Vioxx recall calls for management changes at Merck

The manner in which Vioxx recall has been handled by Merck and the poor strategy the firm has been working on all along calls for major management changes at the seniormost level at the company. Unfortunately, Merck board has been rather slow to act and has not been very decisive so far. Only after more than two months since the withdrawal of Vioxx did the board act to appoint an independent committee to investigate what went wrong with Vioxx. So far there is no news as to what other management changes the board may be contemplating. In the meantime, Merck is being investigated and the number of Vioxx class action lawsuits is piling up.

Current Merck CEO Raymond Gilmartin, who not only is responsible for a flawed Vioxx strategy but is continuing to stick to a strategy that is no longer working, has vowed to stay in his job till his mandatory retirement age (that he will reach in March 2006). In an interview with Fortune magazine, Gilmartin came across as someone who did not care. As John Simons and David Stipp write, "Listening to Ray Gilmartin, you can't help but be struck by how matter-of-fact and calm the man seems...you'd hardly guess that he is facing the most serious crisis of his ten-year tenure atop the storied $22-billion-a-year pharma giant."

While the board may be being polite not to fire Gilmartin right now, it seems that the board wants to see change (after Gilmartin's retirement) at the top by bringing in someone with a fresh perspective. Kate O'Sullivan of CFO Magazine is reporting that Merck has hired Heidrick & Struggles International (a leading headhunter for CEOs) to find a replacement for Gilmartin. So it seems that Judy C. Lewent, executive vice president and CFO of Merck, who was expected to move into the corner office is fighting for her job, according to the magazine. In fact several analysts quoted in the article by Sullivan are speculating that Merck might have a totally new management team when the new CEO takes over in 2006. But the question is, If Merck will survive the Vioxx recall. With liabilities that some analysts estimate could be as high as $38 billion, impending patent expiration on Zocor and only a modestly full drug pipeline, it will be interesting if Merck is able to hire a CEO who can turnaround the company or should Merck be sold in pieces, as some analysts argue.

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Websites mentioned: Fortune CFO Heidrick & Struggles