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Life and Death is Just Part of the Job: Medtronic
Somewhere in the United States lives a man we'll call Dan, who was born with numerous heart defects. Three months after his birth, surgeons cracked open his chest to implant a valve conduit to increase blood flow from his heart to his lungs. And by the time he was 18, Dan had undergone five more of these surgeries, nearly dying during the last one. He wanted no more.
So it's no wonder that Dan balked when the latest valve began to fail after a normal lifespan of 10 years. He looked for an alternative to cracking open his chest again. And he found one at Minneapolis-based Medtronic Inc. It is a valve that can be collapsed and moved into the heart through a thin hollow tube, or catheter, inserted into an artery in the thigh.
Instead of months in recovery, Dan was in and out of the cath lab in two hours. He was back at work in four days, and was playing volleyball at full strength in a week.
And he can thank Medtronic's in-house counsel, in part, for making it all possible.
First, to buy the idea, the lawyers successfully negotiated with the doctor who envisioned the cath valve. Then they obtained the necessary patents. And in a crucial final step, they persuaded the Food and Drug Administration to grant a humanitarian device exemption for the valve while researchers continued lengthy clinical trials to win full approval for its use. Dan got his valve.
Medtronic's lawyers know that they work on life-and-death matters for people like Dan. It's part of why many of them spend their entire careers there, braving some of the worst winters in the lower 48 states. Even a hardened ex-prosecutor like Joan Humes finds the work inspiring. "There isn't a person in this legal department that doesn't have a passion for the life-changing therapies that we provide," says Humes, now Medtronic's deputy general counsel for litigation and investigations.
The passion is contagiousand it's part of the reason we're recognizing Medtronic's legal department as one of the best in the nation. The company's annual report is laced with stories like Dan's. Medtronic's biomedic products, from stents to pacemakers to brain/neuro stimulators, help an estimated 7 million patients per year. Started in 1949 with one battery-powered device, the company today has 45,000 employees. Its sales in 120 countries last year earned some $3 billion in profits.
But Medtronic remains humble. Humes explains that major company meetings start with a video about a patient whose life has been saved or significantly enhanced by a Medtronic device. No matter how bad a lawyer's day gets at Medtronic, Humes says, "at the end of the day you are always conscious that people are walking around today because of our devices. . . . The company's mission is written on our badges, and infused in our legal department."
General counsel D. Cameron Findlay senses it, too. He tells about getting a haircut one day when his barber asked him where he worked. Told Metronic, the barber thumped his chest and thanked Findlay for an implanted device keeping him alive. "This place has an almost corny devotion to its mission," Findlay says.
But passion alone was not enough to keep the world's largest medical device company out of trouble. Starting in early 2000, the company came under the intense scrutiny of federal prosecutors for an array of alleged misconduct, ranging from cheating Medicare to bribing doctors. As the number of investigations and civil suits grew, the company shook up its legal department.
Enter Cam Findlay in 2009. Findlay left the GC job at Chicago's Aon Corporation to take over Medtronic's legal department. At the time, he says, he didn't think there was a big problem.
He found out otherwise. Findlay stumbled into what he bluntly calls a "decentralized, dysfunctional, and directionless organization." Legal department morale was low, and Medtronic faced bet-the-company litigation involving alleged off-label marketing. At any one time, about 5,000 legal actions were pending on product liability, patent disputes, criminal probes, and shareholder demands. And outside counsel costs were soaring.
The GC's assessment: :I don't think I realized the magnitude of the problems we had here. It is fair to say this was a nice little Minnesota company that overnight found itself as one of the world's largest, and wasn't ready for it.:
So how does a new GC begin to rebuild a talented, loyal, but overwhelmed legal department? Fast and decisively, Findlay says. He tackled the highest-risk problems head-on and instituted best practices across the board, from patent work to pro bono programs, from employment law to new technology, from outside counsel management to regulatory compliance, from contracts to criminal investigations.
Findlay set priorities. At the top was "getting my arms around the physician-relationship issue." The government had pounded Medtronic for repeatedly paying off doctors through schemes disguised as royalties in one case and consulting fees in another. While paying royalties to a doctor who envisions a new device is a legitimate expense, Findlay says he found no consistent basis for many payments. He instituted mechanisms to ensure that relationships with doctors were proper, and payments were transparent and consistent.
He also restructured what is now a 135-lawyer department. He wanted to better use people's talents around their subject matter expertise, and to hire more experts where needed. For instance, Medtronic had excellent IP lawyers, but no one handling the growing government investigations full-time. In his last job at Aon, Findlay saw how important this area can be. He successfully settled an Eliot Spitzer probe while a more hostile competitor watched its people get indicted.
The GC knew what to do. He hired Humes in February 2010 to create a special investigations unit to respond to the government probes "in a more consistent and cost-effective manner." In joining Medtronic, the former assistant U.S. attorney left a job as general counsel for the public and senior markets unit at UnitedHealth Group Inc.
Hers was no small chore. For one thing, the company was spending 60 times as much money on government investigations as it had four years earlier. At this writing the company still faces 11 government probes relating to problems before Findlay and Humes arrived.
One obstacle for Humes was that Medtronic had lost credibility with prosecutors. Humes says her ex-prosecutor status won her no favors, but got her in the door. She adds, "You do get some credibility, some benefit of the doubt. That's all I want."
The law department also fostered a cultural change. First, she says, she made it clear to her business colleagues that the government was not an adversary. "We share a common interestpatient care," she says. "We both want a health care system with financial integrity where patient care isn't distorted by dollars."
The next step was showing the government that Medtronic was working hard toward that goal. She enlisted the help of the business units and the compliance office, which does not report to the legal department, to design processes to change employees' behavior in the fieldglobal training, extensive monitoring, more feedback. And she was honest with investigators. "You err on the side of disclosing problems you have a plan to fix or have fixed already," she says.
As the business side underwent change, Findlay kept relaying that message. He joined Humes in face-to-face meetings with investigators, assuring them that Medtronic was taking the issues seriously. But to do that, Findlay had to overcome his outside counsel's misgivings. Stephen Immelt, of Hogan Lovells in Baltimore, says he and Findlay debated the pros and cons of his being involved in meetings with investigators on a major case involving proper use of clinical trials. He says there were periods of intense discussions over a one-year period, including some eight meetings with the government. Findlay was at every meeting. Immelt calls Findlay a brilliant lawyer with an amazing resumehe's an ex-deputy secretary of the U.S. Department of Labor and former deputy assistant to President George H.W. Bushbut also someone who has a "disarming and down-to-earth" manner.
For corralling outside counsel costs, Findlay turned to legal operations chief Gary Nelson. What the GC found was a lawyer who loves technology and knows how to use it. Nelson, who has been with the company since 1993, helped create a legal dashboard that includes legal spending trends and status of key matters. He helped develop metrics showing legal spending by firm, average hourly rates, workload by firm, and many more.
With Nelson in the lead, the company went through an extensive selection process. It eventually slashed the number of law firms it uses from over 600 to about two dozen.
The choice of law firms, of course, included discussions of fees. Medtronic now has in place an array of alternative fee arrangements that include contingencies, discounts, fixed fees, and risk sharing. The payoff: Findlay says the company has cut its outside counsel spending by 40 percent over the last two years. Findlay deflects any credit. "It was just a matter of doing things that other law departments were doing [to lower costs]," he says.
And there were other cost-savings measures. One involved creating a "virtual law firm" of inside and outside lawyers when a new case arises to drive the case to the best possible outcome at the lowest cost. The litigation team, also under Humes, designated a liaison attorney who works with lawyers based outside the U.S. on best practices. And Nelson helped Medtronic establish technology for matter management, e-billing, and its own e-discovery department.
Even chief patent counsel Michael Jaro adds to the savings. His group is reviewing the over 23,000 patents owned by Medtronic and selling off those not being used. They have to hurrythe company adds new patents at the rate of nearly six per day.
Jaro is another longtime employee. He joined Medtronic in 1993 and has seen it grow from a Minneapolis company to one with facilities all over the world. "In the world of IP," he says, "our product mix has gotten extraordinarily complex."
Jaro's goal is to keep Medtronic out of litigation as a defendant, but aggressively on the offensive. To do that, he keeps his attorneys up-to-date on where competitors have patents, where Medtronic has them, and where the lines are. The strategy paid off last September, when a federal district court jury in San Diego awarded the company over $100 million from NuVasive Inc. The jury said NuVasive infringed three Medtronic patents related to spinal implants and surgery.
Other busy legal areas for the company include employment law and mergers and acquisitions. Neither is a surprise for any high-tech company. Many of its new products, ideas, and patents come from smaller companies it buys, Findlay concedes. With two full-time M&A lawyers, he jokes, "we are a serial acquiror."
Besides other changes Findlay has made, chief employment counsel Michelle Miller welcomes the GC's devotion to diversity. He is the first boss to be serious about it, she says. Of 116 Medtronic attorneys in the U.S., women represent 40 percent, and people of color represent 17 percent. The percentages are even higher for senior positions. "Cam put his money where his mouth is in developing lawyers and making sure we are diverse," Miller says.
Even more changes are in store for Medtronic's legal department. Findlay says Omar Ishrak, the new chief executive officer who took over last June, is emphatic about transforming into a truly global company. He says the CEO has "challenged us on whether we have sufficient resources in emerging markets," especially China and India.
That means Findlay looks for more ways to integrate legal functions around the world. He did just that last year, when Medtronic settled some 14,000 claims in the U.S. over possibly faulty defibrillator wires for a fraction of what claimants wanted. With class action suits still pending around the world, the GC held a product liability summit in Minneapolis. "We brought everyone here, including the law firms," Findlay says. "We walked them through the facts and the procedures we used [to win settlements], then handed it off to our lawyers and law firms around the world so they could use it."
And the push for growth goes on. While Medtronic has been doing business in Asia for more than 30 years, it recently made significant investments in manufacturing facilities as well as educational programs for doctors. Key initiatives include a manufacturing unit and education center in Singapore; a greater China headquarters that includes a training center for 9,000 physicians, with a virtual cath lab, surgical room, and classrooms; a Beijing patient care center; and an India headquarters in Mumbai, where Medtronic plans to add over 500 employees in the next five years and to train more than 4,000 implant doctors.
Findlay says the CEO wants a full legal team in India, where two lawyers now work. And his entire staff has to start thinking of compliance in more global terms, he adds. "[Ishrak] has taken me to China already," the GC says, "and he is taking me to India next month. It's exhausting to work for him, but really exciting."
But there may be more rest in Findlay's future. As a Christmas present for his wife, Findlay underwent his own Medtronic transplant a few months ago. Three tiny polyester "pillars" were placed in the soft palate in his mouth. In a few months the pillars stiffen the palate tissue and keep it from vibrating at night. In other words, it's a cure for snoring.