How Does Baxter's Harry Kraemer Do It?

The medical-products maker thrives as its CEO makes sure he and his employees have plenty of time for family

It's late Tuesday afternoon and, as usual, Harry M. Jansen Kraemer Jr., chairman and chief executive of Baxter International Inc. (BAX ), is awhirl. Since he was named chief executive of the medical-products company in 1999, Baxter has become one of the industry's best and most consistent growth machines, with revenue and operating profit rising by double-digit rates. Its biosciences unit could soon rival Amgen Inc. (AMGN ), thanks in part to recent breakthroughs in vaccine technology. And in June, Baxter announced its fifth big acquisition in 16 months, increasing its staff to more than 48,000.

So what exactly is Kraemer busy with? He has just settled his infant son, Daniel, in a portable crib in the kitchen and is now hopping into his car to pick up daughter Shannon, 8, from first-Communion practice. At the church, he bumps into another dad, who is organizing a weekend camping trip that Kraemer has been planning to take with Shannon. Back home, he checks in with his oldest, 14-year-old Suzie, and then takes over from wife Julie in supervising the other two kids--Andrew, 11, and Diane, 4--who are bouncing on a backyard trampoline he bought at Sam's Club. In a moment, Kraemer, 47, is springing into the air, too.

That's right. The chief executive of a $7.66 billion company is at home on a workday with his family. Want to know something else? He does this a lot. He even tells employees to duck out as often as he does. "Nothing is more important than family," says Kraemer.

At a time when executives are being reprimanded, if not indicted, for putting their own interests first, Kraemer represents a more broad-minded approach to leadership. Certainly, he's not alone. But it's also true that at many companies offering flexible schedules, the boss doesn't take the idea seriously--which often means employees don't, either. "People follow examples," says Carol Sladek, a work-life consultant at Hewitt Associates LLC, "so when a CEO like Harry Kraemer says, `This is important to me,' you see a real impact. That definitely is a rarity."

Kraemer believes Corporate America has it backward. By encouraging employees to adjust their schedules to suit their needs--starting later so they can get the kids off to school or working one day a week from home--Baxter can attract and retain top-notch people, he argues. The company also ends up getting more quality time from employees, he adds, because they are less distracted while in the office by tugs from home.

David R. Olson is the kind of employee Kraemer has in mind. Olson, a Web-design engineer, lives in suburban Milwaukee, 50 miles from Baxter's headquarters in Deerfield, Ill. To see more of his wife and their two preschool-age sons, Olson works from home every Friday and every other Thursday. He also is free to juggle that schedule if he needs to. Whenever Olson tells friends about his relaxed work setup, he says their response is invariably: "Wow, that must be nice." It is. But Olson says he also gets more done working from home since "no one is stopping by your office to chat."

Indeed, Kraemer believes the payback goes beyond good feelings. He points out that since 1993, when he became chief financial officer and began championing work-life balance, Baxter has hit its earnings target every quarter even as it has nearly doubled its profit goal, to a growth rate of 15%. In 2001, the company earned $612 million, after a one-time charge of $156 million, and its gross margin rose to a record 44.8%. Baxter's market capitalization increased more than tenfold, to $35.7 billion, during that same 8 1/2-year stretch.

The company surprised its bigger competitors last fall by winning a $428 million contract, along with junior partner Acambis PLC, to produce 155 million doses of smallpox vaccine. In the first quarter, Baxter's profit rose 18%, to $253 million, as sales grew 11%, to $1.95 billion, even while many rivals fell flat. Kraemer says investors can expect similar increases into 2003. But even if he comes up short, Kraemer says there's no way he'll abandon the flex-time.

Of course, his family-first policy hasn't been responsible for the company's performance. It's his strategy of growth by acquisition that has boosted those numbers. Kraemer won't agree to buy another company, for instance, unless he thinks it will generate an aftertax rate of return of at least 20%. At his direction, Baxter also has invested heavily in manufacturing facilities, giving it plenty of low-cost capacity to produce genetically engineered vaccines and blood-clotting products, its two most promising businesses. Kraemer also has hand-picked a talented team, including Baxter's first chief scientific officer. "It's almost impossible to figure out what the exact ingredients are to do so well, but clearly, the formula is an effective one," says Robert L. Shoss, a portfolio manager at AIM Management Group Inc., which owns 12.8 million Baxter shares.

But while proud of Baxter's financial success, Kraemer says his motivation isn't just to make the numbers. He wants to do right by his employees, too. A devout Catholic whose sister once thought he might become a priest, Kraemer says: "Yes, we've got a job to do. But we can still operate in a way that's very respectful. We're all struggling. To one degree or another, we're all trying to create that balance."

Kraemer traces his convictions to his father, a retired salesman for CIT Group Inc. The family moved several times as Kraemer was growing up. He says the relocations only strengthened the family bonds. Kraemer says of his father: "His whole focus was the family. I don't think he ever went out without taking at least one or two of us along."

Kraemer's dad also gave his five kids some advice: "Never get full of really aren't better than anybody else." Kraemer seems to have taken that to heart. True, like many CEOs, he receives a princely compensation package: a salary and bonus of $1.6 million, plus options worth $18.7 million last year. Yet he drives a Toyota Avalon and lives in a relatively modest neighborhood in suburban Chicago. He donates 15% of his income to the Catholic church and charities. About his only splurge is booking the corporate jet every six weeks to fly his family to Minneapolis/St. Paul for the weekend to see the grandparents and cousins. (Baxter pays for the flights, and the amount--$42,122 last year--is listed in its proxy as other income for Kraemer.)

If employees are still wondering how serious Kraemer is about family time, they should stop by his office after 6 p.m. More often than not, it will be empty: Kraemer has dinner at home about three times a week. He also bars any work-related calls in the evenings so he can coach daughter Suzie's softball team or take everybody to the library without interruption. Then he helps Julie get the kids to bed, goes for his late-night run, and puts in a couple of hours of work. "It's not that he works 40 hours instead of 80," says Julie, a former investment banker at Citibank. "But he chooses his hours so he gets to do the things he wants to do."

Not always, though. Last summer, Kraemer had to break his rules to deal with a crisis when more than 50 people died after undergoing kidney dialysis using a Baxter blood filter. The company yanked the product from the market and then, after tracing the deaths to the use of the wrong rinsing fluid, took an aftertax charge of $156 million to cover settlements with the victims' families and the shutdown of two plants. As penance, Kraemer cut his 2001 bonus by 40%, or $500,000, and the bonuses of all other top execs by 20%.

Kraemer's biggest impact could be on other executives. Walter E. Boomer, who became chairman and CEO of Rogers Corp. after commanding the U.S. Marine Corps during the Persian Gulf war, is a director at Baxter. Boomer says he is trying to copy Kraemer's approach at his $276 million company. "One of the things that Harry shows us," Boomer says, "is that despite a very hectic pace and despite a tremendous amount of responsibility, you can pull it off if you want to." That's a lesson a lot of bosses still need to learn.

By Michael Arndt in Deerfield, Ill.

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