By JOYCE E. KUSTRA
Don Rumsfeld steps out of government, into the corporate world
Will he ever return?
IT IS exceptional to find that the occupant of the chief executive suite of a large American corporation has spent almost all of his working years in high level government service. Such an exception is Don Rumsfeld, president of G. D. Searle and Co. Called upon to revitalize the operations of the international company, he had only two years of experience in the corporate world; he was an investment banker in the early 60's. But his experience in the federal government gives him a unique perspective on the relationship between the worlds of government and business. Only 46, "Rummy's" accomplishments in government are extraordinary. He served in the U.S. House of Representatives for seven years representing the northern suburbs of Chicago. Under President Nixon he headed the poverty program as chief of the Office of Economic Opportunity and later the Cost of Living Council. Also under Nixon he went to Brussels, Belgium, as ambassador to the North Atlantic Treaty Organization. In the aftermath of Watergate, he was called to Washington in 1974 by President Ford to head Ford's transition team, a job which Rumsfeld claims was one of his most difficult assignments. After he had Ford's house in order, he stayed on at the White House as chief assistant to the President, a Cabinet-level post. In November 1975, he became Ford's secretary of defense. To the private sector Such a career makes Don Rumsfeld one of the most seasoned veterans in Washington, with a range of expertise qualifying him for an array of government-related posts. But with a change in administration. Republican Rumsfeld found himself looking for a new challenge. He found that challenge, not in Washington, but in Chicago at Searle, a worldwide, but ailing, health care supplier based in north suburban Skokie. By Rumsfeld's own account, he joined the company when its problems "were visible and needed attention." By most other accounts, the company, once at the top of the pharmaceutical ladder, was gradually slipping from its prominent position. Since taking the reins from the Searle family in June of 1977, Rumsfeld has acted in his customary forceful manner, making major changes aimed at providing a higher dollar return for the international conglomerate and restoring confidence in the company in an increasingly competitive drug business. His bold and decisive actions to date have been received extremely well by the board of directors and stockholders. In fact, in one action Rumsfeld has expanded the once inside board (comprised of employees and persons associated with the company) to include
JOYCE E. KUSTRA 10/September 1978/Illinois Issues several prominent figures outside the company, including a new international member. In recalling his most significant actions so far at Searle, Rumsfeld pointed to two decisions designed to improve the company's financial health. While he is quick to caution that in endeavors of this magnitude, "measurable, visible results show up over a sustained period of time," these actions are already impacting favorably on the company. Soon after joining Searle, Rumsfeld made major staff reductions in an attempt to cut personnel costs. Then, early this year, after personally surveying Searle subsidiaries around the world, he announced the divestiture of 20 of the company's less profitable businesses, primarily in the areas of diagnostic and hospital products. The company's pharmaceutical products division, which generated 86 per cent of total income in 1977, and its relatively new retail optical business were spared the ax. Searle's annual report for 1977 indicates combined sales of the discontinued operations were $97.3 million in 1977, while their after-tax losses resulted in a $4.8 million deficit. Net sales for 1977, however, even with the losses from shedding these 20 businesses, jumped by nearly $100 million over 1976 to about $750 million worldwide. Searle's latest report shows an increase in sales, operating profit and earnings for the second quarter and first six months of 1978. Rumsfeld reports that the divestitures, scheduled for completion by year's end, are running well ahead of schedule. Rumsfeld insists decision making for a major corporation is not that difficult. "We simply look and say how can we provide a return for the shareholder . . . attract investors so that we can create products and improve health and provide jobs." All of this can be accomplished, he feels, only if you provide a return on the investment. And Rumsfeld has entered into another phase of operations designed to do just that. He has completed a licensing agreement to market a new antihypertension drug developed outside the company. Asked if this indicates a shift away from internal research, a highly expensive but basic endeavor, Rumsfeld admits that this might appear to be the case. But, he points out that for the company to continue its research, a certain level of product flow must be available. And the practice of supple menting internally developed products with licensed products, he says, is neither uncommon nor new at Searle. Having divested itself of less productive operations, Searle still has two major product-related difficulties which must be resolved. The first involves two of the company's biggest selling products, hypertension drugs called Aldactone and Aldactazide. In 1975, an ingredient common to both drugs was labeled carcinogenic by the federal Food and Drug Administration, and warnings were required on the packaging. The Justice Department then opened an investigation, which is still pending, into the accusations that Searle withheld evidence about the dangers of the ingredient. In spite of the government action, Rumsfeld doesn't feel that the Justice Department investigation will affect the products' sales.
The cloud over these two hypertension drugs probably led to the problems which Searle has had with the internally developed low-calorie sweetener called aspartame. Aspartame, in which the company has already invested close to $30 million, received initial approval of the PDA in 1974. However, according to a recent research report by Smith, Barney, Harris, Upham & Co., the controversy surrounding the company's alleged withholding of a possible cancer-causing agent in Aldactone and Aldactazide "led the FDA to question the integrity of all of Searle's research work." The resultant stay order which suspended aspartame's marketing is still in effect and studies are still being verified. Whatever the outcome of the aspartame controversy, Searle's financial picture looks bright. The relatively new optical group of company-owned vision centers (established in 1973) is being expanded, with 309 centers operating at the end of 1977 and another 100 expected to open by the end of this year. A renewed emphasis on internal research as. evidenced by Rumsfeld's long and intensive search for a new research chief shows that Rumsfeld is planning for the future. And the divestiture of 20 companies has left a healthy outlook for the remaining core companies. Searle's common stock, which peaked at $41 per share in 1973, reached a low of $11 in 1977. In late July, the stock had climbed to almost $16, and although earlier projections of a year-end value near $20 per share may prove to be a little high, reports indicate that the stock is still on the rise. Reflections on Washington Moving from the red tape and politics of the federal government to the helm of a major American corporation might prove to be a difficult transition for some managers. In Rumsfeld's case, however, views which he has always held about the relationship between government and business have simply been confirmed. "The problem in government at the federal level, as I see it, is not answered by asking which {government or business] is more efficient," he says. "It's answered by asking, is what government's actually doing something it should be doing. And the fact of the matter is that the federal government of the United States is today trying to do so many things that it can't do, that it shouldn't be doing. The fact that it doesn't turn out well isn't so much attributable to inefficiency as it is that it's misdirected in the first instance." Although one year of corporate experience makes Rumsfeld somewhat hesitant to compare the business world to the public sector, he will admit that there is greater opportunity in the private sector to achieve higher productivity than often is possible in government. In reflecting on his greatest accomplishments in Washington, Rumsfeld first recalled his elective office. "There is a very special relationship between an elected representative and his constituents," he said in regard to the years he spent in Washington as a congressman. "I felt it was a constructive and useful time from my standpoint and from the standpoint of the people I represented." Much of his time in the executive branch, as ambassador to NATO, chief September 1978/Illinois Issues/11
of staff at the White House and head of the Pentagon, was spent on foreign and defense policy. Rumsfeld points to one major accomplishment in these areas, an accomplishment he would rather credit to President Ford than to himself. "There is no question but that President Ford recognized the danger of allowing the United States to slide to a position of inferiority relative to the Soviet Union, the danger to peace, the danger to stability in the world." Rumsfeld believes that in a major shift of U.S. policy, the Ford administration placed increased emphasis on military capability. In his final report before leaving his post as secretary of defense in January 1977, Rumsfeld underlined this as his major concern. He cautioned that Russia could become the "dominant military power in the world" unless the U.S. continued the buildup in military strength initiated under Ford. Today Rumsfeld's message is even more ominous. He sees a pattern in President Carter's "growing laundry list of decisions . . . running from the precipitous withdrawal from South Korea, the butchering of the shipbuilding budget of the Navy, cuts in research and development, the delay of the MX missile, and cancellation of the Bl bomber and the neutron bomb." According to Rumsfeld, these decisions suggest that "Carter is comfortable with a policy of unilaterally denying the United States the investment necessary to assure that we will have the technological capability to contribute to peace and stability." "There's no question in my mind but that if President Carter continues on the path he's on with respect to our defense capabilities," Rumsfeld predicted, "he will be seen in history ... as having fundamentally damaged this country, its influence in the world, its ability to contribute to peace and stability. But it's too late then." Too late, he feels, because a gap between Russia's dominant military power and our own inferior power could not be bridged overnight. "The lead time in military systems is so long, advances in technology so rapid, the power of the weapons so great" that it would take twice as long to catch up. The ex-Pentagon chief predicted that there will not be much of a political penalty for Carter's policy of skimping on defense. This is so, he says, because the main purpose of defense spending is not to successfully fight a war, but to successfully prevent a war. When a balance exists between the major powers in military capabilities, the threat to peace is less likely, but most people do not have to think about it. The average American might simply notice that the government has spent billions on defense and has not needed it. As we reduce our investment, Rumsfeld warned, it creates an instability in and of itself. "Weakness can be provocative by enticing others into adventures that they otherwise would have avoided." Businessman, not politician While he is most emphatic when speaking on the arms race between the U.S. and Russia, Rumsfeld avoids making any judgments on those political issues which he feels do not affect him or his business. Apparently fearful that such statements might give people the impression that he is interested in a public office, he prefers to identify himself as a businessman and to maintain a low profile on government policies. But where the issue involves Searle or the drug industry generally, the new corporate president is quick to offer the benefits of his newly acquired expertise and defend the business from what he feels is ill-conceived legislation.
Rumsfeld is wary of a proposal now before Congress which sponsors feel will speed the process by which new drugs are introduced into the market. While he concedes that research on new products is exceedingly expensive and that lengthy FDA procedures tend to discourage companies from investing in research, Rumsfeld notes that the more important consideration is that only safe, effective products are made available to the public. He feels that in its present form, the legislation just does not accomplish what is intended. On another congressional proposal which would affect Searle's financial status, Rumsfeld gave his wholehearted approval to the Steiger amendment designed to reduce the capital gains tax from its current maximum of 49 percent to a ceiling of 25 percent. Referred to by the White House as the Millionaires' Relief Act, supporters retort that not only will small investors reap benefits, but the business activity created would stimulate the stock market and boost capital investment, thereby creating jobs. Rumsfeld's argument is even more simple than that — he feels that there is no choice on reducing the level of taxation. He argues that the Carter administration's economic policies have produced spiraling inflation and inflation means higher taxes. "There has to be a tax cut simply to stay even, let alone to create greater incentives," he said. On state issues, Rumsfeld's opinions are less definitive. Searle's relationship with the state of Illinois is not necessarily any stronger than with any other state inasmuch as the firm has a worldwide market. Without allowing Illinois to be used as his example, Rumsfeld did caution public officials to avoid the
12/September 1978 / Illinois Issues pitfalls which make their state's ecomomic and political climate unattractive to business. The multitude of decisions which contribute to a poor business climate, claims Rumsfeld, are made over an extended period of time and are not easily reversed. He did emphasize that Searle has its roots in Illinois and will continue to operate from the state. Expressing reservations about Illinois' new generic drug law, Rumsfeld's reactions are typically those of a chief executive responsible to the company's stockholders. When a pharmaceutical firm interested in expanding its research makes a major investment in a product, it must charge the consumer to cover costs. And when another company can market the same product without the accompanying research and development — and at a lower price — sales of the lower priced product will increase. This, of course, results in a loss for the company which invested heavily in the research. Consequently, generic drug laws can make research into new and better products unprofitable. Rumsfeld fears this could lead to the U.S. losing its leadership position in pharmaceutical products. Future political office? When Don Rumsfeld came back to Illinois last year, political pundits speculated about his political future. Would Rumsfeld decide to try in 1980 for the U .S. Senate seat held by Adlai E. Stevenson III? Other than the presidency, for which his name has also been suggested on more than one occasion, U.S. senator seems to be the only political office challenging enough for a man of Rumsfeld's stature. The year 1980 is not very far off. And Don Rumsfeld, while he has made great strides in his rookie year in the corporate big leagues, still has a long way to go before it can be said that he successfully transferred his management skills in government to the corporate world. Political rumors to the contrary, Don Rumsfeld has come back to Illinois to run a big business, at least for now. He's found a new world and it agrees with him. He praises the "tremendous support" he has received from the Searle brothers, who, although they own one-third of the stock in the company, moved out of the way to give Rumsfeld free rein. Searle also gave him a lucrative salary and bonus deal of $252,303, as reported in a survey of corporate proxy statements by Crain's Chicago Business. So Don Rumsfeld will not talk politics, not now. But the fact that his name was mentioned in political circles on his return to Illinois probably was not overlooked by the Searle board of directors. And if Don Rumsfeld has any goal uppermost in his mind, it is to prove to them that he really wants the job they gave him and that he is not simply using Searle to work his way back into state or national politics. "I'm simply not going to run for public office in 1980 .... For me to be talking on those subjects makes people think that's what I'm doing. That is not what I'm doing," he said, "I'm doing this," emphatically pointing to a mound of paperwork on his desk. But the fact remains that in 1980, the seasoned veteran of Washington politics will be only 48 years old. In 1984, he'll be 52. He has plenty of time to make his mark in the business world. And, if and when he ever does decide to give politics another try, the Republican party will be willing to talk. September 1978/Illinois Issues/13
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