Just how important this role is became evident during a recent crisis over faulty batteries for the company's pacemakers (or "pacers," as they are called in the trade).
The problem arose, ironically, out of an attempt to innovate. Engineers at Cordis thought they could reduce the size and improve the efficiency of pacers by producing a hermetic, leakproof, lithium battery to be used in the devices. Shortly after introducing the new batteries in 1979, however, the engineers became aware of a potential complication when one of the engineers attended a seminar on lithium batteries. There he learned that the new construction Cordis was using might eventually cause the batteries to corrode. Even though no problems had yet surfaced, Cordis changed the battery specifications, while it set about monitoring and testing the 8,500 sealed-battery pacers that were already in use.
During this process, the engineers came across another potential problem -- a bizarre chemical reaction that was causing a gradual depletion of the batteries. Upon discovering the problem, the company immediately sent an advisory to all physicians who had installed the devices. Although the pacer warranty didn't apply in such circumstances, Cordis nevertheless offered to reimburse all third-party costs resulting from the battery problem and to pay for replacement when necessary. The company also notified the U.S. Food and Drug Administration (which later issued a pro forma recall of the affected pacers).
So, in the end, medical wisdom saved the day. It was medical wisdom, after all, that prompted Cordis to halt production of the sealed batteries at the first hint of trouble. And it was medical wisdom that led the company to monitor the suspect pacers for two years and then to respond quickly and effectively as soon as further trouble was detected.But, most important, it was medical wisdom that lay behind Cordis's education program, designed to keep engineers abreast of the latest developments in the worlds of science and medicine -- a program that resulted in the discovery of the problem at a very early stage. Cordis has made roughly 100,000 pacers since the introduction of the hermetically sealed lithium batteries. If it were faced today with the need to deal with 100,000 potentially faulty pacers -- rather than 7,900 (about 600 have already been replaced) -- the crisis, however resolved, would have killed the company.
The role of "keeper of the corporate flame" is one to which most company founders seem to gravitate over time. "It is as close to the truth of what a founder should ultimately do as you can get," remarks Donald Clifford of McKinsey & Co., a student of the phenomenon. He recalls parenthetically that Marvin Bauer, one of McKinsey's early managing partners, always found a way at any meeting to tell a story that in some way emphasized the importance of commitment to the firm's original ideals.
That is, indeed, how many founders play the role -- telling stories, often hammy ones, that are nevertheless imbued with a patina of authority and through which the founder comes to be seen as the repository of the company's values. At first blush, this may seem like a largely symbolic function, and to some extent it is. Yet it may be the best way -- perhaps the only way -- for a founder to control his company's destiny. In defining the company's values, after all, he is defining the way in which the company is perceived by its own employees, the people charged with carrying out its mission. "For the employees, Dr. Murphy is Cordis," says Gerard Gow, who has been at the company for more than 15 years. "Even if their last conversation with him was five years ago, they will remember that conversation."
This is not to suggest, of course, that it is easy to be a keeper of the corporate flame. Quite the contrary. There is, for one thing, the problem of figuring out what exactly the corporate flame is -- what principles lie at the heart of a company, what ideals should guide it, what mission it has, and what values are essential to its long-term success. Together, these constitute the company's underlying ideology, the system of beliefs on which it is founded. Like the company itself, this ideology is constantly being tested and challenged in the marketplace, and over time it may have to be modified or adapted. The tricky part is to figure out how and when. "The corporate flame may burn too hot or too cold, or it may burn the wrong rear end," observes Professor Renato Tagiuri of Harvard University's Graduate School of Business Administration. "An important thing for a founder to decide is whether the original ideology is still viable."
Murphy, for his part, has never doubted the viability of his company's original ideology, although it has occasionally been questioned by the investment community, and even by his own board of directors. On the whole, Cordis's performance tends to bear him out: The company Murphy founded in a garage in 1957 is expected to gross $207 million during the current fiscal year. Murphy would be the first to admit, however, that his faith has had to survive numerous tests over the years.
William Murphy grew up in Boston, the son of Dr. William Parry Murphy, an eminent physician at Harvard Medical School and Peter Bent Brigham Hospital, and one of the first American Noble laureates in medicine. "I did not quite grow up running barefoot through the halls of Peter Bent Brigham," the son recalls, "but almost." Medicine filled his life. Such people as famed cardiologist Paul Dudley White were regular visitors at his house. So total was the medical environment of his youth, he says, that it never occurred to him not to go into medicine.
On the other hand, Murphy also discovered early on that he had a gift for something besides medicine -- namely, mechanical engineering. He liked to tinker and, as a teenager, got into designing medical tools. In due course, he became aware of the primitive state of medical instrumentation at the time. "It was not in vogue to do unusual things with the medical profession from an engineering point of view," he recalls. For Murphy, this situation posed a challenge and an opportunity, and he soon settled on medical engineering as a career.
After completing his studies in both medicine and engineering, Murphy worked on a number of projects, including one that resulted in the development of the first artificial kidney, his role, he says, was "resident gadgeteer." Eventually, he took a job with Dade Reagents Inc., a Miami company that manufactured blood serum. "They were at that point a small independent company in a field in which I had quite a bit of experience," he says. "I expected that I could develop into a senior person in that company. But about a year after I joined, they sold out to American Hospital [Supply Corp.], and I became a very small toad in a very large pond. It didn't seem to me that there was much opportunity for an entrepreneur in that kind of a company."
So Murphy decided to form his own company. He called it Medical Development Corp. "It was a terrible name," he admits. "It was so bad that the directors couldn't even remember it. And when that happens, you're in trouble." In 1959, he changed the name to Cordis, meaning "of the heart."
Name aside, the company was in the business of developing research instruments for medical practitioners -- a field in which Murphy was particularly qualified. "Probably my prime contribution to the company has been the fact that I'm trained in two disciplines and understand both of them well enough to communicate in both areas," he says. "I have a sensitivity not to what a doctor thinks he wants, but to what he probably really does want. . . . Most doctors are attracted to medicine because they have a compulsion to relate to their fellow human beings. They want most desperately to do something for their patient, and they really don't care very much about anything else. [The problem is that] there are often times when you can't do something for a patient -- not because medical science can't cure the problem, but because you just can't beat the odds. Maybe you don't have the equipment, or maybe the equipment can't be applied, or maybe people are too fatigued to do it properly -- just simple logistics. . . . These are the kinds of problems that I enjoy helping to solve, and this is where I have spent most of my energies . . . working with situations which were, I thought, terribly obvious but which nobody else seemed to recognize."
One of those "terribly obvious" situations involved a medical procedure known technically as a "lumbar puncture" -- that is, a spinal tap -- in which a needle is used to extract, and measure the pressure of, the fluid in a patient's spine. Murphy had both observed and performed the procedure, and he had noticed a persistent problem: The needle was often dull or had a burr at the end, with the result that the administering physician sometimes did inadvertent harm to the patient. Studying the situation, Murphy realized that the instruments used in spinal taps were generally a haphazard collection of cast-off items from the operating room. To make matters worse, they were handled frequently between procedures and not taken care of. A needle might, for example, be used nine times without sharpening. Under the circumstances, a doctor could hardly have much confidence in his instruments. So Murphy came up with the idea of disposable instrument trays for spinal taps and other procedures.
"When I started Medical Development Corporation, I got all excited about this concept," Murphy recalls. "I designed a lumbar-puncture tray, and a bladder-catheterization tray, and a pressure tray, and a couple of others, and I made a thousand of each one. It cost a helluva lot of money, and I knew that it would be expensive to try to go into that business."
Besides, his own company needed cash. So he took the idea out and sold it. "I had three patents, and I sold them to Mead Johnson [& Co.] The concept brought us in about $300,000 in royalty fees over a couple of years -- a real nine piece of money."
Today, the disposable procedural tray business grosses $600 million annually. "I guess if I had really been a smart person, I'd have made it our principal business, and we'd be rich," Murphy notes wryly. "But the point is just that that's the kind of product which is fairly obvious, if you understand the need well. But you have to be knowledgeable, and an engineer probably wouldn't recognize the need for it, while those who understood both areas would."
Murphy's ability to move comfortably between the world of engineering and the world of medicine soon came to define his role in the company, and it was a role that he enjoyed. He developed an almost messianic attitude about improving the technology of health care. At the same time, however, he recognized the need for someone to run the business -- to oversee the company's finances and handle the day-to-day management responsibilities. The man he recruited for the job was John Sterner.
Sterner is a scientist -- a physicist, to be precise -- who, until 1979, served as Cordis's president. Prior to joining the company in 1959, he had already been through a start-up of his own, a spectrographic equipment company called Baird Corp. When Murphy contacted Sterner, Cordis was in its second year and had recently moved from the garage into a small house. The premises were modest, but Sterner was not put off by them, nor by the fact that Murphy was 10 years his junior. On the contrary, he found Murphy to be a very impressive man. "I saw right away that he was most unusual, a man with a great deal of imagination," Sterner recalls.
Indeed, Murphy's personality is one topic on which all his colleagues seem to agree. He has tremendous presence. He is quiet, courtly, and soft-spoken. When he talks, he conveys a sense of great integrity and will. "Such is the force of Bill Murphy's personality," says Norman Weldon, the current president of Cordis, "that those around him adopt whatever coloration is necessary to augment his particular skills. That was true for John Sterner, and it is true for me."
Murphy's personality made a similar impression on General Georges F. Doriot, the Harvard Business School professor and legendary venture capitalist, to whom he was introduced by Sterner in 1960. Doriot's firm, American Research & Development Corp., eventually invested $225,000 in Cordis. More important, Doriot helped Murphy and Sterner to develop a corporate strategy geared toward the long-term growth of the company.
The key to the company's growth was research and development -- something in which Murphy believes passionately and for which he was willing to make substantial sacrifices. He was well aware that Cordis could come up with state-of-the-art health-care products only by spending the money to develop them. The consequence was that, for its first io years, Cordis had a negative net operating cash flow. Rather than reduce R&D and milk existing products, Murphy and Sterner frequently went to the equity markets, diluting their own holdings.Today, they control less than 5% of the company's stock. "We might have held on to more stock," says Sterner, "had we spent less on R&D." Then again, he shares Murphy's view that the health and growth of the company is more important than personal enrichment.
Murphy's influence was felt in other, more subtle ways as well -- in the shaping of Cordis's public image, for example. Early on, he decided to commission Lippincott & Margulies Inc., the eminent corporate image consultants in New York City, to come up with a logo and design specifications befitting a young company with big ambitions. "Dr. Murphy seemed to realize that even though the company was small and new, it would be important to present a face to the world as though Cordis was big and established," says Jack Goldstein, who worked on the project for Lippincott & Margulies, and later left to join Cordis full-time. "A lot of the other companies in the field back then presented no coherent image." Murphy still devotes considerable attention to such matters -- overseeing the way in which Cordis's exhibits are presented at trade shows, for instance.
But it is in the area of design that Murphy has had his greatest impact, for it was there that he discovered and developed his role as "medical conscience" of the company.
"In the early days, I did much of the design myself," he recalls, "but the first engineer we got in naturally wanted to make some design decisions of his own. . . . Every man wants to make his own contributions and will be unhappy if he can't do it -- if the boss tells him, 'No, don't do it that way, do it another way."
For that reason, Murphy found that he had to play an increasingly editorial role as his engineering staff grew. He began acting like a teacher, probing deftly to make sure that new product designs served the needs of patients and physicians, rather than engineers. His style was oblique. If he spotted a problem, he would seldom confront the engineer directly, but rather would ask questions, coaxing the engineer to look at the design from the customer's point of view. It was a long and arduous process, and he didn't always succeed.
The problem was not talent. From the start, Murphy had gone after the most capable engineers he could find, hiring them away from companies like Mead Johnson at a time when Cordis had only 10 employees. But, in Murphy's view, it was not enough to have first-rate engineers.
"Finding people who understand both worlds -- the world of engineering and the world of medicine -- is perhaps the hardest thing to do in a company like ours," he says. "We have a few such people, but it's one of the hardest kinds of training to construct, and it's the most difficult thing to teach. We have engineers here whom I have great regard for, and who do a good job, but who still, after 25 years in the company, don't understand that if it's good for an engineer, it isn't necessarily good for a physician. That's so obvious to me that I find no difficulty in discriminating between the two, but I have yet to teach them the principle. I can teach them the fact in an individual situation, but the principle as something that guides you is very hard to teach."
As difficult as it was, Murphy searched for ways to make employees understand that principle. Early on, he began putting his thoughts on the subject into writing. Later, he found that he was spending more and more time trying to get the message across by telling stories that somehow illustrated or dramatized the values of the company. "What surprised me was that I would have to tell a story more than once," he recalls. "I would have thought people would have got it the first time." Nevertheless, he went on telling the stories. He also made a point of being visible in the company -- and not just to the engineers. "It is equally important for Maizy on the production line to be reminded by the founder that the pacer she is working on is a life-or-death matter for the person wearing it," he says.
Over time, Murphy's efforts did have an important effect on the company. He gave employees a sense of purpose, which carried over into their work. Cordis began to develop a reputation for excellence in its field. But then, in 1975, a crisis arose that threatened the company's existence -- and called into question the viability of Murphy's whole approach to business.
The problems first surfaced in the manufacturing area, which was suffering from poor management. The fact was that both Murphy and Sterner had a bias toward science and engineering, and tended to negtlect the production side, which was staffed -- according to Norman Weldon -- with those who "had failed at engineering, rather than those who had excelled in running a manufacturing operation." Without efficient, uniform manufacturing procedures, a logjam of pacers built up that couldn't pass the company's rigid inspection standards.
Meanwhile, another problem had developed with a major supplier called CTS Corp., which manufactured circuits for Cordis's pacers. CTS had always done high-quality work, and the two companies enjoyed a good relationship. Lately, Cordis had been pushing CTS to develop new technologies that would improve the performance of the pacers. In its effort to comply, CTS had inadvertently supplied some faulty circuits. Cordis discovered the problem and immediately took steps to correct it. Nonetheless, the company soon found itself under attack by the FDA, which tried to enjoin Cordis from distributing the pacers.
"We felt very strongly that we did not warrant" the FDA's action, says Murphy, ". . . but it's like any war: No matter who wins, everybody loses. In the sense that we caused them not to close the company, we won. But in the sense that it cost us what was at that time a very strong competitive position, we lost."
Aside from a ruined bottom line, Cordis suffered the most damage in its sales force, whose members found their commission income plummeting. They were thus an easy target for Cordis's competitors, and a choice one as well: Because of the complexity of pacer technology, salespeople tend to have close relationships with the physicians they supply and thus can take their customers along when they switch companies. Cordis's competitors took advantage of the situation by offering what one employee describes as "fantastic" inducements to waivering salespeople.
As the crisis deepened, Murphy called a meeting of the company at which he spoke about the problems with the FDA. He said that he felt the FDA action was unwarranted and that the problems were not the fault of the workers, who he believed were doing an excellent job. In order to survive, however, the company was going to have to reduce expenses. He announced that exempt workers would be cut back to a four-day workweek, and that nonexempt workers would be asked to work a five-day week for four-days' pay. He gave no indication as to how long these measures would be in effect. Such was the loyalty of Cordis's work force that very few employees defected as a result of these actions.
In the months that followed, Murphy took to the road to defend his company, appearing in court to contest the FDA's action and traveling around the country to reassure the medical community. "He took the whole thing personally," says one executive, "and there were those outside the company who felt his response was even arrogant." Arrogant or not, Murphy undoubtedly viewed an attack on Cordis's integrity as an attack on his own.
Eventually, the company solved its cash-flow problems through an arrangement with CTS. The latter agreed to buy 23.6% of Cordis's stock for $5 million.Cordis retained the right to repurchase this stock in the future at higher prices. As a result of the agreement, CTS became Cordis's largest shareholder. During the next two years, CTS was wooed by several companies interested in buying it as a way of acquiring Cordis, but CTS rebuffed the suitors, and -- by 1977 -- Cordis had recovered sufficiently to buy the stock back.
In the meantime, Murphy and Sterner had addressed the manufacturing problems, bringing in Frank Fischer from General Electric Co.'s Locomotive Division. Fischer quickly took control of the operation and, among other things, managed to reduce the internal rejection rate from close to 30% to less than 2%.
So Cordis survived the crises, emerging bloodied but unbowed. For Murphy, however, there were lingering questions about his role in the company -- questions that began to surface in the late 1970s.
The issue was management. "The directors felt that the business was not run as well as it should be," says Murphy. As it happened, Sterner -- who was in his mid-60s -- had already decided to retire, and Murphy agreed that the company needed new blood. "Still, I was a little disappointed in our directors," says Murphy. "They really did not appreciate the fact that both John and I were sensitive to that need, and as eager as they were to bring someone in. But we also faced the problem of doing that in the right way. I found that even after we did it, the directors didn't understand that we did it, they didn't. . . ."
In the end, Murphy and Sterner approached Weldon, who at the time was president of CTS. According to Sterner, they had been impressed by the way Weldon had performed during the crisis. At no point had he tried to interfere in Cordis or take advantage of its vulnerability. Weldon, for his part, says that he had long wanted to get involved in a health-care company, and consequently was receptive to the offer.
As for Murphy, he was pleased with the choice. "We identified Dr. Weldon as being a good manager, as being the kind of guy we thought fully cared about the quality of the business -- I think that we need to be people of quality in every sense of the word -- and he had the one quality which both John and I considered to be an absolute, rock-bottom must, and that is honesty. I know a lot of people who get a little nervous when the chips are down, and you aren't quite sure where they're going to go. We have seen Dr. Weldon in that kind of a situation, and there's no question about his response. . . ."
So, in 1979, Weldon joined Cordis as a director and president-elect (Weldon became president and Sterner became vice-chairman in July of 1979). For the next two years, he, Murphy, and Sterner worked as a three-man team, allowing the transition to be made in an orderly manner. In 1981, Sterner formally retired.
Looking back now on his years at Cordis, Sterner says that he has "only one regret -- only one thing I personally would have done differently. We made all of our successes out of state-of-the-art jumps. When we got a state-of-the-art jump, we should have taken advantage of it by putting a lot of muscle into developing a line of products -- including 'me-too' products. We talked about it, but we never did it. As I look back, I should have insisted that we put more of our resources into doing it, perhaps even at the expense of our R&D budget. It wouldn't have made us a 'metoo' company, but it would have made us a more profitable company, and it probably would have accelerated our growth. That is one of the reasons I was excited about having Norm [Weldon] come in. He recognizes that, and has already shown signs of doing that. To the extent that this interferes with some of the things Bill [Murphy] wants to do, I can understand Bill being a little restive about it."
Murphy does, in fact, sound a little erestive these days, particularly when discussing his board. "I am not really fighting a battle with the directors," he says. "They just aren't quite as bold as I tend to be. They tend to be a little slower to get excited about things, and maybe that's good. . . . I tend to buck the tide a little bit. I am very much a conservative in most of my outlook, except that I think high tech requires a certain amount of boldness, a willingness to get on with something you believe in, even though it isn't very popular. If we hadn't done that in the past, we would be lost."
In the final analysis, however, it is not so much the board Murphy must convince as the company's employees, and he must do that by indirect means. Because he doesn't have a controlling interest in Cordis, he cannot simply hand down policy. Then again, Murphy has long recognized that leadership is not a matter of giving orders. "You are either technically skillful and people support you, or you aren't," he explains. "I think, at this point, my record is good enough that I don't have to worry too much."
His technical record aside, Murphy continues to work at developing a culture at Cordis conducive to "medical wisdom." Although he himsdelf does not care for open offices, he decided long ago that they could help to foster the atmosphere he wanted, and so he put his personal preferences aside. And although he is hardly a glad-hander, he holds companywide banquets each year, at which he gives Annual Service Awards to selected employees. The company cafeteria is turned into a banquet hall, complete with linen and catering. A man with a camera energetically works the room, and afterwards many attendees receive photos inscribed with a few words from the photographer. The photographer is William Murphy.
Through all this, Murphy has made believers out of the people who work for him. "When I first came here, I'd hear Bill talking about quality at the highest level, and I'd wonder whether it was economically feasible," says Frank Fischer, Cordis's operations chief. "The numbers aren't clear from a classic analysis. Two or three years later, I began to believe his obsession with excellence does pay, although I still beieve that it can't be determined from the kind of analysis taught in business schools in the United States."
Lately, Cordis has been seeing the benefits of Murphy's insistence that the company be guided by medical wisdom and concern for patients. In the early 1980s, certain pacer companies were purported to be boosting sales by offering physicians gifts of cars, boats, junkets, cash, and the like. Cordis refused to go along. As a result, says Weldon, the company earned a reputation for being "impossibly naive" about doing business in the pacer industry. Then came the kickback scandals that tarnished other pacer companies but left Cordis unscathed. Now the company is viewed as being "ahead of its time." Meanwhile, Murphy's commitment to innovation has enabled Cordis to recapture the number two spot in the industry (after Medtronic Inc. of Minneapolis) with the introduction of a new generation of pacers.
All of this is a source of considerable pride to Murphy, who is quite clear about his feelings for Cordis: "I do see my company as an expression of my personality. If you're the head of a company, of course you see it that way. You make most of the critical decisions, and, if you make a lot of dumb ones, you don't do well. The products that we're making, the way we do them is intimate with the medical world, and the reason I'm here is because I'm part of the medical world. It's a little hard to divorce myself from that.
"Somebody once said that you really shouldn't love a company, because a company isn't a lovable entity: It's a money machine. Most of the decisions you have to make are based on economic pressures. I personally make decisions that have other ground rules, and I don't believe that you should exclude an emotional attachment to a company, but I suppose I'm in the vast minority in that regard."
Then again, he could hardly feel much different, for Murphy is a man who loves his work. There is the story, for example, about the time he was seen in animated conversation with a colleague as they prepared to go out for dinner. Curious, the bystander tried to overhear the topic of their talk. On a social evening, Murphy and his associate were discussing the great hardware stores of the world.
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