Belén Garijo’s prescription for Germany’s Merck

Belén Garijo is a Spanish former doctor running a German pharmaceuticals business called Merck. Her $62 billion company, which also has life sciences and electronics divisions, has had nothing to do with the $231 billion US drugmaker of the same name since Washington expropriated George Merck’s US business during World War I. Occasional trademark disputes, though, have led Garijo’s group to prefer to be identified in articles as “Merck, KGaA, Darmstadt, Germany,” as opposed to “Merck & Co., Inc., Rahway, New Jersey, USA.”

Making such distinctions clear has been the least of Garijo’s challenges since she became CEO in 2021. She recently addressed her team on the theme of leading amid adversity — “I’m an expert on that,” she remarks drily.

Merck’s stock has halved since the end of 2021, as demand ebbed for the COVID testing kits that had powered the shares to record heights during the pandemic, as competition to a key bladder cancer drug intensified, and as it faced a series of economic, geopolitical, and currency headwinds.

In that time, though, Garijo has reshaped the group’s portfolio with divestitures and acquisitions, redesigned its supply chain to be more resilient to tariff upheavals, and announced plans to hand her title over to Kai Beckmann, the CEO of its electronics division, in May.

“Our portfolio is strong. We are playing in highly attractive markets, and we have returned the company to growth in 2024 in a very challenging environment,” she says. But getting to that point required a counterintuitive view of restructuring, a risk-taking approach to talent, and a diagnosis of Merck’s challenges that stems from Garijo’s early career working in hospitals.

“I look at the business as I used to look at my patients. So I know how to make a distinction between the symptoms and the root causes. And I act on the root cause rather than on the symptoms,” she says.

A 13th-generation view of long-term strategy-setting

Merck styles itself as the world’s oldest science company, and most of its stock is still held by the heirs of Friedrich Jacob Merck, the pharmacist who founded the business in 1668. Members of the family’s 13th generation sit on its “board of partners,” which must approve all capital allocation decisions above a certain threshold.

The family’s presence helps ensure stability and a long-term perspective, Garijo says. The company cares about its stock price, but its decision-making is driven by the need to ensure long-term sustainable growth. That ethos has guided a shift in her tenure from making acquisitions for the purpose of gaining scale to a “string of pearls” approach in dealmaking that brings in innovations that the company expects will pay off over time.

It also allowed Garijo to resist pressure from non-family investors to make more acquisitions in life sciences a few years ago, since when many of its potential targets’ valuations have been sharply marked down. More broadly, though, Garijo says the focus on a horizon beyond the next quarter has encouraged her to take action to reshape Merck’s businesses even when they have been performing strongly.

“Most importantly, we transform in times of growth,” she says. The pandemic boosted Merck’s life science business, she notes, “and it was during those times of growth that we started to prepare for the next three to five years, and I started to work on efficiency.”

Explaining counter-cyclical transformation is “challenging for an organization that is growing very fast because people do not understand why you cut costs,” she acknowledges, but anticipating the conditions that lie ahead is critical.

How to turn a conglomerate into ‘One Merck’

Merck’s three-industry structure is “a risk-reward model that fits… family ownership,” Garijo says, because as unlikely as it is that all three sectors will be outperforming the wider market, it is equally unlikely that all three will be struggling. “If we had been a pure-play pharma [company], I don’t even want to think of the pain we would have gone through” since the pandemic boom ended, she remarks. “We have looked at other options, but diversification, I believe, is a strength.”

Even so, she believes that Merck’s recent share price weakness in part reflects a “conglomerate discount” that outside shareholders apply to companies with operations straddling multiple industries. Few shareholders excited by the prospects for an electronics business supplying most of the world’s semiconductor manufacturers, for example, will be equally informed on its array of oncology, neurology, and fertility treatments.

Garijo has sought to answer investors’ questions about conglomerates by demonstrating that the group’s operations can find meaningful synergies in manufacturing, innovation capabilities, and AI-driven research. “If we believe that bioconvergence is going to come to fruition, there is no company that is better placed to address the convergence of engineering, digital, and biology” as Merck, she says.

To unlock those shared opportunities, though, she needed to build a “One Merck” culture, uniting people in its disparate operations around shared goals and leadership expectations. It used to be rare for Merck employees to move between divisions, she says. “Today, a significant percentage of our enterprise talents move [between] sectors, so this is giving us a tremendous pipeline of talent that we can use for our diversified company.”

She has paired that cross-fertilization of talent with a new “scorecard,” tying incentives to the performance of the entire company rather than to individual divisions. She has pushed the three divisions’ heads of research and development to work more closely together to identify opportunities for collaboration, and told Merck’s top 150 leaders to cascade the “One Merck” approach down to their own teams.

The board and senior leadership team have to articulate a common message: “No building kingdoms at the top, but rather, having people working together,” she says. “Cultural transformations are not very easy, as you can imagine, and do not happen overnight, but it’s about repetition, role modeling, and most importantly, a consistent tone from the top.”

The case for taking risks when hiring top talent

Garijo was the first woman to lead a company listed on Germany’s DAX 40 index of blue-chip stocks without a male co-CEO alongside her. She is “absolutely frustrated” to hear talented young women still asking the same questions that crossed her mind 30 years ago, she says: “Can I have a family and a career? Can I make it compatible? Do you think that society is going to accept [it]?”

Countries like Germany have to push back on those societal pressures and “educate our female talent, from very early on… to raise the hand whenever we aspire,” she says. Almost 40% of Merck’s senior leaders are female, she adds, which has happened neither by chance nor by quotas, which she disagrees with. “This has happened because we have a talent management [process] that is not discriminating.”

Merck’s businesses review their talent pipelines several times a year. She recalls one meeting when she was running its health care division and was presented with all-male lists of potential candidates for two roles. “So I closed the book like this,” she says, clapping her hands, “and I said, ‘Guys, you are wasting my time.’”

Garijo’s approach to hiring senior leaders has been guided by her own unconventional career path, which started in health care and clinical research.

“My own career is an example of people who trusted in me more than I even trusted myself,” she recalls. That taught her to hire not just for experience but “for aptitude and for the leadership profile.”

What she looks for as a result is not just a candidate who can master the specific job, but someone who “will be irreplaceable when it comes to driving, energizing, and mobilizing the organization,” and who has the strategic foresight to anticipate what the business will need to stay successful five years from now.

“Many people took risks on me,” Garijo explains. “I came from R&D to commercial without having any experience in commercial, so if I had been calibrated by the traditional specs, I wouldn’t be here. So I learned to take risks.”

As Garijo begins the process of handing over to Beckmann, a 36-year company veteran credited with turning its electronics business into a leader in semiconductor and optical technologies, she is thinking about her next step.

She has been appointed to the board of Unilever and expects to find other non-executive positions in the health care industry and perhaps in private equity. She may run her own business, too, she adds, or go back to medicine pro bono. “I have made several inflection points in my career, and this is another inflection point for me.”

Looking back on her time challenging the German Merck to transform itself, she says there was one thing she never considered: changing the company’s name.

Yes, she says, people have occasionally confused her with Rob Davis, her opposite number at Merck US, and his predecessor, Ken Frazier. “But Merck stands for the name of the founder of the company that has been in business for 357 years,” she says emphatically. “We are not at all open to changing the name and naming ourselves other than Merck, because we are Merck. The real Merck.”