Dave Yost, CEO, AmerisourceBergen

Leading By Example

Dave Yost, CEO, AmerisourceBergen

DaveYostDave Yost’s working class background influences almost every aspect of how he manages and leads AmerisourceBergen, a pharmaceutical wholesaler that employs about 10,500 people and posted revenues of more than $70 billion in 2008. Raised in Delaware, Dave’s father was a diesel mechanic and his mother was a teacher’s aide.

“Going to college,” he told me, “was a pretty big deal.” That’s because Dave was the first in his family to do so.

“I think the guy at the top sets the tone for the organization,” Dave continued, “not in an egocentric way, but the guy in charge has to walk the talk because people watch what you do versus what you say. I’m here at 6:30 in the morning. Could I do the job getting here at 8 a.m.? Yes, but I want people to know I’m here at 6:30.

“We don’t fly around in corporate jets because this company operates on a very thin profit margin, and because I expect people to ride coach like I do. One of our salesmen came down the hallway one day and said to me, ‘Geez, Dave, I didn’t get in until 2 a.m this morning because my flight was cancelled.’ And I said to him, ‘Same thing happened to me the last time I flew to Denver.’ I could relate to him because I’d been in the same situation, and that’s a big part of leading a company. In my opinion, a lot of financial problems in our country result from a sense of entitlement that starts with the guy at the top.”

AmerisourceBergen is headquartered in Valley Forge, Pa., with locations through the U.S., Puerto Rico, Canada, and the United Kingdom. It buys pharmaceutical and healthcare products from manufacturers, maintains large inventories in its warehouses, and delivers the products to drugstores, hospitals, chain stores, and physicians the day after they’re ordered. This allows its customers to maintain small inventories and order quickly, according to demand.

“We’re the classic middle person,” Dave said. “The value we offer the manufacturer is that we bring their products to the marketplace in a very timely manner at the right price and manage the customer receivables. We help create the market for generic manufacturers, because we search for the best value products and make them available to our customers. For the customer, we get them the product on demand, so they can literally order tonight, get it tomorrow, and carry no inventory.

“We do a lot of volume,” Dave went on, “north of $70 billion, but we work on incredibly thin margins. Our operating margin is 1.2%. Our net profit after tax is 0.75%. If you were to take a $100 bill and put three quarters on it, that’s what we make–75 cents for every hundred dollars. Our gross profit is less than 3%, so we’re running the whole company on less than 2%. This is a pennies and basis point business. I constantly remind all of our stakeholders not to be mesmerized by our revenues.”

The roots of pharmaceutical wholesaling go back over 100 years and AmerisourceBergen is an amalgam of many companies. The present firm came into being in 2001 when AmeriSource Health Corporation merged with Bergen Brunswig Corporation. Yost was CEO of AmeriSource Health at the time.

“I’ve been a public company CEO for 48 quarters,” Dave said. “Some people would say 12 years, but when you’re a public company you talk in terms of quarters. My job is to produce both long term and short term results. Our compounded earnings per share have grown 16% during the last seven years.”

Dave’s father had been a flyer during World War II, and he grew up wanting to be a pilot. He graduated from the Air Force Academy, but was not pilot qualified at graduation due to eyesight and depth perception issues. After the Air Force Academy, he attended business school at UCLA. After five years in the Air Force, he went to work for a small family business in Ohio, the start of a 35-year career in pharmaceutical wholesaling.

He described his management style as “pretty egalitarian.”

“I can tolerate a lot of things,” Dave told me, “but not arrogance, either with customers, our suppliers, or with co-workers. That’s the ego in play, and that’s what gets a lot of companies in trouble. If the guy in the corner office thinks he’s above it all, then his co-workers start thinking that way. If you’re uncomfortable making your own coffee or making your own copies or carrying your own bag, you’re not going to be comfortable at AmerisourceBergen. And you won’t feel comfortable if you don’t have a strong work ethic. We’re very proud of the team we have.”

Like most CEOs, Dave keeps in mind how families are affected by his decisions.

“It’s a responsibility I take seriously because I come from a working class family. I know what it’s like to live in a household when a job is in jeopardy. Again, it’s a balancing act because you have to maintain your costs to survive, so we try to be balanced. We don’t hire people at huge salaries, and we also don’t do massive layoffs.

“Last year our healthcare costs went up, but we didn’t pass it on to the employees. We didn’t raise the employee contribution and we didn’t cut benefits either. Everyone here has the same healthcare benefits. Since 2008 was a good year, we increased our voluntary contribution to the 401k.”

AmerisourceBergen runs a Charitable Contributions Program that serves local institutions and agencies in communities where the company operates, through direct donations, volunteer support, and healthcare education. The program focuses on improving the mental, social, and physical well-being of the elderly.

Dave told me he’s running the company on less absolute dollars than last year, due to a philosophy called CE2 (Customer Efficiency/Cost Effectiveness).

“Customer Efficiency means providing what the customer wants and needs, and Cost Effectiveness means doing it better than anyone else–not necessarily cheaper, but with more value.

“Three years ago we had a CEO, a COO, and five operating units. Today we still have a CEO, but no COO and three operating units. We’ve flattened the organization and are doing fine. I do the sales and marketing, and the CFO does the operations part in one of our units. You can’t lower costs by laying off two people in the warehouse. You have to look at top level management when you’re looking at managing costs, not just the middle and lower levels. So everyone’s doing a bit more with less. I can ask people to do that because I’m doing it.”

Does Dave find the job stressful?

“When your earnings and revenues are up, and you beat analysts’ expectations, it’s a fun job. When you’re not meeting your expectations, it’s not so much fun. But I can’t tolerate CEOs who whine about the job. Go look in the mirror, figure out what you have to do, and don’t whine. At the end of the day you have no one to blame but yourself. You also have no constraints in the long term about how to fix the problems you’re facing.”

How does he stay grounded?

“I have a great wife, who keeps me humble. Sometimes I think she overachieves in that area. But seriously, someone’s got to tell the emperor he has no clothes. How do I stay in touch? By walking around the company and being accessible. I answer my own phone, talk to customers, talk to suppliers, talk to analysts. And we do town hall meetings every quarter.”

David adheres to the honor code of the Air Force: Don’t lie, cheat, or steal, or tolerate those who do.

“People ask me, ‘If someone cheats on his golf score, you should fire him?’ Here’s my answer. The people who lie on little things lie on the big things. If they cheat at cards, they’re going to end up cheating customers, and that’s cheating you.

“Fast forward to our friends on Wall St. They lied, cheated, and stole probably because they worked in an environment that tolerated it, even endorsed it. We’re a straight arrow company around here. I make sales calls, so I understand sales puffery. But I also understand lies.”

Asked about his legacy, Dave said, “My true legacy will be how the company survives after me. If this thing flounders a couple of years after I left, then I didn’t do my job right. That’s why I feel CEOs shouldn’t get payoffs until one or two years after they leave the company. Let’s see how the organization does. If the CEO was maximizing profit for the short term and not the long term, if he was running the company to see what he could get out of it just before he left, he shouldn’t get rewarded.”

Asked for advice to aspiring CEOs, Yost gives an answer that may surprise some.

“Having the objective of becoming a CEO will get you into trouble. Becoming a CEO happens by doing other things. And a lot of times it happens because of timing. When I talk to MBA students, I tell them that they have to accept timing as a key issue. You can be the greatest person, but the timing may not be right. If you didn’t get a certain position, you probably weren’t ready for it.”

I asked Dave to expand on what he tells business students.

“First and foremost, enjoy what you do. If you enjoy what you do, you’ll do it well and good things will happen. Take assignments you’re not comfortable with, that stretch you a bit, but even then figure out how to enjoy them.

“Be sensitive to the work ethic and your use of time. This is especially important for young people. A lot of them want immediate gratification or don’t want to put a lot of time into the job.

“I tell them, ‘You’ve invested a lot of time already in college and grad school. Why don’t you consider investing an extra 15 minutes or a half hour on the job every day?’ My point is that older people like me have a different conception of time than generation X or Y. Instead of starting at 8 a.m. and leaving at 6 p.m. at the dot, why not come in 15 minutes early and leave a half hour later? That’s 45 minutes a day that you’re going to invest in your career, and it can be very productive time well spent.

“The third thing I tell them is to do their current job well. Don’t look at any job as just a stepping stone. Don’t say, ‘I’m going to stay here a couple of years and then move on.’ Do the job really, really well. Then people will notice you. If you’re only doing it until the next deal comes along, it may not come along.

“Finally, take the job seriously, but not yourself. If I get hit by a car tomorrow, AmerisourceBergen is going to make all its deliveries the next day and continue to do well. Arrogance and a sense of entitlement will always get you in trouble. A lot of people make AmerisourceBergen run–it’s not just me and the people reporting to me.

“Having the right attitude is what helps differentiate you from your competitors,” Dave concluded. “One of our customers is going to call us in a crisis at 5:30, saying they need a product at the last minute. It would be pretty easy for the person they reach to say, ‘You should have ordered it yesterday, I’m out of here.’ But in our company, someone is going to take care of the problem.

“Many of our products are the same as our competitor’s, but our attitude is not. That’s one of the values we offer.”