Thomas E. Holloran Narrator

David Rhees Interviewer

July 16, 1998

At the University of St. Thomas Minneapolis, Minnesota

DR: This is David Rhees, and I’m here with Thomas Holloran, in his office at the University of St. Thomas, in downtown Minneapolis, and today’sIndustry date is July 16, 1998.

Tom, thanks very much for agreeing to talk to me today. Project TH: Dave, it’s nice to see you again. Device

DR: As I mentioned earlier, I thought we’d just start chronologically,Society and, of course, we want to focus on your role in the medical device industry. That’s the purpose of the interview, but it’s nice to start off with some generalHistory biographical background. So if you don’t mind, just kind of giving your vital statistics, as it were, and how you got up to the point where you became involved Medicalwith Medtronic. Oral TH: Sure. I was born Septemberthe 27, 1929, in Minneapolis. My parents had been married a relatively short time, but married later in life,Historical and I was an only child. I went through the Minneapolis publicof school system, I went to Margaret Fuller grade school, Ramsey Junior High, and Washburn High School, and then I started at the University of Minnesota.

DR: I’m curious. WhereMinnesota did you live in Minneapolis? in TH: InPioneers south Minneapolis, Minnesota on 48th and Garfield, for almost that whole time.

DR: That’s three blocks from where I live now.

TH: What’s your address now, then?

DR: On 48th, between Pillsbury and Wentworth.

TH: Oh, sure. I know just where you live. In fact, one of my earlier jobs was behind the soda fountain at the pharmacy that used to be on the corner of 48th and Nicollet

17 [Avenue].

DR: Oh, really? Wow.

TH: And I also worked for the YMCA as a (Grade) Y leader and then a camp counselor, and they used to be above the drugstore on that corner. Subsequently they built a small branch. Oh, sure, so that’s my old neighborhood.

DR: Well, wonderful. That’s a nice neighborhood.

TH: So that’s where I grew up, and when I finished high school, I went to the University of Minnesota. They had a program at the University of Minnesota where you could either enter law school after you had a baccalaureate degree, and law school was three years, or you could enter law school at the end of two years of pre-law, andIndustry law school was then four years. Being short on money, that’s the choice I made, and so I moved at the end of my second year at the University of Minnesota into law school. Project I also was in an enlisted role in the Navy reserve, Deviceand they came along with a program where you could go two summers to midshipmen’s school, and when you received a four-year degree, you were commissioned. I did that, and receivedSociety a Navy commission at the end of my fourth year of college, when I still had two years of law school left. History It’s a confusing chronology, but the Korean War started about that time, and when I had one year of law school left, I got activatedMedical in the Navy during the Korean War. I gave a ring to Patty, who I knew I really wanted Oralto marry, and in the belief that I might get reasonable duty. I instead wentthe to sea for a couple of years, and we got married when I got out, when I had a year of law school left. Historical of I edited the law review in law school, and went on in my last year to be a clerk for one of the justices on the state Supreme Court. Then when I finished law school in 1955, I thought about several possibilities of practice. One was with a firm that is still around, called the Dorsey andMinnesota Whitney firm today. I thought it was unmanageably large. It had thirty-five lawyersin then. I think it has over 300 now. And I was persuaded by, actually, a friendPioneers from the neighborhood Minnesota you’re describing, to come join them at the Fredrikson and Byron firm, which had a little different name then, but I was the fourth lawyer in that group, so it was a very small group of lawyers, and that’s where I began to practice law in 1955.

DR: And so it wasn’t too long after that you came into contact with Earl Bakken.

TH: No. Within two years of that—my memory is a little fuzzy as to whether it was 1957 or ’58, but I think it was ’57, they came into our law office, “they” being Earl and his partner, Palmer Hermunslie, to be incorporated. Actually, I think the basic reason they

18 came into the law firm was to have a buy-sell agreement in case something happened to one or the other of them.

They were married to sisters and they were referred by a life insurance man to do some planning, and I suspect it was based on a line that sold an awful lot of insurance at that time, that is, insurance that would underlie a buy-sell agreement, and the line was, “if something happened to your partner, do you want to be in business with his widow?” And so it was to do a buy-sell agreement, and part of making that easier was to be incorporated.

DR: And of course, that came to pass, unfortunately, when Palmer died.

TH: That’s right. Although there were significant chapters between that, and Palmer had almost no Medtronic stock at the time of his death, which is anotherIndustry tragedy that we can talk about, if you like.

So that’s when I first met Earl and Palmer. I remember that they Projecthad been in business for eight years, I believe, and I think the first balance Devicesheet and financial statement showed something in the forty thousand dollar range as revenues they’d had for the year before. There were the two of them and two employees. They were still Societyoperating out of the garage on, I think it was 19-1/2 Street, off Central Avenue in northeast Minneapolis. History DR: So you became their lawyer for their general needs? Medical TH: It started out that way. They were a veryOral small company. They did not require a lot of work, but early in the relationship,the it must have been in 1958 or ’59, Palmer came in one morning and asked if I could draw a patentHistorical license agreement. I didn’t tell him I’d never drawn a patent licenseof agreement before. I asked him how soon he wanted it, and he wanted it in about two hours. He was in conversations with Bill Greatbatch and Dr. William Chardack about licensing their patent application, I guess it was at that point, for an implantable pacemaker. Minnesota So, I quickly putin together a license agreement, which Palmer took to Buffalo and talked to ChardackPioneers and Greatbatch. Minnesota It was not only a license agreement for the patent application, but it was a name license agreement, which they insisted on, to call whatever implantable product Medtronic made, a Chardack-Greatbatch pacemaker. Then I think within a week or ten days, I went with Palmer to Buffalo, and in the Airways Motel, at the edge of the airport, the license agreement was signed and that put Medtronic in the implantable pacing business.

DR: Did they ever have problems with that agreement? And it was about a ten-year agreement, right?

19 TH: Yes, there were issues that started right from the beginning with it, because the agreement required, since from Chardack and Greatbatch’s perspective their name was on it, that they keep design control of the product. So for the period of existence of that agreement, there were periodic design review meetings, and any engineering changes that were made in the product were required to be approved by the two of them. So it was a quite awkward agreement, and impinged on what would normally be the natural engineering control that Medtronic would wish for and have. It had quite a high license payment. The license payment was 10 percent of the revenue of the products covered by the agreement.

DR: That’s unusual.

TH: But no one envisioned the kind of market that grew. In fact, in one of those periods of time when Medtronic was going broke, which must have beenIndustry in 1961 or so, I went with Earl to Indianapolis. The thought was, the most sensible thing to do was to sell the company, and the conversation was with the Mallory Battery Company, which was supplying Medtronic with its batteries. The offer was, “Would youProject buy us for a million dollars?” Mallory hired the Arthur D. Little Company,Device who told them, “Don’t buy it. There will never be a market for this product.” So the idea that this 10 percent of the product was going to turn into something very large just wasn’t envisioned.Society

But over time, we, in exchange for shares, reducedHistory the license to seven and a half percent, if I recall it right. And ultimately bought out for, I believe, for shares of stock, the positions in the licensing agreement,Medical both the name and patent of Greatbatch and Chardack. And both of them, I think, not Oralhaving a lot of confidence in where the company was going, fairly quicklythe sold their shares. Historical DR: Did you ever haveof to defend those patents? Were they ever challenged?

TH: No, I don’t think so. The bigger issues were with other people’s patents coming at us, the most difficult of which was a patent owned by American Optical, which read on- demand pacemaking,Minnesota that is, pacing that came on when there was a skipped beat by the heart, as opposedin to fixed-rate pacing, which had been the start of the product technology.Pioneers That was distressingMinnesota and disturbing to us.

They came at us, I believe, in about 1967 or ’66 and sued us. We were concerned that it would get in the way of whatever financing we might have to do. Fortunately, the marketplace did not see it as critical an issue as Earl and I did, and ultimately we settled that for a monetary payment. But that hung around for maybe four years or so after the original allegations were made.

DR: Did that actually prevent Medtronic in any way from producing demand pacemakers?

20

TH: No, it didn’t, but it just was the specter of this overhanging possibility of willful violation and treble damages and things such as that, that were of concern.

DR: Backtracking just a little bit, you said Earl and Palmer came to you to originally for this buy-sell agreement, but then a little later, they came for incorporation?

TH: That was at the same time. We did an incorporation and the buy-sell, as I remember, at the same time.

DR: Do you recall what their motivation was for incorporating?

TH: I don’t know that the limited liability element was in it at all at that time, because it was previous to the pacing kind of product. But it was essential Industryafter that, that they be incorporated, because I was involved in their first offering of shares to the public.

DR: Could you talk about that a little bit? Project Device TH: Sure. Shortly after they began to make external pacemakers—and I don’t recall if it was before or after the signing of the agreement with Chardack andSociety Greatbatch—there was a need for funds, and the local, over-the-counter stock market, fortunately had been developed to some extent by an offering of ControlHistory Data, and that went very well, and people who initially bought Control Data stock did very well. Medical So it looked as though there might be an abilityOral to sell some shares of Medtronic locally. We put together a very smallthe intrastate offering,Historical intrastate in the sense that if we sold it to local residents, we didn’t have to register with the Securities and Exchange Commission, which would have takenof a significant amount of time. The thought was that we would structure this as a convertible debenture; that is, it was an interest-paying debt that was subordinated to bank credit, but convertible into shares of Medtronic.

At first, we somehowMinnesota got in contact with a broker by the name of Howard O’Connell. He was with a firm thatin went bust before we had a chance to get our offering off, but it wouldPioneers have been a best-efforts Minnesota kind of offering; that is, not underwritten in the sense that the brokerage firm would buy it, but they would help sell it. Very quickly after that, O’Connell formed another firm called Continental Securities, which significantly later became part of John Kinnard, another brokerage house.

But it was pretty much up to Medtronic, with a little help from O’Connell, to sell this offering. The offering, as I recall, was for about $215,000, and on conversion, was for approximately a third of the company, so it tells you what the value approximately was at that time.

21 DR: And the other two-thirds?

TH: Remained with Earl and Palmer. A third and a third, so it was a third of public ownership, a third in Palmer’s hands, a third in Earl’s hands. Palmer was very instrumental in selling this offering, and a significant amount of it went to merchants along Central Avenue Northeast, including Raleigh Gustafson, who was the local jeweler and I believe who still is probably a shareholder, to some extent.

The shares were converted into stock within the first year or eighteen months. The stock, as we talk today, has a market price of sixty-six-and-a-fraction dollars. I think for people that might have been in that initial offering and who hung on until today have a basis of under a nickel a share. So it’s turned out—[Laughter]

DR: It’s done very well. [Laughter] Industry

TH:—over a long period of time to be a good investment. Project DR: Do you recall what the company needed that Device$215,000 for?

TH: To stay alive, to meet payroll. Society

DR: Just to— History

TH: Exist. Medical Oral DR: Okay. [Laughter] It wasn’tthe for an expansion,Historical particularly.

TH: No, it was to— of

DR: Operating.

TH: That’s right. AndMinnesota the company went back to the market a number of times after that. I think, certainlyin in the 1960sMinnesota and seventies, it raised public funding five or six times, by the salePioneers of shares. From then until now, there has not been a public sale of shares to raise capital, until right now. There’s an offering going on, but it is in the range of 500 million dollars, but it is for another purpose. It is to deal with an accounting issue that is around a fairly esoteric concept, of pooling of interests. So after this period of a number of successive public offerings, the company has been totally able to live on its internally generated cash.

DR: Interesting. I was wondering about the strategy of the company. This is kind of jumping ahead, but since we’re talking about stock, the strategy of the company in relation to the value of its stock. I mean, the way it seems to be managed today, it’s very

22 much oriented toward increasing shareholder value. At least that’s certainly what has happened over time. Was that true of the early days?

TH: Yes. Well, someplace I was looking at something that Earl had written. Let me see if I can quickly put my hand on this.

DR: That’s the little book of essays Earl wrote on management.

TH: Yes. It’s his book, Reflections on Leadership. He says that, “We did not start out with any overarching guiding mission, but simply with what seemed like a reasonable business idea, and a general desire born of our religious beliefs and upbringing to do some good in the world. It wasn’t, in fact, until we developed the first battery-powered, wearable pacemaker in about 1957 that we began to realize the contributions we could make as business people and engineers.” Industry

I think there was a positive feeling about contributing to society, but there was the hard reality of having to make enough money to keep the doors open.Project So nobody thought about maximization of shareholder value. It was, “CanDevice we be in business next month?” [Rhees laughs] At least when I first met Earl and Palmer, there was a general division of Palmer thinking about the business elements of the company, andSociety Earl thinking about the technical aspects of the company. History That began to shift over time, for several reasons. Palmer was a very interesting man, very community-oriented, had beenMedical a pilot in World War II, his role had been training other pilots in multi-engine aircraft. He didOral have diabetes, and over a time his health gradually deteriorated. In addition,the he did not have experience in the issues that would confront a larger company. So, Earl, more andHistorical more, began to play a business as well as a technical role in the company.of

DR: You mentioned that when Palmer died that he didn’t have any stock remaining, that there was a sad story involved there. Minnesota TH: Yes. in Pioneers Minnesota DR: What was that about?

TH: I came with the company, as an employee, in 1967. I’d been on the board since 1960, but continued to practice law. About the time I joined the company, Palmer left the company. His eyesight was failing at that time. His weakened physical condition made it more difficult for him to be full time at the company.

Not too long after he left, he was approached by some people that he knew in another capacity. They wanted to build, I think, a Christian retreat area and a resort hotel near

23 Alexandria, Minnesota, and they wanted Palmer to be the financial backer of it. To do that, Palmer would ultimately sell almost all of his stock in Medtronic.

One of my failures was my inability to persuade him not to do that. I just could not convince him that it was the wrong time in his life to take on a risk like this, and to be a passive investor in Medtronic was more useful for him and for his family.

So, ultimately he did sell all, or almost all, of his Medtronic stock, and when he died, he had very little stock left. He died in the early 1970s, as I recall, which ultimately required his wife to go back to work as a dental hygienist, as I remember. So it was a sad end to his significant role of ownership. Again, he and Earl were equal partners, and even at the time of the initial public offering and those after that, he and Earl were in equal positions of ownership. Industry DR: So you came on to the board in 1960.

TH: Yes. Project Device DR: Could you talk a little about your impressions of the company at that time? You had served as lawyer to the company, but now you’re becoming moreSociety involved as a board member. History TH: Yes. My relationship was a little different with most of my other clients. For most of my other clients, my relationship wasMedical very specifically on legal issues, but I came to be pulled more and more into business kindsOral of decisions. Earl and Palmer began to include me in their discussions of strategy,the of building a network of distributors to sell the product, of increasing manufacturing capability.Historical Almost without thinking a lot about it, my role began to be a broaderof one, and while I was on the board of other clients in the office, it was a much more legalistic kind of thing, to be sure that the niceties of corporate existence were taken care of.

DR: So Medtronic wasMinnesota not your first board? in TH: No,Pioneers but it was the firstMinnesota board where the board really acted like a board and dealt with issues of strategy. It was the first board that acted more in the paradigm of what a board of a larger company might be.

DR: Who else was on the board at that time? Do you recall?

TH: Palmer and Earl, and this was before there was the understanding of conflict of interest that there is today. I think their accountant, Gil Engdahl, might have been on the board. And I think that was the board.

24 DR: So, quite small.

TH: Yes, sure. And the company was obviously small, too. But the interesting thing, I think, is that even in its smallness, Earl and Palmer had an attitude of seeking other people out to be supportive and assisting, and even being willing to give them a measure of control. They both recognized the need for a diversified, but small, group of people as a sounding board or generator of ideas.

DR: Interesting. And you found that unusual at that time, for such a small company?

TH: It was, it was.

DR: So you were on the board for about seven years before you joined the company, 1960 to 1967. Industry

TH: Yes. Project DR: What kind of changes occurred over that timeDevice period, or were there any particular issues that you were wrestling with? Society TH: Sure. Well, just staying alive, the company staying alive. History DR: Was that first stock offering during that period? Medical TH: That was helpful, but that just whettedOral the appetite for growth and expansion. The company built a facility, overbuilt,the overhired, Historicalneeded to look to a venture capitalist. We tried some of the local venture capitalists and didn’t get a lot of interest. of DR: Were these individual angels or were these companies?

TH: Sure, we tried Norwest Growth, which is the largest venture capital firm around here now. Minnesota in Minnesota DR: TheyPioneers had a venture firm back in the sixties?

TH: That’s right. They took a look and it didn’t seem to have a lot of promise to them.

DR: Did they really have a concept of venture capital back then the way they do now?

TH: Yes. Oh, yes. And again, there was a very active small company, over-the-counter market that developed in the early sixties.

DR: I guess I’m not really familiar with that whole concept of an over-the-counter

25 market that’s local. Were they traded locally?

TH: Yes, they were traded locally.

DR: There was an exchange?

TH: Well, just brokers trading with each other, as the whole NASDAQ system operates with now. NASDAQ is purely a broker-trading-with-broker kind of market. There really isn’t an exchange in the middle of that. But it’s electronic now, and it was not electronic then. It was over the phone then. The current market was published in the local paper each day, and described as a local market.

DR: It was Minnesota— Industry [Tape interruption]

TH: So what was being traded locally was available nationally, andProject people began to look around the country for what looks like an interestingDevice company for us to buy. But Medtronic had hired, as a chief financial officer, a man by the name of Les Kotval, who was a very talented young man. He had been an accountant with SocietyPrice-Waterhouse, and he had developed a friendship while at Price-Waterhouse with a man by the name of Gerald Simonson. Simonson was part of a group thatHistory came out of some money in LeSueur, Minnesota, and Green Giant Canning Company. One of the stronger people in this group was Bill Dietrich, who hadMedical been the CEO of Green Giant, and a couple of people with him who had had a business inOral LeCenter, Minnesota, Warren Christianson and Jack Goodacre. the Historical The friendship of Kotvalof and Simonson ultimately resulted in the investment of, I think around $300,000 from what was called Community Investment Enterprises, CIE, in Medtronic, and at that time Simonson and Dietrich also came on the board of Medtronic, which was a further expansion of the board and an exposure of Earl, as an entrepreneur, to what help outside Minnesotaboard people can be. You and I have heard Earl talk about how the board involvement,in the board growth, was probably more important to the survival of the companyPioneers than the money. Minnesota That’s looking backwards at it.

The money was plenty important to the survival of the company at that moment. But with it came much more financial discipline, a greater willingness of Earl to take a stronger role in the financial side of the company and the development of business practices that not only saved the company at that point, but put in place much more discipline, fiscally, as the company went ahead. So, the CIE involvement was helpful for a number of reasons. Simonson still continues on the board. Dietrich was on the board until his death, which must have been in the early eighties. A wonderful and creative man.

26 DR: I’ve seen his little autobiography. It’s very nice.

TH: Among other things, he was able to keep the longest ash on a cigar of anyone that I have ever seen. He often would seem to go to sleep in a board meeting, but I learned that that was a time to watch out, that he was very much listening and awake, even though he appeared to be asleep.

DR: So there was the initial stock offering, the convertible debentures, there was the infusion from Community Investment. I believe there were some other sources of capital, too. Wasn’t Northwestern National Bank—

TH: Well, there was a bank line of credit, and it again led to augmentation of the board. It illustrates the way banks have changed their attitudes of involvement. Medtronic was banking with Third Norwest, it was a Northwestern National BankIndustry branch on Central Avenue Northeast, which was utilizing the downtown parent bank. It was a time when the adage “if your banker lends you enough money and you’re in trouble, your banker’s your partner,” and that was the case here. Medtronic didn’t have Projectthe wherewithal to pay the bank back, but the downtown Norwest people,Device particularly a senior and a junior loan officer, Willis Rich and Don Schultheis, became very intrigued with the company and where it was going, and agreed to stay very much involved as a lenderSociety if they could put one person on the board. So a bank officer by the name of Don Schultheis joined the board also, and this must have been in the middle 1960s.History

DR: Why do you suppose they wereMedical so interested in Medtronic? I mean, this was still early days of the pacemaker. Oral the TH: Part of it was they had a loan that they knewHistorical they were going to get their money back, so that always awakensof the interest of a bank. But I think they were intrigued with the technology, with the integrity of Earl and Palmer, and with the premise that this could become a significant company.

DR: Were people at Minnesotathat time aware that there was such a thing as a medical device industry? in Pioneers Minnesota TH: I don’t think anyone would have categorized it as an industry. It was a company that was doing something interesting and new, but to see it as the start of an industry took a greater leap of faith than anyone had at that point.

DR: You had mentioned that Control Data’s initial offering helped pave the way for Medtronic, and, of course, the computer industry was growing up at the same time. Was there the sort of enthusiasm for what we now call “high technology” about the computer industry that might have rubbed off on Medtronic?

27 TH: Well, Control Data did, but older industries were seen as more solid, like Minneapolis Moline, they were making tractors and things that were real, and General Mills and 3M. These newer companies that were starting up weren’t really seen as industrial in the usual sense.

DR: That’s a much later—

TH: And we had the railroads.

DR: It was still the basic industries.

TH: That’s right, that’s right. That transition didn’t happen until significantly later. When I got out of law school, the two better-paying jobs that I was offered, as opposed to practicing, were trying crossing cases for the M & St. L Railroad,Industry or doing tax work for the U.S. Steel wire plant in Duluth. Those were the jobs of industry at that time.

DR: Things have changed, haven’t they? Project Device TH: Significantly. Society DR: Any other things of significance that you remember from that time period when you were on the board, from 1960 to ’67, before you actuallyHistory joined the company as an officer? Medical TH: Well, there was the gradual developmentOral of the company. There was the willingness of the company to try to sellthe its products in Europe,Historical so in about 1962 or 1963, there was the entry into a distribution agreement with an X-ray company called Picker International. It was a five-yearof contract, where Picker would sell Medtronic products overseas and in Europe. Picker had some direct sales operations, but also had a number of distributors that it contracted with in Europe and South America to sell Medtronic products. Minnesota If I pursue that storyin a littleMinnesota bit, it was a way, when Medtronic was very small, to use otherPioneers people’s capital, and it did it in the U.S. in contracting with distributors, like Norm Dann. Medtronic really had a very small sales force in very isolated parts of the U.S., let alone overseas. As the company got farther into the 1960s, it became more evident that it couldn’t continue to use a dealer network to sell its products, because it needed a more direct relationship with its customers. The positive about using dealers or distributors was that they carried the receivables, and so the company didn’t need the working capital to do that.

Towards the latter part of the sixties, and about the time that I came, the company began to buy its U.S. distributors, including several very significant ones: a company called the

28 Morrison Company, which covered New York, and Norm Dann’s operations in Cleveland. One of the less pleasant tasks was terminating those distributors that weren’t strong, including one in St. Louis, where the person that was being terminated in his distribution activity was so agitated that he threatened Earl’s life, which was not one of the more pleasant ways of changing your distribution.

I’m trying to recall the dates exactly, and I can’t. In about 1968, the Picker contract was to come to an end, but one of the difficulties with the Picker contract in its European and South American distribution was that it required a year’s termination notice. We were all concerned about giving them a year’s notice, realizing there were competitive products; and would they then find a competitor to supply their distributors? Our strategy to deal with that was to give them the year’s notice. By then we had hired a man by the name of Charlie Cuddihy, who was handling the international kinds of things for the company, and the strategy was to terminate Picker. That same day, CuddihyIndustry and I went on a two- month effort to sign up Picker’s distributors for selling pacemakers.

But we knew that we had to convince particularly the EuropeansProject that we really did care about Europe and were willing to invest in Europe,Device so in tandem with the termination notice to Picker and the signing up of the European distributors was the commitment to go to the Netherlands and to build a plant. The Netherlands becauseSociety it was a neutral country, because the two major markets that the company had at that time were Germany and France, and a need to not locate in one or the other.History

So Cuddihy and I spent two monthsMedical signing up European distributors and South American distributors, and in rapid succession,Oral we went to the Netherlands, Belgium, France, Germany, Italy, Greece,the Spain, Portugal, Switzerland, U.K., Norway, and Finland, and then came back to the U.S. for a shortHistorical time, and then went to Mexico, Puerto Rico, Colombia, Venezuela,of Brazil, Argentina, and Chile, and by the end of that time, we had developed an international distribution network.

DR: What prompted the company to focus on Europe and South America, when the U.S. market was presumablyMinnesota so large? in TH: IPioneers think very early on Minnesotait recognized that technology doesn’t know borders, and that human illness doesn’t know borders, and that not only was there opportunity, but responsibility—again, thinking about the Medtronic mission.

Let me just mention one or two things and then come back to the mission, which falls in this period of time. Having convinced the Europeans that we were going to support them with a facility in the Netherlands, and we did open a small office that Ron Hagenson staffed at Schipol Airport in Amsterdam, but the commitment was that we would manufacture or assemble in the Netherlands. That took a lot of nerve for this small company that—and that’s about the time I came—that had under $10 million [dollars] in

29 revenues, to step off the end and build a plant in Europe.

Just as we were agreeing to this, Lyndon Johnson was the President, and he was concerned about the outflow of capital to Europe for facilities, so he administratively put an embargo on the ability of a company to move capital outside the U.S., unless it had a previous base of doing that. We had no base of doing that, yet we had the commitment to build the plant. The Dutch were helpful in supplying land and training money, but we needed capital.

We did something that was creative at the time. We found an American brokerage firm that had European offices, and they sold a convertible debenture offering in Europe. Selling it to Europeans, it was not the export of capital for the U.S., it was dollars that were already in Europe, but this was a subordinated debt offering that was convertible into the American company stock. That gave us the wherewithalIndustry to build the plant.

We had some people that I thought were quite courageous, who were willing to go to Europe and live for two or three years, to get that started. Bill PalmquistProject and Dick Fast ran that facility. Roland McGurk was a person whoDevice actually was hands-on in the assembly. It seemed to me, looking back at it, that we were very fortunate to have established the European operation, for a reason that we didn’t understandSociety at the time, and that was that the level of our documentation, the understanding of our processes, was much more oral than we realized, where one operatorHistory would teach the skills to the next operator. To transport that technology and that understanding of process to Europe required us to much more fully documentMedical how we manufactured, and made it easier later for us to expand in the U.S. The pressure Oralat that time, when it still was smaller and controllable, taught us a numberthe of things that were incredibly important to our growth after that. Historical of Let me go back for just a moment to the mission, if I can. The time was in 1962 or ’63. It was after the CIE money had come into the company, and the company had two significant growing product lines: pacing and capital equipment for coronary care units, monitoring equipment.Minnesota By most measures, the coronary care equipment was the larger and the more promisingin of the two businesses, but it was— Pioneers Minnesota DR: Because it was more profitable?

TH: There was a more discernible market for it. You could see there was a market for coronary care equipment. Whether there was a market for this small and embryonic implantable business was more problematic. But the coronary care business carried with it a lot of baggage. First, it was capital equipment requiring the approval of hospital boards to buy, so there was slowness in decision and slowness in payment. Second, it was equipment that required significant field support in maintenance, repair, so it was a business that required a field repair force, which Medtronic did not have.

30

So the board, which, by then, included the two people from CIE, was puzzled as to which of these routes the company was going to follow. It was hotly debated, and some pressure was placed on Earl, as the manager of this company, as to which fork in the road, which side of the fork are you going to take?

I think my memory is fairly accurate on this. There was a meeting at Norwest Bank’s downtown office, and it was a little overwhelming because it was in their boardroom. So here we were, the people from this little company, sitting in this ostentatious, paneled and carpeted room of the largest bank in the community. And the bank people—and I don’t know if they were on the board or not, but were sitting in as a part of this, and the company was pressed for funds still, like it was so many times. And the board was pushing Earl to, “Tell us where you’re going to go.” Industry There was a blackboard in the room, with standing side support, so it was quite a large blackboard, but not fixed to the wall. I remember Earl going to the blackboard and not exactly, but with some particularity, outlining what he thought theProject goals of the company should be—“mission” was not a word that we wouldDevice have understood at that time— which opted for the more proactive kind of device, the device that didn’t passively measure, but that was much more restorative to health. But thereSociety were elements in what, as I would describe it, came to be a stakeholder mission statement, that included not just customer and product, but quality and integrity, andHistory the role of the employee, as well as community. And that was the first time that I can recall Earl starting to talk about what, over the next two years or so, cameMedical to be very much the goal statement, and ultimately the mission statement of the company. ItsOral origins were strategic in what is the company’s business. the Historical DR: I recall that Earl toldof me once that you had been involved in some of the drafting of the mission statement. There was also a secretary, perhaps his secretary, that helped as well.

TH: Yes. Billie Holtzinger,Minnesota her name was. I think we all got involved in talking about this, looking at it,in contributing to it. It was an iterative process that went on for some time and thenPioneers was debated for maybeMinnesota the next five years or so. Not that great changes were made in it. It’s very close to where it was, I think, in 1963 or ’64, but a lot of us talked about it and each year would say, “Is this what we want to do?” And so it did get a lot of debate.

DR: So this key decision about which fork in the road to take prompted Earl to start articulating these goals, and in the process of doing that, his reaction was, “Well, we want to do things that actively promote health.”

TH: Yes. That’s right. “Proactive” came to be in our vocabulary. In fact, not too long

31 after that, Earl put together a grid.* There must be a copy around. Do you have a copy of that?

DR: No, but you drew me a picture of it one time, or I copied it. There were two axes. The vertical axis is diagnostic and therapeutic, and the horizontal axis is implant versus external. What I couldn’t remember was what this means.

TH: And then products, specific products, begin to be sorted into each one of the boxes here, and the concept was that we would gravitate towards products that were more therapeutic than diagnostic and more intimately involved to the point of implantation with the body than external. So rather than looking at diagnostic external kinds of products, such as coronary care monitoring, we would instead move to products that were more therapeutic and more involved with implantation. Industry Interestingly, and it comes to mind because the papers have been full this past week of materials about the settlement of the Dow-Corning breast implant bankruptcy issue, we— it must have been at the end of the 19—well, then, when would itProject have been? The early 1970s. We had an opportunity to buy a breast implantDevice company. It was in Racine, Wisconsin. It made a product that was a silicon gel breast implant, with a silicon envelope around it. We had used silicon made by Dow-Corning sinceSociety the early 1960s, as a cover for our devices. It was called Silastic. The company still uses a significant amount of silicon in various parts of its product lines.History We did not recognize danger in the product. We talked about how well the proposed acquisition would fit our mission, particularly the first part of the missionMedical statement, to alleviate suffering, prolong life, restore to health. We could not fit the breastOral implant business into the mission. the We readily understood that utilization of reconstructiveHistorical surgery would fit within our mission, but it was the ofcosmetic surgical aspects of the product that ultimately led us to walk away from doing that. It’s one of those fortuitous things in the life of the company, because the company in Racine, the breast implant company, was ultimately bought by Bristol-Myers, and Bristol-Myers found themselves as defendants in the large class- actions involving breastMinnesota implants. in So it’sPioneers an example that hasMinnesota hung with me of how fortuitous the mission statement was in rejecting an acquisition that might have made sense, and it comes to mind particularly when you look at the grid that we were just discussing, because it was an implantable product but not proactive. I think we only some time after that moved away from implantable products, more and more towards cardiologic implantable products. So, hip joints, the implantable breast, were products that fell below that diagonal line that we’re talking about, that still might not have met the criteria of the mission statement.

* This transcript’s preliminary pages include a copy of this diagram.

32 DR: That raises a really interesting question. The company made two important decisions here about what not to do, and, of course, that’s the wonderful thing about mission statements. They give you a map for that. But what was really prompting that? Was it the alleviation of suffering? Was that really just sort of Christian tradition and mind-set, or was that also mixed in with business decisions?

TH: I think it was both, because it was a definition of, where can we spend our scarce resources? Is there a lesser Christian purpose in making equipment for coronary care units that save lives? Probably not. However, the way it came to be defined was in the other fork in the road that we took.

DR: I’m just wondering about the emotional value of making the therapeutic products, because by this time, the mid-sixties, there had been a lot of contact with patients, and I remember you and Earl both saying that that contact with patientsIndustry was just very important, that feedback loop, and maybe you don’t get that from capital equipment in big hospitals. Project TH: I think that was all a part of it, but I don’t wantDevice to have lost here the smallness of the company, the need to survive, the lack of profitability. Yes, the purpose was important, and it wasn’t so much a maximization of profit for shareholders asSociety it was adequate profit— History [Tape interruption] Medical Well, the maximization of profit didn’t happenOral until sometime later in the company. You were asking me about why theI joined Medtronic. It wasn’t that I wanted to escape the practice of law. I enjoyed practicing law, I thoughtHistorical I was doing reasonably well at it. I had other interesting clientsof that were taking significant parts of my time. Polaris Industries in Roseau was moving into the snowmobile business with some very interesting people and was taking quite a bit of time. But I was intrigued by Earl. This quiet, thoughtful, brilliant man was very captivating. He presented a different attitude towards business thanMinnesota what I had seen before. I had, over the years, developed a deep admiration for himin and for what he was doing. Pioneers Minnesota I have always been pushed by challenge, more than I realize, until I am older now and look back on my life. I knew I could do what I was doing practicing law, and continue doing that. I didn’t know that I could be an operating officer in a company and do well at that. I was pushed a little by the idea that most of what I did as a lawyer was one to one, and my work product wound up in somebody’s file cabinet. I wondered if I could transpose whatever limited God-given talents I have to more leverage through an organization that would reach more people. I did not want to flee from practicing law. It wasn’t that I was trying to escape something.

33 DR: Probably you felt more fragmented.

TH: Yes, I did feel terribly fragmented, and I thought if I went to a single employer, like a corporate role, that my life would be less fragmented. It wasn’t after six months, four months, in a little bit of time, I was every bit as fragmented at Medtronic, so there was some insight that I learned about myself, that I fragment myself wherever I go, and it has nothing to do with the external conditions of where I work.

I took a pay cut to do it. My partners thought I was out of my head. Fortunately, my wife didn’t. She has always been incredibly supportive, and was at that time. So I took a deep breath and I left the law firm and started at Medtronic, and Earl and I began to sort out who did what, and it was a very easy relationship. It is one that has been categorized by a friendship of, well over forty years, without anger at all—ever—in it. So how we passed back and forth responsibilities was a very easy and pleasant relationship,Industry and I was very stimulated by the move to Medtronic.

DR: So Earl was president at that time, and then you became executiveProject vice president? Device TH: That’s right. That’s right. Society DR: Obviously, your knowledge of the company increased greatly going from being a board member to being a full-time officer. What didHistory you learn about the company? Were there surprises? What was the company like at that time, the culture? Medical TH: There were no surprises, but the cultureOral was a very intimate culture. I think there were about 200 employees, the250 employees, when I came to the company. It was a culture where the important conversations were in theHistorical hall or in the lunchroom. It was a company where you wandered aroundof a lot, you talked to people in their workplace. Sticking in your office wasn’t terribly productive.

It was a company that was growing very, very rapidly. There were some years when we grew 100 percent. I wasMinnesota at the company for eight years, and I suppose as easy a way of describing the changein is that we went from 250 to 3,000 people in that time, and we went from Pioneersbeing in one plant toMinnesota manufacturing in the Netherlands, Puerto Rico, Phoenix, Brazil, Argentina, and having direct employees in, oh, perhaps twenty-five countries, in sales offices. So it was a remarkably explosive time of growth for the company, with all of the pains of that, all of the disconnects of growth, all of the failure of systems that can’t keep up with what the needs of the marketplace were as we saw it.

DR: So what was your mandate, or your focus, as executive vice president? What were the goals that you and Earl established for yourselves?

TH: It depended on the time. I described earlier getting this plant up and going in the

34 Netherlands. That was part of it. Building the sales network, that was part of it. Acquiring the distributors, that was part of it. There were periods when all of the direct reports, with the exception of research and development, came to me, and Earl retained control over that. Part of it was managing the relationship with Chardack and Greatbatch, which we both had to work at.

So it was not so much a static division of who did what, as much as it was handing off between the two of us. Dealing with legislation we both worked on. What was the role of the FDA [Food and Drug Administration] going to be, in the regulation of devices? How could we leverage ourselves and our attitudes through the trade associations that were available to us? So there was a myriad of corporate needs that we both were involved in.

DR: Since you mentioned the FDA, of course, the Medical Devices Act was passed in 1976. That effort must have started quite a bit earlier. Industry

TH: In all of the seventies, that’s right. And Earl had a marvelous concept of how that regulation should work, and we lobbied hard to get it into the bill,Project which we did, but it was neutralized at the time of passage, primarily byDevice the work of the [Ralph] Nader organization. So we were hoping for something that would be much more conducive to growth of the industry and all the positives it could bring with it.Society

The result of it is being reaped now off the restrictivenessHistory of the legislation. Things are getting a little better, but Medtronic’s product introduction is a couple of years ahead in Europe, so that occupied both of usMedical for significant chunks of time. But it was much more a shared responsibility, where we talked oftenOral about who’s going to do what, and whichever of us we felt mightthe be able to more immediately deal with an issue and do it effectively, did it. Historical of DR: Who were the other leaders of the company at that time?

TH: Cuddihy was very important in building the international parts of the business; Kotval, as a chief financialMinnesota officer, for part of it; and then we went through a series of times where we didin not have a strong chief financial officer. Some very interesting and strongPioneers players on the technical Minnesota side—Bob Wi ngrove, Lee Bolduc were two people with significant technical skills that were very helpful. Norm Dann, when he came into the company, was a very strong player. Some of the people that made it go. Gerard Plachon, who came a little later in the period, and who ran Europe, and later ran all the sales operations for the company, a French man.

DR: Of course, you came from a law background, not a technical background. How was it as you became an officer of the company? Was it a difficult adjustment, or was it even necessary to really sort of immerse yourself in the technology part? How did you deal with that?

35

TH: One had to learn the terminology, both the medical and the engineering terminology, enough at least to understand what was being said. And one needed to sort out who were the voices that you could rely on and trust. But it was not—

DR: How did you do that?

TH: Oh, just by listening and reading and studying. And Medtronic had a consulting physician who was very helpful in teaching anatomy and physiology.

DR: Who would that have been?

TH: Can’t think of it. I’m blocked on his name. I don’t remember his name. [Carl Hagestad] Industry

DR: Was he a physician from the University? Project TH: Yes, he was. Device

DR: Minnesota? Society

TH: Yes. When I asked myself, “What is it that youHistory did practicing law, and what is it that you do here,” at least as I thought about it, they were remarkably similar. When I thought about what I did practicing law, it Medicalwas to work with clients, to identify first what the problem or issue was, to then determine whatOral were the courses of action that were possible, to select the most thepromising one, andHistorical to encourage, motivate, stimulate the client to choose that course of action. of When I asked myself, what is it that I do as a manager, it was very similar. It was, what’s the problem, what are our choices, which is the best of those, and then to encourage whoever was responsible for the implementation of that to move forward. So it was not that I saw a great discontinuity.Minnesota My life seemed to be similar in that respect. in Minnesota DR: Interesting.Pioneers So, during that period, 1967 to 1973, before you became president, maybe we’ve covered some of them already, but do you remember any of the really key decisions that you were involved in?

TH: Yes, and I’d go right to the end of the time that I was there. There was not a great difference in what I did or how I did it, whether I was executive vice president or president. That was not a watershed of difference. The issues were issues of growth, issues of product development, acquisition of some additional companies, although most of our acquisitions were integration of the sales force. An important step was the start-up of the integrated circuit facility in Phoenix, acquisition of six people from Motorola, who

36 were making our integrated hybrid circuits, the whole development of that.

DR: So you were doing some vertical integration?

TH: That’s right. The last thing I did before I left the company was to sign a technology agreement that let the company in on the battery business. The start-up of the Puerto Rican facilities, the recognition of the enormous tax benefit of being in Puerto Rico, those are all things that come to mind.

DR: The company went through tremendous growth at this time. You mentioned the statistics on the number of employees. Obviously, the production was expanding at a comparable rate. How about the whole issue of quality? What kinds of problems did you have resolving those issues? Industry TH: Well, the quality was always a problem, and we did have quality problems. One of the issues that was difficult for us is that we used, for really almost all the time that I was there, a mercury zinc battery, and one characteristic of that batteryProject was that it emitted some gas that had to pass out of the device, whichDevice meant that we couldn’t hermetically seal the device. Society Wilson Greatbatch pioneered the use of a lithium battery, which did not have this characteristic of gassing and could be hermeticallyHistory sealed in a can, which meant that there was no potential problem of body fluids re-entering or leaking back into the device. He sent us his first block of batteries.Medical They all failed, and they all failed very quickly, and we had misgivings about lithium batteries.Oral the Over the years, a number of our employees hadHistorical moved off into other kinds of businesses. One group of employees,of starting with Manny [Manuel Villafaña], focused on this new lithium battery, and, again, proved again to me that the dangerous competitors were the very small people, because they would leapfrog the technology, people who were willing to risk everything because they had so little to risk, so they [Cardiac Pacemakers, Inc.] very quickly moved toMinnesota the lithium battery, which then made a product problem out of the batteries and devicesin we were using, because they were getting so much longer life out of the lithiumPioneers battery. So weMinnesota were slow to enter with the lithium battery, which, by comparison, gave us product problems with a device that was lasting two-thirds as long, perhaps.

So, the issue of how rapidly to move your technology forward and the definition of what’s prudent is a changing one and one that’s different, depending on where you stand. This was pre-FDA, so the kinds of things that happened then could not as easily happen now. But quality was always a problem, and quality, as I am describing, was seen in the context of, what else is in the marketplace?

37 DR: Could you talk a little bit about the Xytron recall? I know that was a major—

TH: Yes. That was the issue that I’m describing to you. The Xytron was with the old mercury zinc batteries. It actually wasn’t a recall, as I remember.

DR: Oh, it wasn’t a recall? Okay.

TH: No. It was an advisory that the product had a shorter life than what else was out there, but as I remember, there was not a recall. The product was not explanted and brought back in.

DR: That was kind of a big shock for the company and hurt the company’s reputation.

TH: Sure. And its market share dropped. But as much as anything,Industry it was the utilization of a new technology by Cardiac Pacemakers that was highlighting the issues of the Xytron. It was a comparison of how much life there could be, in an hermetically sealed unit with a lithium battery. Project Device DR: Medtronic has earned the nickname “Medtronic University” because of the many people who’ve gone on to found other companies that then competedSociety with Medtronic in some cases, in some cases not. What’s your perspective on that phenomenon? Why does that happen? Is that just an inevitable sort of phenomenon?History

TH: Well, I think there are severalMedical characteristics to it. Yes, it is inevitable, and we see it in the software industry now. Look at all Oralof the Microsoft people, for example, that have gone on to form other kindsthe of software companies.Historical But certainly it is there when one has the mission that Medtronic has, which is quite narrow in scope. It isn’t that Medtronic was willing to take otherof promising kinds of ideas and try to spread out horizontally. So when people came up with ideas that were potentially very useful, the company wasn’t willing to change its focus. So, when people came up with concepts of kidney dialysis work, they spun off and into that. Or there were others that saw opportunity quite closely related, thought MedtronicMinnesota wasn’t pursuing a market that it might have as rapidly as possible, and theyin broke off and did it. So I think that in a rapidly growing industry, it is inevitablePioneers that entrepreneurs Minnesota will break off and pursue their own desires and needs.

DR: Of course, the interesting thing is what’s happening today with the consolidation going on, now that Medtronic is buying up a lot of these companies.

TH: Sure, sure, sure. That’s right. And there are a number of examples of people that pursued something that we weren’t doing very well at, or weren’t moving as fast with, gave it more attention, more creativity, and Medtronic has been willing to try and pull it back.

38 DR: I think Physio-Control, that was just purchased, the CEO of that company used to work for Medtronic.

TH: Yes, although there’s an interesting history with that. We tried to buy Physio once before, in about 1974 or so, and actually thought we had it done, and we had a down financial quarter and our stock fell off, and that ended that conversation with Physio. In fact, the founder of Physio called me when this was in the paper, and reminded me that it’s déjà vu. [Laughter]

DR: Déjà vu all over again. Were you involved much in R&D [research and development] policy, or was that something that Earl basically covered?

TH: I think everybody around was involved in everything. [Laughter] It was not that insular a society in the company. Industry

DR: I remember in your Conversazione [at the Bakken Library and Museum], you had said that one of the good things about getting that license agreementProject with Chardack and Greatbatch was it conditioned Earl and the companyDevice to look outside the company for innovations, not just— Society TH: Yes, I think that’s right. I think that it got [Medtronic] away from a “not invented here” syndrome, to some extent. I mean, that’s alwaysHistory present with an engineering company. But, yes, that helped [Medtronic] to realize that, not just that there were other good ideas, but the good idea that meantMedical so much to the company was external. Oral DR: But were there controversiesthe or decisionsHistorical you had to make about how much to invest in internal R&D? of TH: Yes, but even from very early on, 10 percent or so of revenues came to be a number that’s now crept up to 12 percent. It’s not just how much to invest, it’s how much can you manage, how much can you be sure has a need for expenditure that can be fulfilled, rather than it isn’t justMinnesota dumping money in, it’s carefully sorting out what is worthy. in Minnesota DR: InPioneers 1975, you left the company.

TH: Yes.

DR: How did that come about?

TH: Not easily. Again, change has been important and useful. I was spending enormous amounts of my life with the company. It wasn’t a job that you could leave, and it was hard for me in that role not to be where some of these expanded operations were. So while I was away from home a lot, when I was home, I wasn’t home. And I saw my

39 children growing up. It wasn’t that my marriage was in trouble, but it was that I enjoy being with Patty and always have, and I wasn’t. My kids were doing wonderfully, but I was missing large parts of their life.

I was tired. I thought I had given to the company what I reasonably could. I did not want to be so consumed by the job that my identity was the job, and so it seemed like a reasonable thing to me to step away. And Earl was very understanding of that. Earl was just marvelous in the way that he accepted what I wanted to do. He did want me to stay on the board, which I did.

DR: You’ve been on the board for another twenty-three years, so you didn’t quite escape entirely. [Laughter]

TH: No, and it wasn’t escape. Actually, I thought I would go backIndustry to practicing law. The day it was announced, my former partners called and reminded me of my clumsiness, but told me I could come back if I wanted to. But then I wound up with another ten years at Dain Rauscher, and then came here [the University of St. Thomas]Project to teach, and am starting my thirteenth year teaching here. Device

DR: That’s wonderful. There’s one other aspect of your career regardingSociety the medical device industry I wanted to discuss, which was your role with the Governor’s Commission for Health Care Promotion. You wereHistory chair of that commission. Could you talk a little bit about how that came about, and all of what happened with that? Medical TH: Sure, sure. The state Commissioner Oralof Health was, at that time, which was, what, late eighties— the Historical DR: 1985 to 1987. of

TH: Was Mary Madonna Ashton, a very interesting woman, a nun, had been the CEO of St. Mary’s Hospital, was the first Commissioner of Health that was not a physician. She had a Master’s [degree]Minnesota in hospital administration. And certainly the first, and probably last, Commissionerin of Health that will be a Catholic nun. The governor at that time was RudyPioneers Perpich, someone whoMinnesota I thought was very strong in his desire to promote industry in the state, and he and Mary Madonna Ashton recognized that the medical products and health care industry was the largest industry in the state, and so they were interested in trying to develop that industry, but, in addition, to foster the export of it.

So she asked, and he, too, if I would chair a commission that looked at that, and would try and promote the export of health care products and health care. It was interesting that early on, they and I recognized that, for example, the Mayo Clinic is an exporter of size, in the sense that people come here for the services that it gives. So, we put in place an advertising campaign. So, we put in place the recognition of the importance of that

40 industry to the state.

I don’t think it dawned on people before that, that this was the largest industry in the state, so it was to build a public image, to condition the legislature and the citizenry of the state to the importance of—and one of the things that we wound up with was a special supplement, I think in Time magazine—

DR: That’s right.

TH: —that again, talked about the importance of that industry to the state. You know, everything you do like that is small and incremental, but I think it did help to build national understanding of that industry in this state, and the critical importance of it to the nation as well as to the state. Industry DR: What about the Medical Alley Association? Were you ever much involved with that? Project TH: That came about just as I was leaving, and soDevice I have been peripherally involved from time to time. However, I was involved in the formation of the medical device association, nationally. We put two fragmented, smaller health careSociety national groups together. History [Tape interruption] Medical DR: So you were just saying that you wereOral involved in putting these small organizations together to form the Health theCare Manufacturers Association. Historical TH: Yes. I’m not evenof quite sure what the name is today.

DR: Bill George [current chairman and CEO of Medtronic] was the president of that group. Minnesota TH: That’s right.in That’s right.Minnesota Pioneers DR: That raises the whole issue, just looking at a broader perspective, a statewide perspective, of, why did this industry become so strong here, and then how it compares to the industry in other parts of the country, or other parts of the world, you know, the competitors. From your point of view, why did this happen in Minnesota? Also, could you speak a little bit about the other regional centers of competition? Because you must have encountered those as you—

TH: Well, you’re never quite sure why something happens like this, but certainly a number of components. The very strong cardiac surgical skills at the University of

41 Minnesota, in the 1940s and fifties. Certainly the—

DR: Not so much after that?

TH: Not as much after that, but at the start. The engineering schools at the University of Minnesota, not so much for what they developed internally, but for the quality of the graduates that they turned out. The availability of venture capital in the community, the opportunity early on, certainly for Medtronic, of this public ownership money that was available.

DR: You mean by selling stock?

TH: That’s right. That there was a public market there that came to be available. And the venture money and the public money available to people who cameIndustry off Medtronic, or elsewhere, and formed their own companies. The same phenomena that there was venture capital available and public money available to them. Project Less directly, but still important, the transportationDevice mechanisms for people and product that are available here. The Northwest Airlines hub is, I think, extremely important to running this kind of industry, where you need to move people andSociety product quickly. And just the accident of history that things all seem to happen in the right sequence. History I think, from a competitive standpoint, Silicon Valley is rapidly coming on as another place of medical product development.Medical I think that because medical technology now flows worldwide, with medical meetings Oraleven more prevalently being attended by physicians from outside thethe U.S. than they were then, has changed some of the characteristics of what’s happening with this industry.Historical Fortunately, Medtronic, with its international strength, isof able to take advantage of some of it. But the Bakken research facility in the Netherlands, Medtronic’s new corporate headquarters in Switzerland, a marvelous new, very high-tech assembly facility in Switzerland, indicate the spread.

DR: So there are competitors,Minnesota of course. in TH: Oh,Pioneers absolutely, absolutely, Minnesota around the world. The biggest surprise to me, the biggest enigma to me, is the lack of Japanese participation in this technology.

DR: That is kind of striking, isn’t it?

TH: Yes. There is no large, strong Japanese [company]—part of it is their local markets. Part of it is the inefficiency in their distribution. Part of it is that they have been much better at export kinds of things than developing products for internal consumption. As a result, Medtronic plays a major role in Japan. It is very profitable. As do other, some other American companies.

42

Will it wither and fade away? No, but certainly the opportunities internationally are more pointed now, in part because of the rapidity with which people can bring product to market. I think some of our national policies are not terribly fostering of what we have in this industry.

DR: Looking into the future a little bit, what effect do you think the consolidation of the industry will have, the necessity to develop broad product lines in order to negotiate with the large providers?

TH: You’re exactly right in that phenomenon. I don’t know. Including Medtronic, I think that great creativity is often not served by large organizations, yet the fact that large organizations abound, including Medtronic, gives the opportunity of purchasing the small, creative organizations. Following your thesis that bundlingIndustry of product for market purposes is essential, perhaps that means that the small company can develop but can’t sell. So, that dynamic is changing. Project Will we continue to see this happen? I expect that Devicewe will. I don’t particularly like the trend but think it is there, and certainly—it came to me day before yesterday, when I went to my physician, my internist that I periodically see, and theSociety hospital complex is now in front of the private practice that was there, the whole wrapping of physicians into these systems. So, certainly the consolidation, in allHistory respects, is on, and the challenge will be to keep creativity alive, as opposed to slowness of evolution and status quo. Medical DR: Any final comments or thoughts aboutOral your career in this industry, your involvement in the medical thedevice industry? Historical TH: Only that it has beenof a wonderful ride, and it is not gone. I’m just getting ready to teach in the fall semester here to Graduate School of Business students. The first case that I teach is a case on Earl [Bakken], and purpose in Medtronic, purpose in work. There is a seminar, actually a conference, in Goa, India, in January, in conjunction with a chair holder in business ethics,Minnesota Ken Goodpaster. I’ve submitted the outline of a paper on “Purpose in Work:in A Case Study in Medtronic,” and that’s been accepted, so we’ll be presentingPioneers that in an international Minnesota forum. So, Medtronic continues to be an important part of my life.

DR: Well, it’s wonderful, the way you’re taking that knowledge and experience and transmitting it to a new generation of people.

TH: Well, it’s a story worth telling.

DR: Thanks for telling it. [Laughter]

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