As Group General Counsel of Basel, Switzerland-based pharmaceutical giant Novartis, Felix R. Ehrat faces numerous challenges – but none are greater than inculcating in his function's culture what he views as the appropriate attitude toward taking and accepting corporate risks.
Ehrat, who has been in his post since October 2011, supervises 900 legal professionals around the world in his position as top legal officer and member of the Executive Committee of Novartis, which ranks among the world's largest companies with 2014 revenues of $58 billion. Its products are available in approximately 180 countries around the world.
He came to his position from a post as managing partner of Bär & Karrer, a leading Zurich-based law firm with about 100 attorneys. He worked at that firm for 25 years and was known as a top Swiss practitioner of corporate law, mergers and acquisitions, banking law, arbitration, and corporate governance.
"I know how corporate issues and corporate law look on the other side of the table," Ehrat says.
Lawyers, and partners in law firms especially, are often trained to avoid risk and to steer their clients clear of potentially risky situations. Ehrat understands that – but believes that in his current role, his attitude towards risk must be more nuanced.
"Lawyers by training tend to be risk-averse," he says. "But we at Novartis live in an industry that is accustomed to risk-taking and to making well-considered bets. We have, after all, a dynamic and fast-moving culture here at Novartis, as would be true of any leading pharmaceutical company."
Ehrat says that for a pharmaceutical company, the research and development cycle for a new drug can take 15 to 20 years and billions of dollars and that it's far from guaranteed that even after outstanding experimental results, a drug will find its way into everyday medical practice. But the company can't succeed without taking appropriate risks, based on scientific evidence that could lead to possible breakthrough treatments for as many patients as possible. As a result, rather than function as a group that institutionally puts a damper on risk-taking, the general counsel's office must foster an appropriate culture of risk.
"We cannot be too risk-averse," says Ehrat. "Instead, we as attorneys need to be deeply embedded in the business. We need to be a partner to the business people. We need to ensure that the company is taking risk without compromising its Code of Conduct and its integrity. In doing so, we must act with deep professionalism and high integrity. And if a risk materializes and something goes wrong, we need to help ensure that the company has the right culture to accept failure, learn its lesson and move on. So I like to say that risk management is very close to my heart."
Ehrat notes that as an attorney in private practice and as an in-house general counsel, he has observed the development of the law over the years and has reached what he calls a "baseline conviction" that "the black letter law and regulation is very often lagging behind societal expectations, which have moved on."
He says that legislators need input from society before they pass new legislation and that this often takes considerable time – so that the law today may reflect the expectations that people had regarding compliance, integrity, technology or other issues from some time ago.
"So if you are going to guide your company and if your company is a leader, you need to think of where the world is moving, where things will be in a couple of years. That is yet another element of risk," Ehrat says.
"Sometimes I have to form a view of where the law is going, discuss it with the business leaders and we then come to joint conclusions," Ehrat says. "But I could be wrong about that. That is another form of risk that we take. It can be a question of guiding the business in some new initiatives. We need to be sure that we are up to date with what is going to happen a couple of years from now."
Ehrat says that one of the ways of dealing with risk is for the business people to discuss options with his attorneys, including what the business side sees as risk factors. Then the lawyers will "wrap our risk profile around it, helping the business people decide on the level of legal and compliance risk to be taken."
Ehrat adds that when there are choices to be made, "the correct answer to the business people is often not just a 'no.'"
Rather than say "no", the attorneys' job is to figure out the business people's objective and find a way to say "yes" to a plan that fulfills the objective in a different way, he says. This has proved to be true in any number of areas, Ehrat says – mergers and acquisitions, responses to government investigations, litigation matters and other issues. It's always a question of "finding a legal and ethical way to accomplish the same goal."
With Ehrat and his team helping guide the way, Novartis has made some key changes in recent years that have involved a good amount of risk-taking and whose ultimate outcomes will not be known for some time to come.
Earlier this year, for example, Novartis completed a major transaction with GlaxoSmithKline in which the companies swapped billions of dollars' worth of assets to reshape their businesses by focusing on their existing strengths. GSK purchased Novartis's vaccine business, and Novartis bought GSK's cancer-drug business. The two companies also formed a leading consumer health joint venture focusing on wellness, oral health, nutrition and skin health.
In addition to looking at possible mergers and acquisitions and helping to implement major deals like the one with GSK, Ehrat spends a good amount of his time thinking about new concepts in health care and what they will require from his legal department.
"This business is moving quickly," he says, "and we are building legal support for new ideas such as e-health, data analytics, real world outcome-based pricing and other business models that will ultimately transform our industry."