James Jenness: "I Am Kellogg"

Tapped from its board of directors, the cereal maker's new CEO insists he's really not an outsider. Investors will need convincing

After more than 25 years in advertising, James M. Jenness was named to Kellogg's (K ) board in mid-2000. Now, he's the surprise successor to Kellogg Chairman and CEO Carlos M. Gutierrez, the miracle worker who revived the slumbering cereal giant. But can outsider Jenness keep Kellogg popping?

When Gutierrez was nominated by President George W. Bush on Nov. 29 as his next Commerce Secretary, insiders and outsiders alike assumed Kellogg's board would elevate the company's second-in-command, President and Chief Operating Officer A.D. David Mackay. After all, Mackay worked in tandem with Gutierrez to reverse Kellogg's flagging fortunes and produce double-digit increases in earnings since 2000.

Mackay, 49, was promoted to the board, also on Nov. 29, but when it came to the top job, directors tapped Jenness instead, concluding that Mackay was still too green.


  A former vice-chairman and COO at Kellogg's longtime ad agency, Leo Burnett, the 58-year-old Jenness certainly knows the company's brands. Indeed, he recalls that his first job at Burnett in 1974 was on the Special K account. As chairman of the board's Consumer Marketing Committee, Jenness says he also played a big role in Kellogg's revitalization. "I am an insider," he insists.

Kellogg's turnaround is based on a strategy called "volume to value" at the Battle Creek (Mich.) headquarters. Rather than focus on overall volume, the emphasis has been on Kellogg's highest-margin products. Sales of Special K cereal, for instance, have grown 20% a year since 2000, to $800 million, estimates analyst John M. McMillin of Prudential Equity Group.

Second, Kellogg moved beyond the cereal aisle with its $4.3 billion acquisition of Keebler Foods in early 2001. The takeover makes Kellogg No. 2 in the cookie and cracker market in the U.S., behind Kraft Foods (KFT ), as well as the world's biggest cereal maker, with a 37% market share.


  Despite Jenness' long involvement with Kellogg, industry analysts complain he's largely an unknown and wonder whether he has the skills to run a $9.3 billion company. "Putting his consultant background into practice at Kellogg may be a big leap," McMillin warned in a Nov. 29 note. "Also, following in Mr. Gutierrez's footsteps won't be easy."

Because of those worries, McMillin lowered his target price for Kellogg shares to $42 from $43 and maintained his neutral recommendation on the stock. Investors also were nervous. Kellogg shares closed at $43.70 on Nov. 30, down 3% following news of Gutierrez' departure.

Jenness, who has been CEO of retail consultancy Integrated Merchandising Systems since leaving Leo Burnett in 1997, is a marathon runner -- and a good one: He finished the Chicago Marathon in October in 3:27:46. But to prove his doubters wrong, he'll need to be a fast starter, too.

As he prepares to relocate his family from Chicago's Lincoln Park neighborhood to Battle Creek, Jenness chatted with BusinessWeek Senior Correspondent Michael Arndt. Edited excerpts of their conversation follow:

Q: Carlos Gutierrez is credited with resurrecting Kellogg. What will you do for a sequel?


My mission is to continue Kellogg's great performance. What we have in place now is a strategic approach to the business, this idea of volume to value and managing the company for cash. That has proven extremely successful. We know we have more room to grow it. So my sequel is to keep this baby going.

Q: What skills do you bring specifically to Kellogg?


I've been associated with Kellogg since 1974, when I first started with Leo Burnett. Since that time, I've basically worked on every brand Kellogg has. I've been involved with the introduction of most of the new products, too.

I was the global head of the Kellogg business at Leo Burnett, which meant I traveled basically to every market. I traveled with then-Chairman and CEO Bill LaMothe. Following Bill was Arnie Langbo, and I would travel with him. And since then, Carlos and I have had many conversations about getting Kellogg back on track. I've worked with all the members of the executive team.

What do I bring to the party? I know the Kellogg people, and I know the Kellogg culture like I was part of it. I am Kellogg.

Q: So the perception that you are an outsider is wrong?


I can understand how people might think that. But it is totally wrong.

Q: This is no secret to you. A lot of analysts question why you got the top job and not David Mackay. Why did the board go to you?


I can't talk too much about the internal discussions of the board, but if you look at my credentials and what I know about Kellogg, that is obviously why. And no one expected Carlos to leave the company. I couldn't imagine Carlos ever leaving Kellogg for another company, so it would take something wonderful and special for him to leave.

So given the circumstances we were in, I think the board saw that I could really help the company. The time was right.

Q: So this is no slight to David Mackay?


David Mackay and I have worked together as long as he has been at Kellogg. He is going to be a great partner of mine. We put David on the board because he played a key role in what has happened at Kellogg over the last four years. We wanted to demonstrate to him in another way how much we valued that. And we want David to continue to grow, and this is going to give him an opportunity to meet with more board members and grow. We want David to have a long-term Kellogg career.

He and I are personal friends. He and I are partners, except in one way: We play a lot of golf, and when we play golf, we're not partners -- we're competitors.

Q: In that light, is your job an interim job?


I know you can't put yourself in my shoes and grasp the history of 30 years. But I have had a dream, and for it to come about, even at this stage of my career, is also something special. So I'm moving my family to Battle Creek. I just talked to a realtor today. I'm in this for the long haul, no doubt about it.

Q: Let's talk more broadly about Kellogg. The purveyors of the Atkins and South Beach diets counsel people not to eat carbohydrates. But that is virtually the only thing Kellogg makes, carbohydrates. What's the future for Kellogg?


First of all, a lot of things come in to the food category, and a lot go out. Some stick, and some don't. Low-carb things certainly have come in. They got some initial trial. But they sure don't seem to be sticking. We sure haven't felt their impact on our business. We don't see this hurting us.

Q: What do you eat for breakfast?


I have a cup of coffee and two Nutri-Grain bars, preferably raspberry or cherry.

Q: Not cereal?


You may remember a Kellogg cereal called Product 19. I loved that product. It was basically a vitamin pill in a bowl of cereal. I had that for many years. I'm an avid runner, and I love that kind of stuff. Now, I'm a little bit older, so I'm loving Raisin Bran, if you know what I mean.

Edited by Patricia O'Connell

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