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Race for CEO position heats up at GSK

The candidates selected to replace Jean-Pierre Garnier as CEO of GlaxoSmithKline (GSK) in 2008 are halfway through completing the set projects designed to test their suitability for the job

The candidates selected to replace Jean-Pierre Garnier as CEO of GlaxoSmithKline (GSK) in 2008 are halfway through completing the set projects designed to test their suitability for the job, according to a Financial Times (FT) report.

In 2006, GSK's board of directors decided that three senior executives at the firm were the most suitable candidates to become the new CEO and set them tasks on top of their normal duties to see who performed best. The tasks will complete in the summer of 2007 and are seen as important strategic challenges for GSK in the short term. In 2006, the board extended Garnier's retirement date by a year, to ensure the succession process did not interfere with upcoming drug launches during 2007.

David Stout, who is head of pharmaceuticals, has been asked to develop new proposals concerning supply chain management. Chris Veihbacher, who is head of US operations, is considering reforms to pharmacovigilance and reputation management. The latter challenge should address drug safety supervision and improve the company's image with the public. Andrew Witty, who is head of European operations, has been charged with examining new ways of marketing medicines, including expensive cancer drugs, reducing public mistrust of DTC advertising and lowering the burden of drug costs for healthcare systems. Other senior executives, who are less likely to win the race, have also been set projects, including a pricing policy conundrum given to head of international operations, Russell Greig.

The selection procedure at GSK comes as a reaction to a number of CEO changes at other large pharmaceutical companies. AstraZeneca had been planning to replace its CEO over a long period of time, but other companies, such as Bristol-Myer's Squibb and Pfizer, changed theirs almost overnight.

In 2006, the EU overtook the US as the region with the highest proportion of top corporate departures, according to PR consultancy, Weber Shandwick. Also, a spokesperson from Heidrich & Struggles, a corporate head-hunting firm, told the FT that the EU is far ahead of the US in terms of making CEOs accountable to shareholders.

Weber Shandwick found that 18 per cent of European CEOs across all industries left in 2006, compared with 10 per cent in the US, and that the number of departing CEOs rose in Europe, but fell in the US, suggesting that poor leaders are identified and ejected more quickly in the EU region. The study followed departures at Fortune 500 companies and reported that the global changeover rate for CEO posts, although lower than the 17 per cent recorded in 2005, still remained high compared with other job movements.

According to the FT, shareholder activism has been more effective in the UK because shareholders there can call extraordinary meetings with 10 per cent of the voting share capital, while proposing removal of directors if more than half of votes support the move. Weber Shandwick says that the number of departing CEOs in the UK doubled in 2006 from five to 11.

GSK is set to release earnings per share results of GBP 0.951 (USD 1.871/ EUR 1.445) in its FY06 report this week, according to consensus analysts' forecasts, up from GBP 0.826 in FY05. Investors are also waiting anxiously for an update on the late-stage pipeline, including progress toward the launch of cervical cancer vaccine, Cervarix, and novel cancer treatment, Tykerb (lapatinib).

Pre-tax profits are forecast to be GBP 7.8 billion (USD 15.3 billion/ EUR 11.9 billion), up from GBP 6.7 billion in FY05. Sales of GBP 23.4 billion (USD 46 billion/ EUR 35.6 billion) are also forecast, up from GBP 21.6 billion in FY05. Average sales forecast for GSK's top-selling products are GBP 3.3 billion (USD 6.5 billion/ EUR 5 billion) for asthma treatment, Advair (fluticasone/ salmeterol), GBP 1.6 billion (USD 3.2 billion/ EUR 2.4 billion) for diabetes treatment, Avandia (rosiglitazone), and GBP 1.6 billion from the vaccines arm of the business.

7th February 2007

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