John Brown had a prurient thought even when he was sleeping.” 

    Stryker Corporation has as straight arrow a reputation as exists in orthopedics. How it handled this problem is probably an indication that Stryker remains an Eagle Scout type company.

    CEOs are as flawed as any mortal—although they can develop high levels of hubris. Here is how other firms handled errant senior executives.

    Hewlett Packard ousted its CEO Mark Hurd on August 6, 2010 for not only having an affair with a former contractor, but also helping her get paid for work she didn’t do and contributing to a corporate atmosphere where standards of business conduct were violated.

    Boeing fired its CEO Harry Stonecipher, 68, in 2005 for having an affair with a female executive which violated the company’s code of conduct. Boeing’s chairman decided that Stonecipher’s affair compromised his ability to lead the company. Boeing’s ethic’s code decreed that Boeing employees wouldn’t engage in any conduct or activity that might raise questions as to the company’s honesty, impartiality or integrity. Ironically, it was Stonecipher who had established the ethics code and insisted that all Boeing employees follow it. Stonecipher had joined Boeing to help reestablish that firm’s reputation following the 2003 ethics scandal involving Boeing and U.S. Air Force contract for aerial refueling tankers.

    And then, of course, in the political arena from Herman Cain to Congressman Anthony Weiner to “wide-stance” Senator Larry Craig, ethically challenged office holders/candidates are frequently hounded into retirement.

    Stephen P. MacMillan

    One Michigan-based news outlet reported last week that MacMillan and his wife Amy were in the process of a filing or getting a divorce. MacMillan's wife, Amy MacMillan, is an adjunct Assistant Professor and Instructor of Marketing at Western Michigan University. It turns out that she does have financial ties with Stryker and earned $458, 000 from the company in 2010 as director of a catering company.

    MacMillan earned a B.A degree in Economics from Davidson College and is a graduate of Harvard Business School's Advanced Management Program.

    MacMillan began his career as a brand manager for Procter & Gamble before moving to Johnson & Johnson where he spent 11 years in a series of roles both in the U.S. and in Europe. His principal accomplishment was his role in rejuvenating the Tylenol and Imodium brands. When he left JNJ he was serving as President of Johnson & Johnson-Merck Consumer Pharmaceuticals a joint venture between J&J and Merck & Co. which focuses on marketing non-prescription switches of Merck products.

    From JNJ, MacMillan moved to Pharmacia Upjohn where he served as Sector Vice President, Global Specialty Operations for Pharmacia Corporation. He was 36 years old at the time.

    MacMillan joined Stryker in 2003 as the company’s new President and Chief Operating Officer and heir apparent to retiring CEO John Brown. In January 2005, MacMillan was promoted to CEO and in 2010 he was named Chairman of the Board.

    At the time Stryker hired MacMillan, then CEO John Brown noted that Mr. MacMillan's appointment continues the succession plan he initiated when Mr. MacMillan was hired, adding: "This transition has been very smooth. Steve has been well accepted at Stryker and we are confident that he is the right leader to take the Company forward."

    As CEO of Stryker Corporation, MacMillan earned $2.84 million in 2010. He was 48 years old when he left.

    Ethics and Orthopedics

    One of the central themes in orthopedics over the past decade has been ethics. The high point of these issues came four and a half years ago, September 2007, when four orthopedic companies agreed to pay $311 million to settle a claim with the Department of Justice (DOJ) regarding financial relationships and consulting agreements with surgeons which, according to the DOJ, violated federal anti-kickback statutes.

    Stryker was not one of the companies that had to pay a fine.

    In addition to the money, each company agreed to implement new corporate compliance procedures and 18 months of oversight by a federal monitor appointed by the Department of Justice. The four companies were Zimmer Holdings, Inc., DePuy Orthopaedics, Biomet, Inc. and Smith & Nephew. The DOJ accused the four companies of using consulting agreements with orthopedic surgeons to induce them to use a particular company's joint replacement device.

    Stryker, by contrast, escaped both the fines and the DPA. Stryker, the fifth company involved in the investigation, voluntarily cooperated with the Attorney’s office before any of the other companies. Because of its cooperation, Stryker was able to execute a Non-Prosecution Agreement which required the company to implement the same reforms imposed on the other companies including 18 months of federal monitoring.

    Complying with stricter and monitored rules regarding consulting agreements and such activities as buying dinners or even coffee for surgeons has been difficult for all levels of each organization. Every company has lost business because of these rules.

    But one company from among the largest firms in orthopedics was treated differently and more favorably by regulators—that was Stryker.

    Why Did Stryker’s Board Take This Long?

    Asking the boss to leave is very hard. Particularly when the boss, as in this case, had led his company through particularly difficult times. Stryker’s record under MacMillan is good. Forbes listed Stryker as one of the 100 best firms to work for. Both in terms of sales growth and profits, Stryker has outperformed its peers. In 2011, for instance, sales grew 13.5%, profits rose nearly 12%. Over the past 18 months Stryker has made several key strategic acquisitions and amassed a cash balance in excess of $3.4 billion.

    But beyond the corporate aspects, Board members were personally fond of MacMillan. So much of the discussion over that past few weeks, we can imagine, has been about dealing with the Board’s attachment to MacMillan. Three of Stryker’s Board members are CEOs themselves. Then there’s the realization that they may have misjudged MacMillan.

    Telling the boss that he has to go, or allowing the boss to stand down, is a process that involves, in the case of companies like Stryker, lawyers and often, outside consultants. When, as is the case here, the events that have created the need for separation were unexpected and out of character, it can literally take months of moving through denial, guilt, and anxiety before there's a collective agreement that the Chairman and CEO has to go.

    Once a board has decided that a CEO must resign, then there are further debates about what to say and what the succession plan will be. No doubt, Stryker’s Board engaged in many anxious discussions regarding employee, stakeholder, and shareholder and press concerns and likely reactions. The entire process is an ordeal. But, as if often the case, once the CEO was gone, there can be a sense of liberation.

    People can get back to work.

    Stryker’s Message

    With leadership at these levels come extraordinarily hard and difficult requirements.

    The orthopedic industry is under such scrutiny from payers, FDA and the Department of Justice that organizations—top to bottom—are being asked to conduct themselves in the highest ethical manner. Yes, we are all human and flawed. But leaders must set the example.

    Stryker’s Board of Directors did exactly that.

    Good job.

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