Novo Nordisk’s CFO has overseen big changes in the last decade and a half. Jesper Brandgaard explains to Jim Banks how he helped the Danish pharmaceutical giant embrace offshoring, environmental sustainability and business partnering, and how he balances a long-term view with short-term pressures.
Jesper Brandgaard can look back on another solid year. Novo Nordisk's annual results in January showed steady growth in profits and a positive outlook for 12 months ahead. CFO since November 2000, he can claim a good share of the credit for the company's performance, which stems at least in part from the changes he has made to the finance function.
"When I joined [in 1999, as senior vice-president of corporate finance], Novo Nordisk was starting to roll out global ERP and moving from a point where it was mainly occupied with data collection and number generation towards analytics and management support," says Brandgaard. "The first half-decade was characterised by this move from accounting to business support."
"Once ERP was in place, the next five years were an opportunity to install uniform processes that linked to SAP, and to start moving some activities offshore, as part of a shift from a control function to business partnering.
"Once the basics were achieved, my role changed from making sure the company had the right numbers and policies in finance, treasury and risk management, to having a more direct impact on the business."
A finance function fit for purpose
Brandgaard's changes have dramatically improved the finance function's ability to work in partnership with other parts of the business. He has reorganised the audit committee and the company's internal reporting processes so that they suit a forward-looking, innovative and global business.
"A lot of time has been spent on compliance, business ethics and increasing transparency," he explains. "That means a lot of work on policies and reporting, so the audit committee has been very useful in helping me, as CFO, to ensure global compliance. Another key focus has been reporting in R&D. The quality, transparency and frequency of this was not up to scratch in 2000, but it has been lifted to new levels, and now happens more or in less real-time, which is essential where issues like patient recruitment are concerned."
"We have substantially altered the business, and a prime driver of that change is the realisation that you cannot run finance efficiently if you don't have a global approach. In our five regions, reporting goes through the regional heads of each region, who report to the regional head of finance on a daily basis. I also established the Global Finance Board where the top 15 finance people meet quarterly. I select candidates and the line business decides who is chosen, which encourages the line head to work with the finance team," he adds.
Brandgaard's aim with initiatives such as the Global Finance Board is to ensure that the finance function works effectively and coherently, worldwide, and that it is closely aligned to the goals and processes of individual business lines and regions.
To help ensure we have an agile and local organisation with a strong finance group, I believe that we must rotate heads of finance through different geographies. Across our industry, there is a tendency to move towards more uniform ways of doing business that put globalisation before localisation, but that is not my approach," he reveals.
One of the most significant practices embraced by the company's finance function during Brandgaard's tenure is the triple bottom line (TBL) - an accounting framework that gives equal footing to social, environmental and financial components. Also referred to as the 'three Ps' (people, planet and profit), or the 'three pillars of sustainability', these factors constitute a corporate philosophy at Novo Nordisk that enshrines healthy economy, environment and society as the fundamental components of long-term business success.
Since 2004, Novo Nordisk's annual report has encompassed financial, social and environmental performance. The aim is to pursue means of maximising value to every stakeholder, not just to shareholders. Strategic decisions are framed by three considerations to ensure that each is financially, socially and environmentally responsible. Business performance is managed in such a way as to enhance the company's contribution to the societies in which it operates. In fact, the company's articles of association - its corporate bylaws - state that Novo Nordisk "strives to conduct its activities in a financially, environmentally and socially responsible way".
This is more than an attempt to cash in on the marketing value of sustainability. The firm views TBL as a means of maximising value to the company, its shareholders, the patients its products treat, and to the communities in which it operates. Brandgaard believes that the best way to achieve this is to operate in a responsible and sustainable fashion, and this includes providing better treatment, raising awareness and advocating for earlier diagnosis and improved health outcomes.
TBL is seen as crucial to long-term growth for Novo Nordisk, not least because it helps to build trust in the brand and to protect its licence to operate. It is also a powerful tool in the company's drive to attract and retain the best people. The effectiveness with which the company has implemented TBL is evident from the fact that, since the launch of the DOW Jones Sustainability Indexes (DJSI), Novo Nordisk has consistently been awarded scores in the top range for the healthcare sector, ranking either first or second.
"TBL was an interesting concept when I joined in 1999, but it has since provided solid business momentum," Brandgaard explains. "It has given Novo Nordisk tangible results in terms of energy and water usage and the cost of waste. So, it is very credible from a CFO's point of view. It also makes people in the finance function proud of working for this company, which plays a part in reducing staff turnover. TBL has provided a strong focus on patients and that motivates the staff here.
"I firmly believe in the value of the balanced scorecard to ensure a focus on short-term and long-term goals and to ensure a strong flow of talent. That fits well with TBL. The people in the finance function are the keepers of the scorecard, so quality is assured on all three bottom lines."
The company's continued growth as a global business requires expansion not only in its product portfolio, but also in its geographical presence. It has embraced offshoring, and many finance processes are handled in a shared service centre in Bangalore to reduce cost. It is also pursuing a policy of expansion to support the growth of sales in mature markets - North American sales were up 11% last year - but also in emerging markets. Sales in China, for example, grew by 13% in 2014.
Novo Nordisk's recent investments include a new facility in Russia, which it views as a long-term necessity, rather than an opportunistic move to exploit troubles with the rouble and the impact of sanctions on the local economy. Pharmaceutical companies have been hit by sanctions that followed Russia's annexing of Crimea, so the investment makes more sense as a long-term strategy to meet demand for medication in the former Soviet superpower, where more than 6.7 million cases of diabetes were reported last year.
"The basis for an insulin-filling facility near Moscow goes back four years when a change in the local regulations gave a price advantage for local manufacturing of products, compared with imports," says Brandgaard.
"It was dictated by market conditions rather than by a need for extra capacity. We are now shipping the first products to market. The decision was made before the current challenges arose from the conflict in Ukraine and the international sanctions that followed.
"We are committed to giving Russian diabetes patients access to our products. They should not be taken as hostages to the political environment.
"Our approach in emerging markets in general continues in the same way - go in early. Diabetes is relatively inexpensive to treat, so establishing a local presence early gives us a strong foothold as the market grows and the level of wealth increases. We already have local manufacturing facilities in Brazil and China, for example."
Novo Nordisk looks set for a promising year across its global operations (see 'Healthy profits' boxout, below). The first launches of Saxenda and type 2 diabetes treatment, Xultophy, as well as significant results from its late-stage development portfolio, have set the stage for continued growth and Brandgaard's changes to the finance function leave the company in a better position than ever to capitalise on those opportunities.
Focused on three key areas of innovation - diabetes, obesity, haemophilia - Novo Nordisk's operating profit rose by 13% last year, with a 6% rise in sales growth to Kr88.8 billion driven by higher sales of slow-acting insulin, Levemir, and type 2 diabetes medication, Victoza. Sales of modern and new-generation insulin increased by 12%, and sales of Victoza were up by 16%. Net profit was also up by 5% to Kr26.5 billion.
Novo Nordisk's new long-acting insulin, Tresiba, continues to perform well, and its rollout continues in markets such as Japan, where it has already captured 26% of the basal insulin market since its launch in March 2013. In December last year the US Food and Drug Administration approved Saxenda, the first once-daily human glucagon-like peptide-1 (GLP-1) analogue for the treatment of obesity, which uses a molecule similar to the one used in Victoza, but at twice the dose.