Kimberly-Clark's New Economy Skeptic

We won't make short-term, crazy moves for pennies in a quarter, says retiring CEO Wayne Sanders. No question we were punished for that

After helping to transform Kimberly-Clark, maker of Huggies diapers and Kleenex tissues, into a truly global consumer-products giant, CEO Wayne Sanders announced his retirement on Sept. 12. His successor is President Thomas Falk, a 19-year company veteran who played a critical role in integrating Scott Paper after Kimberly acquired it in 1995. Sanders, 55, will remain chairman until February, 2003, when he'll step down from the board. He called the move part of a "carefully planned transition" after 11 years as chief executive.

Under Sanders, Kimberly-Clark (KMB ) more than doubled revenues -- which reached $14.5 billion in 2001 -- thanks in part to aggressive acquisitions and divestitures. The $9.4 billion Scott deal expanded Kimberly's reach in Europe and Asia, and boosted its market share in such key categories as paper towels and bathroom tissues. With an emphasis on product innovation and plant efficiency, Kimberly has outpaced leading rival Procter & Gamble (PG ) over the last decade. Kimberly's sales grew at a compound annual rate of 7% over the past 10 years, and net income was up 13% during the same period, says analyst William Steele of Banc of America Securities. That compares to top-line compound annual growth of 3% and profit growth of 9% at P&G.

Before he announced his retirement, Sanders talked to BusinessWeek reporter Wendy Zellner about his track record and lengthy tenure in an age of revolving-door CEOs and about the scandals that have tarnished Corporate America. Edited excerpts of their conversation follow:

Q: You've said the culture of Kimberly-Clark is based on trust and respect, and obviously a lot of companies say that. Do you think there are warning signs when a company's culture has really gone astray?


I think if you look at the real meltdowns, they generally involve some fairly common characteristics. [It's] either a new culture, or someone has come in from the outside and has to make their mark real fast, so there isn't this legacy of culture and teamwork and relationships.

And the newer the company, the newer the culture. The newer the player to a company, the more pressure they're under to be rock-star -- good in a quarter or two. And [in] the '90s, that was really what got you the headlines. And so you combine that with people who are hooked on the ego, power, and money of the job...and they start writing checks their brain can't cash.

That's the antithesis of a Kimberly-Clark or a lot of companies that have been around for a long time and grow their own management and have these established relationships. There isn't the pressure to show everybody you can perform in the short term.... It was very frustrating when we started being called the Old Economy. [We] were watching the New Economy [companies], most of which you knew wouldn't survive three or four years, and were being treated as the old guys who didn't get it.

Q: Can you think of times when you faced the stark choice of pleasing Wall Street in the short term and keeping your focus on building this company for the long term?


That happened after the Scott merger. We were going through a fairly dramatic business transformation, so we were under the spotlight more.... Investors became traders, and longtime investors that we would go out and talk to would say, "I don't know what happened to us, but we went into this thing as a 30-year value or growth fund, and we came out a hedge fund."

Even now, I don't think the market is back where it needs to be because there's...this crazy short-term focus. We've never had a quarterly business plan. Never. The shortest horizon we plan for is a year.... We won't make short-term, crazy moves for pennies in a quarter.

Q: Do you think you were punished for that?


There's no question we were punished for that. After the Scott merger, we stayed on our plan. We had some quarters when we didn't make the numbers, and our response was typical of our culture. We were very open with our disclosure. We said, "Here are the business problems we're working on, here's how long we think it will them to fix, and here's the reality of the situation. We've got a great business [that we're] building here."

Kaboom! That wasn't what the market was looking for.

Q: So can you really please Wall Street and manage your business in a sensible way?


We can certainly please Wall Street over time. We're 130 years old. We've performed very, very well over 130 years. If you look over any 3-, 5-, 10-year period, we've generally tended to outperform everybody. We're growing faster than anybody else. There's a long history here now of taking market share, growing the business, focusing the business.

Strategically and competitively, this is a winning proposition, and financially we generate huge amounts of cash, and we will deliver a very good return over any reasonable period.

Q: With this reform movement that's going on in Washington, there are always people who say you can't legislate ethics and integrity. As both a board member and someone who has to choose the management team here, what are some of the key things that you look for in gauging somebody's integrity and ethics?


Well, that's the advantage of having people you've worked with for a long time. You've seen them in a wide variety of situations, and you can see how they will behave when under pressure, when faced with a tough choice. You'll see if they'll make the right ethical decision.

Q: What about as a board member?


It's going to be very difficult in this environment for smaller companies and companies without a solid balance sheet to attract board members. I've always had to have total faith in the CEO of a company, ethically, before I'm willing to even consider [serving on] their board. And that will certainly be more important than ever. And then you have to look at the company and ask: How solid is the balance sheet and their business?

Q: I hear people describe you as a guy who's always challenging the status quo. It seems like you're at the stage and age where you could start to be sort of complacent. You've got this team in place that has been here for years. How do you balance those things with the desire to shake things up?


I like change, and I like to be attacking the status quo all the time...challenging the group to prove they're the best at every aspect of the business. And I think part of this culture is people come here thinking we're not going to talk today about yesterday's success. We're going to talk about why this company is going to be better tomorrow than it was yesterday.... That's how you maintain the competitive fire. I believe that companies need to be reinvented routinely.

[Former CEO] Darwin Smith reinvented this company as kind of an eclectic mix but focused with a direction toward consumer products, heavily U.S.-oriented. I reinvented it as a clearly focused consumer-products company, and Tom [Falk], who will be next, he'll have to reinvent it again. He knows that. And that reinvention cycle is accelerating.... I believe there's a limit to most CEOs, including me, as to how long you're going to stay as sharp as you need to be.

Q: What will you do post-Kimberly?


I have some outside things I'm pretty involved in. I have about 10 racehorses, and that's my hobby. I love that.

I'm chairman of the board of Marquette University [where he earned his MBA in 1972], and we're in a campaign, so I've spent more time than I anticipated. I'm governor of the Boys & Girls Club of America, which means basically you're on the executive committee of the national organization, and that's a love that I'll stay involved with. And I'll stay on a couple of boards, but probably I won't take on -- you know, maybe one more, but maybe not.

And I'm kind of looking forward to one day where you get up and you say, "I don't really have to do anything today." I'd like to see what that's like.

Edited by Patricia O'Connell

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