Good morning and thank you for inviting me today.
It’s always a homecoming when I return to the “U.” Nostalgia leads me to
remember my undergraduate days here as filled with football games and falling
leaves, though my brain reminds me they were years of hard work.
I’ve titled my remarks “Renewing Weyerhaeuser” because that’s
largely what I want to talk about, but one might subtitle them “A Tale of
Two Companies.”
Because of my time at Willamette Industries
and Weyerhaeuser’s subsequent, successful campaign to acquire Willamette,
you might look at this acquisition as a homecoming, too. More about that
later.
In thinking about what’s happened in the four-plus
years since the fall of 1997 – when I first considered leaving Willamette
for Weyerhaeuser – I realized I could organize events in terms of five major
decisions.
While all businesses are different, I hope
you will find these decisions – and my thought processes around them – of
some use. Fortunately, I believe these decisions have turned out to be correct,
but one can never be sure in advance.
Now, what were
the decisions?
- First and most crucial to
all subsequent events was my decision to leave Willamette for Weyerhaeuser.
- Second was my decision to keep the existing senior management
team at Weyerhaeuser in place.
- Third was the decision,
along with that team, to develop a new business model and culture for the
company.
- Fourth was our decision to embark upon a
program to consolidate and streamline Weyerhaeuser’s businesses and all
support functions, such as human resources, information technology and finance.
- And fifth was our decision that we needed to grow both to survive
and to prosper in a rapidly consolidating industry.
To proceed in order, why would I leave Willamette for Weyerhaeuser?
I was 55, two years in the CEO’s chair at Willamette, 25 wonderful years
with Willamette.
I can’t deny there was a little bit
of ego involved. After all, Weyerhaeuser was three times as large as Willamette
with a much greater presence within the industry.
It
was also flattering to be recruited by Jack Creighton, my predecessor at
Weyerhaeuser and someone I greatly respected.
Taking
the Weyerhaeuser job also was a chance to return to my home state – and,
of course, be closer to my alma mater.
But the predominant
motivation was simply that I had accomplished all I could at Willamette.
It was such a well-run company that I sometimes viewed myself as little
more than a caretaker. I jumped at the opportunity for a new and larger
challenge.
If you can imagine Willamette as a Swiss
watch, then Weyerhaeuser was an elegant, if somewhat out-of-time, grandfather
clock. To mix metaphors a bit, through the 80s, Weyerhaeuser had been referred
to as a “slumbering giant.” Some had even begun terming the entire forest
products industry a “dinosaur.”
To rebut these descriptions,
Jack Creighton reminded the Seattle Chamber of Commerce in 1992 that dinosaurs
had lasted 150 million years. “We genuinely believe,” he added, “that because
of Weyerhaeuser’s forestry practices, our trees can ‘go on forever.’”
Indeed, if there’s one thing Weyerhaeuser can do in a world-class
way, it can grow trees – a remarkable, renewable and recyclable natural
resource.
But back when Jack spoke to the Chamber, Weyerhaeuser
was just emerging from a lengthy and failed flirtation with diversification,
a hot business trend of the 70s and 80s.
Would you believe
that by the end of the 1980s, Weyerhaeuser owned a pet-supply business?
How about gardening supplies … hand lotions … salmon ranching … hydroponic
lettuce … even an artificially-preserved, indoor-tree business? Some of
these businesses were not as bizarre as they sound and actually made money.
But some were just bizarre.
By this time, Jack and Chairman
George Weyerhaeuser had learned that a large company like Weyerhaeuser could
not afford to spread its human and financial capital across such a broad
range of businesses.
That’s why they began a process
to refocus Weyerhaeuser on its core businesses … those based on trees and
the wood and paper products that could be made from them.
When
I arrived at Weyerhaeuser in 1997, diversification had itself gone the way
of the dinosaurs. But an equally daunting task awaited.
Over
time, Weyerhaeuser’s businesses had become too strong and independent relative
to the corporation. It would be fair to say Weyerhaeuser had become a holding
company of independent, self-contained businesses.
A
great deal of work remained to achieve Weyerhaeuser’s potential.
Guess who would have that privilege? Indeed, it was a condition
of my employment. Weyerhaeuser’s board of directors was determined that
the company’s existing structure and culture be changed. It was just too
disjointed, causing problems such as duplication of staff and a myriad of
often conflicting policies, programs and systems.
To
borrow from Ford Company, “job one” was to pull Weyerhaeuser together into
one company.
I came aboard with the mandate to accomplish
these tasks, as well as to increase our speed, simplicity and decisiveness.
Perhaps this is why the Japanese call being a CEO a
“10,000 aspirin job.” Believe me, there are times you wonder whether you
can accomplish all you’ve set out to do … which reminds me of something
Pope John the 23rd once wrote.
“It often happens,” he
said, “that I wake up at night and begin to think about a serious problem
and decide that I must tell the Pope about it. Then I wake up completely
and remember that I am the Pope.”
Of course, I knew what
the Weyerhaeuser board expected and, obviously, I took the job. That led
to my second decision. What should I do with the existing set of senior
leaders I inherited – a group of seven?
If I had taken
the conventional path, I might have made some changes, if not for the assurance
of loyalty, then for the purpose of sending a clear message there was a
new guy in town.
Well, I try not to be a slave to convention.
Besides, it didn’t take me long to realize Weyerhaeuser’s senior leaders
– even those who had aspired to the CEO job – were first and foremost loyal
to the company.
They really wanted the best for Weyerhaeuser
– and they were bright, committed and experienced. Keeping all of them was
not a difficult decision, although work needed to be done to meld them into
a cohesive team.
With the senior leadership in place,
but not yet a team – and after a pre-announced, six-months’ learning period
– I was ready to tackle the job of uniting Weyerhaeuser.
That
led to the third decision. At our first senior team retreat, I set the following
task: Create a template on one sheet of paper that would identify the few
key processes necessary to manage Weyerhaeuser as a single entity, including
goals and hard measures. I said we would stay until we got it done. It took
two days.
Now you might think this was a recipe for disaster
– two days to create a new business model for a large corporation. It turned
out accomplishing this task was easier than it sounds.
To
guide us, we already possessed a core set of values from the earliest days
of Weyerhaeuser and a vision developed during Jack Creighton’s regime. That
vision was to be the best forest products company in the world.
The hard part was agreeing on a small group of standard, companywide
processes from the plethora of those within our businesses and staff functions.
We finally arrived at eleven key companywide processes, including how to
operate safely …how to develop and execute superior strategy … how to manage
and develop our people … and how to team profitably with our customers.
A few processes – including the way we manage our capital
expenditures and how we leverage the purchase of our goods and services
– were already under development.
We called the resulting
one-page charter our Roadmap for Success – and it has gone a long way toward
unifying our company. But the Roadmap alone couldn’t eliminate all the inconsistencies
and waste associated with operating a collection of disparate, though related,
businesses.
There was still the issue of duplication
of support policies, programs and staff at our unit, business, sector and
corporate levels.
While we’d pulled our businesses together
through the Roadmap, we hadn’t done the same with our staff-support functions.
This led to the fourth decision – to embark upon a process to consolidate
and streamline our support services. We call it Support Alignment. We began
it early in 1999.
Obviously, if you eliminate duplication
of work, you eliminate positions. While some leaders approach the challenge
of downsizing by setting some arbitrary percentage of jobs to be cut, I
felt doing so was neither the effective nor humane way to proceed.
Rather, I believed that the people in both the businesses and the
staff groups that served them were the best judges of how to provide needed
support services more cost-effectively.
So we formed
a series of cross-functional, cross-business teams … a diagonal slice of
the company for each function. These teams were charged with reviewing each
staff function – human resources, information technology, finance, some
12 functions in all – and recommending improvements to the senior management
team. This review included benchmarking the best performers in each function
across American industry.
Support Alignment was led by
the people of the company – no consultants were involved –and I’m pleased
to say that the senior management team accepted almost all the review teams’
recommendations as delivered.
After a year, the work
of the review teams was completed and we moved on to implementation. We’re
now two full years down the road and by the end of 2001, Support Alignment
has achieved ongoing, annual savings of 100 million dollars.
Finally,
the fifth decision: to grow the company. Growing a company while changing
it is taking on quite a load – and it’s a load for all employees, not just
me. However, we’re not the only company that’s facing such a challenge.
In today’s business world, it goes with the territory.
Why
was I so set on growing Weyerhaeuser? You need to know that the forest products
industry is one of the most fragmented of all industries.
One
result of this fragmentation has been a historical series of boom-and-bust
cycles where periods of healthy prices for our products have only served
to entice industry members to add new capacity. And this is an industry
where one new paper mill – costing upwards of a billion dollars today –
can change the global demand-and-supply equation.
With
new Asian companies moving into the pulp and paper business, these business
cycles have plateaued into constant overcapacity – too much product, not
enough buyers. The result has been lower prices, falling margins.
At the same time capacity was growing, our channels to market were
changing. Small, geographically limited, customers were turning into large,
national and/or international customers.
Think Home
Depot, Lowe’s, Office Depot, Staples. These customers wanted to do business
with a single or, at most, a few large national suppliers.
Industry
consolidation was just a matter of time – and it’s in full flood now. Weyerhaeuser’s
acquisition of Willamette is just the latest in a series of major consolidations
in our industry, both here and abroad. Whether these consolidations will
lead to a greater balance of supply and demand over time remains to be seen,
but that’s the operating premise. The early returns are promising.
Another factor in favor of consolidation are the low market capitalizations
companies in our industry have been accorded by investors. In fact, our
whole industry totals less than half a percent of the S&P 500.
With the rise of huge mutual and pension funds, companies with
small market caps became relatively illiquid – that is, major buys and sells
by these large funds could significantly drive their share prices up or
down. Big investors don’t like that, so they tend to avoid small-market-cap
stocks, depressing their value.
A company with less
than 20 billion dollars in market capitalization falls into this unfavorable
camp. In our industry, only one company is large enough to escape it – and
it isn’t us.
With the industry consolidating and with
many companies’ market caps depressed, I feared Weyerhaeuser would become
a possible takeover target. So, from the standpoint of both offense and
defense, I believed we needed to grow.
And grow we have.
A couple years ago, we had fewer than 40,000 employees. With Willamette,
we will have more than 63,000. But the size of one’s work force is hardly
the measure of a corporation’s financial health.
In terms
of sales, we’ve grown from a 10-billion dollar-company to one that should
realize sales of 19 billion dollars this year, even in a down market. More
importantly, I believe we’re now well positioned to deliver the kinds of
returns our investors expect and deserve as the economy recovers.
What are the major acquisitions Weyerhaeuser has made during my
tenure? There have been four:
- In 1998, we
purchased a fine paper mill, a couple sawmills and some timberlands in Canada
from Bowater.
- In 1999, we purchased MacMillan Bloedel,
one of Canada’s largest forest products companies.
-
Early last year, we bought Trus Joist International, the global leader in
engineered wood products.
- And, just this month, we
completed the purchase of Willamette Industries.
I suspect you’re curious about the Willamette acquisition.
Here’s why we did it:
- The “hand
in glove” fit of our combined assets will make us number one, two or three
in the world in our timberlands, wood products, containerboard and fine
paper businesses.
- The combination also creates the
opportunity to better use our assets and lower costs in these businesses.
In fact, we project the deal will generate 300 million dollars in annual
synergies, or efficiency savings.
- Weyerhaeuser and
Willamette share complementary management strengths and cultures. We can
learn from Willamette. Willamette can learn from us.
In addition, both companies are Northwest forest products companies
with praiseworthy histories and value systems, including ethics. Weyerhaeuser
was founded in 1900, Willamette in 1906, and both have grown successfully
over many decades.
You may be wondering if I had the
idea of acquiring Willamette already in mind when I took the Weyerhaeuser
job. The answer is complicated.
Let me just say that
the idea of combining Weyerhaeuser and Willamette had been around for a
long time at both companies. That’s right – each had discussed buying the
other.
That brings me up to the present. The challenge
now is to integrate the two companies into one highly effective and profitable
team.
The early returns are in. We’re already gaining
synergies in our first two weeks as a combined company! As well, teams from
both companies are working together cooperatively and with an eye to achieving
our goal – creating the global forest products leader.
I
have every confidence we will succeed. But that’s the subject for a future
speech.
At any rate, I’ve been up here talking long enough.
Now I’m going to give your ears a rest – and mine some exercise – by taking
any questions you may have.
