“Do we have anything for a serious case of chronic CEO?”
Boots was the most trusted brand for decades – Victorian values and all. Now it has slipped down the rankings. Sardip Sandhu flourishes the litmus.
When people think of Boots in the UK, like me, they aren’t always thinking about sturdy footwear; it’s more likely to be their local pharmacy. Few will know that Boots was a business founded from a powerful insight: “the rich get better and the poor die young”.
From this insight John Boot and his son Jesse created a highly successful company, with a clear purpose: “the provision of social healthcare”. I started work there in 1988, 139 years after Boots was founded but it still seemed animated by its original mission. By the time I left in 2017, the company had seen many changes
Jesse’s original approach was simple: healthy people meant healthy communities meant a healthy business. By the time I arrived, this shared vision had developed into a culture that was understood and felt, inside and outside the company. People would do anything to gain the trust of the customer. Decision making didn’t feel difficult: “You just knew what the right thing to do was”. The pride and goodwill this engendered inside the company was immense. There was a “higher calling,” Boots was the most trusted brand in surveys for decades, offering reassurance to customers when they were at their most vulnerable.
Jesse’s company had also researched, innovated and punched way above its weight. It created Boots Healthcare products, thereby inventing the “owned brand business model”. This included Ibuprofen (for which it won the Queens award for Technical achievement 1987) and Soltan along with the five-star sun protection rating system which is now the industry standard. It also created the Advantage card, the first loyalty card from which data could be gathered.
“Jesse’s original approach was simple: healthy people meant healthy communities meant a healthy business.”
Boots had a 300-acre campus in Nottingham with offices, factories and warehousing (many of which are now listed for their unique design), enabling incredibly effective collaboration. Products could be designed and delivered in weeks and they were.
Jesse was also a great benefactor of Nottingham, and he and his wife Florence set up schools and encouraged their workforce to read and write; until 1966 there were lending libraries in Boots stores, along with cafes and tearooms. The University of Nottingham is built on land donated by Jesse.
Over time the company became a combination of long-held traditions and cutting-edge business techniques including value based management and lean principles on a par with or ahead of competitors.
So how did things start to change? Maybe it started when Boots looked to expand through takeovers in the 70s. This culminated in the 80s with the bitterly fought takeover of Ward White – a group of mostly do-it-yourself companies and Halfords. Boots took on a lot of debt and while Ward White offered diversification, there were no synergies. This was then followed by divestments in the 90s including the sale of its pharmaceuticals division ending 80 years in prescription drugs. At the same time, its chief executive officer, Sir James Blyth, received in 1995 a higher salary package than most of his peers.
More change followed with international expansion and the introduction of “wellbeing services” such as laser eye surgery, laser hair removal and botox with the latter leading to the exit of the then chief who was accused of “wasting money”.
This search for new direction outside the original core company vision combined with aggressive competition from grocers seemed to lead to a profound loss of confidence and direction. The company’s rich heritage and innovative capability seemed diluted. It was about at this time that Boot’s “values” were written down along with a mission statement.
In 2004 a new broom was appointed to reinvigorate the company both in terms of morale and investment – in the 90s superb returns to investors had been at the cost of woeful under investment in IT and distribution systems. Richard Baker was appointed chief executive officer from Asda, which had a relatively straightforward business model compared to Boots with everything from “your local pharmacy” to department stores.
Baker diagnosed Boots’ problem as being one of the company’s values being “out of sync with the fast moving era”. His prescribed treatment was a significant programme of redundancies which gave a profound shock to the company. Then when it became apparent that work was impacted, a number were rehired further undermining trust.
“In 2004 a new broom was appointed to reinvigorate the company both in terms of morale and investment.”
This treatment didn’t work and Boots continued to struggle as its points of differentiation were eroded by competitors. Did it need to put the chemist back in Boots the Chemist? Certainly in 2009, its pharmacy superintendent, Paul Bennett, admitted to the House of Commons Science and Technology committee that although there was no evidence to suggest that homeopathic medicines were efficacious, they were sold in Boots stores anyway.
Baker turned elsewhere for solutions resulting in merger with Alliance Unichem, after which he exited the business. The newly formed Alliance Boots was taken private, backed by private equity giants KKR, and its headquarters moved from its historical seat at Nottingham to Switzerland. As a result, according to John Ralfe, a former head of Boots corporate finance, the UK lost £100 million a year in tax, while pointing out that about 40% of Boots’ income comes from the Government for NHS pharmacy scripts dispensed and other services.
Following the merger with the American drug store chain Walgreens, Boots the Chemist ended up as a subsidiary of the newly formed Walgreens Boots Alliance in 2014. Meanwhile pharmacists complained of workplace pressures and The Guardian quoted: “a business model that sucks the care out of a caring profession, harming employees while enriching those at the top”. Boots had now dropped down the top 10 most trusted brands rankings.
Ironically now getting the right culture is being “discovered” as crucial to business success. About 85% of companies publish values on their websites, the most frequently quoted can be rolled up to “we operate with integrity”. However In the last Global Deloitte human capital survey, 87% of people said they were not “engaged” with their work. Maybe with the long list of scandals over past decades such as Enron, RBS, Carillion, Grenfell, Cambridge Analytica and more, people have lost trust in business leaders. Although integrity is the most quoted value, it seems the most difficult for business to deliver.
“The creative spark is less easy to globalise and sometimes scale comes with diseconomies of motivation.”
Jesse was clear on his purpose and how his operation would run: “In the pursuit of our commercial interests we will operate with ethical and social responsibility”. The numbers his company delivered weren’t a means to end in themselves, they were the result of its endeavours to deliver healthcare. Walgreens Boots Alliance now has its values in big letters on the wall of its receptions, but once inside I wonder how many people can recount them all?
So how can we move forward from here? For a start the business schools who promoted the need to deliver shareholder value above all other stakeholders maybe need to take inspiration from Jesse, Lever brothers and others. They also need to learn from the experience of current businesses. Can they teach a different subject: how to organise humans for success in the context of the huge challenges of inequality and unsustainability.
WBA and others in search of globalisation, have discovered that economies of scale, don’t necessarily deliver benefits generated by human connection. The creative spark is less easy to globalise and sometimes scale comes with diseconomies of motivation. Local capability and global connectivity is not easy.
“Ironically now getting the right culture is being “discovered” as crucial to business success.”
Companies need business models that create strong relationships with their employees and wider society, not just their shareholders. This requires people to be allowed to bring their whole self to work, heart, mind and imagination, not the narrow self, required to tick the boxes of performance measures. How do we create this authenticity in businesses?
This is difficult stuff – what to do next and how to do it. Maybe it’s easier to be in denial and hope that someone else will work it out. We all have a part to play here in determining what comes next. No one has the answer alone and corporate “hotshots” are running into brick walls. It must now be about finding a way to true collaboration.
I wonder if Jesse asked himself “am I improving the quality of life, personal freedom, standard of living, strength of communities?” I have a suspicion he did… Unfortunately once again, the rich are still getting better and life expectancy of the poor is dropping again.