January 1 1989 by Chief Executive
Is Jerre Stead-fast enough for the $1.5 billion maker of electrical and electronic equipment? Stead, Square D‘s new CEO, is working hard to change the company’s conservative image to that of a global player in the electrical manufacturing business. He’s been preparing himself for his new role since 1987 when he was “persuaded” by Dalton Knauss (Square D’s chairman) to leave Honeywell, where he was vice president and group executive, to become Square D’s president and CEO.
The Iowa native held a variety of management and executive positions during his 21-year career with Honeywell. He sums it up this way: “I was there 21 and a half years, had 18 different jobs, 19 different bosses and five different functions.” Of the 19 bosses, none was his mentor, he says. But he may now have found one in Knauss. “We are in the process of a heavy culture change, and it’s my priority to keep that rolling,” he says, referring to the overhaul of Square D’s operations that the two have conducted over the last three years.
Although the 86-year-old company is respected and it has enjoyed a record of steady growth, in more recent years, Stead admits, it hasn’t responded to growing competition. “We have been function-oriented and now we’re becoming more market-oriented,” he explains. He also wants investors, who have long viewed Square D more for its stability and strength than its growth potential, to take a new look at the company.
After a record year of net earnings in 1981 ($103.7 million), income began to fall under the weight of top management that had grown complacent to industry changes and foreign competition. Earnings dropped 30 percent in 1983. Knauss quickly initiated a plan to make sweeping changes in the organizational structure of the company. He convinced Stead to come aboard with the promise that he would become CEO in two to three years. (He did it in two.) The two began to streamline the company’s operations by thinning out management, closing, consolidating and/ or automating some plants and reducing the overall workforce of the company.
Stead set up a direct telephone line to his office; employees and customers who have questions and complaints can call collect from anywhere in the world. And he encourages employees to write letters; he personally answered 1,800 letters last year.
Their major effort to improve overall operations, however, came in 1987 when they separated the firm’s core electrical group (which accounts for 82 percent of the company’s 1987 revenues) into three business units and, at the same time, restructured the company’s U.S. sales organization, increasing sales and reducing inventories by more than 30 percent.
The company’s new emphasis on R&D has resulted in its developing new products and redesigning existing ones to meet the special requirements of customers in Europe, Latin American and the Asian Pacific. “In three to four years, we are going to be down to four or five world players…a couple large Japanese players: Siemens, ASEA, Brown Boveri, Schneider… and then there will be us,” predicts Stead.
Although Square D is the industry leader in many types of electrical power distribution equipment-ahead of GE, Westinghouse and the West Germany’s Siemens-it trails as number two and three in many other products. “We are working hard to become a $4.5 billion company,” Stead says optimistically. “Siemens goes across the board in all our markets. If we can’t outperform them, [then] we’re not a good company!”
As a result of his efforts, Square D has dramatically cut expenses and reduced its operating costs. Its 1987 net income was $110 million, up from 1983 net income of $66.5 million.
And what of Square D’s future? “My job is to keep the rubber band as tight as possible, but not to break it,” says Stead. No snap decisions here.
When he was chairman of giant Monsanto, Lou Fernandez could leave a lot of details to others. Today, as president and CEO of Celgene, a start-up biotech company, “infinitely more” ends up on his desk. “I’m working like hell,” the 64-year-old scientist-executive told CE, “but it’s fun!”
This is not exactly what Fernandez had in mind when he retired from Monsanto in 1986 after 38 years with the firm. On his agenda were a little consulting and a lot of golf. Several factors persuaded him to change his mind, two of them being the Blech brothers, David and Isaac. The Blechs-venture capitalists with investments in a number of biotech firms-teamed up with the Celanese Corporation in 1986 to create Celgene. The new company incorporated the patents of a six year, $18 million Celanese chemical biotechnology program. It also inherited 28 Celanese personnel, including 24 scientists. There was $24 million funding, augmented a year later by an $11 million public offering. What the new, Warren, New Jersey-based company needed was management. IBM’s retired CEO Frank Cary agreed to chair the board of directors. Fernandez, intrigued, accepted the job of CEO. After two years, he’s still glad he did. There were difficulties. A few of the former Celanese people did not adapt well to the needs of a small company; they were replaced by such new executives as Tom Lewis, Monsanto’s director of R&D. Like Fernandez, Lewis is a chemist, as are many of Celgene’s team. The majority of them are in their thirties; “Sometimes,” quips the scholarly Fernandez, “I feel as though I’m conducting a class.”
Unlike most biotech companies, Celgene is not concentrating on dramatic, gene-splitting products for medicine or agriculture. Under Fernandez, it is focusing mostly on the development of micro-organisms that will produce fine or specialty chemicals, a $50 billion market. Biochemical-as opposed to purely chemical-production at room temperature would bring savings in fuel costs, as well as better quality and consistency.
Another market that could bring Celgene income sooner is “bioremediation,” the biochemical neutralization of hazardous waste. Celgene is working with ENSR, a Houston-based environmental services corporation, on the first EPA-approved biochemical clean-up of a superfund site: a seven acre lagoon loaded with petrochemical sludge. A savings of $75 million and four years is predicted with the new method.
It will be a while, however, before Celgene shows a profit, a typical biotech condition these days. Meanwhile, Fernandez and company are doing their best to disprove the old chemical industry adage that “It takes ten years from test tube to tank car.” Dean Witter analyst Mark Gulley likes what he has seen: “Celgene is the leader in the new chemical biotech industry and Lou Fernandez is one of the chief reasons you can feel good about the company.”
All of this leaves Fernandez little time for golf, but there are compensations. “One strong plus,” he says, of a small company like Celgene, “is the ease of communication and the speed with which you convert decisions to action…it creates a pretty exciting, charged-up kind of environment.” Could this be more fun than retirement?
FREDRICK P. STRATTON JR.
If it weren’t for skyrocketing aluminum prices and the 1987 summer drought, we would be enjoying some real benefits from our new programs,” says Fredrick Stratton, chairman and CEO of Briggs & Stratton , the Milwaukee manufacturer of small gasoline engines.
Still, the 48-year-old grandson of the company’s founder is not complaining. While it may be a fact that uncontrollable circumstances have combined to precipitate lowered profit projections-from $2.45 to $2.15 per share for 1989-it is also true that sales for the fiscal year ending June 30, 1988 were up 16.5 percent (at $914.06 million), and profits for the same period were up a healthy 13.5 percent. After a brutal eight year struggle, B&S can finally boast of having effectively staved off the likes of Honda, Kawasaki, Mitsubishi and Suzuki to retain their longtime position as the industry’s most dominant producer of under-20-horsepower air-cooled engines.
“We’ve done what we set out to do,” says Stratton. “We’ve kept the Japanese out of the mass market, and we’ve begun to take back significant shares of the industrial/commercial segment.” And they did it, he concedes, by completely rethinking every aspect of his firm’s timeworn management and operating policies. “Frankly, we were complacent,” admits Stratton. “We thought we were pretty good, not realizing the extent to which the weak dollar was a factor in our (previous) success.”
It took a significant threat from a highly competent and aggressive handful of offshore manufacturers to push Stratton into the ’80s. Beginning in 1981, drastic new measures were instituted to reduce costs, and to improve and develop the overall Briggs product. Funds were invested in self-promotion (a la Honda), and efficient nonunion plants were opened in Kentucky and Missouri. In addition, joint ventures were entered into with manufacturing corporations in China and Japan.
“You could say we’ve begun to act like a Japanese company with a long-term view. Most financial strategies are not conceived long-term,” says Stratton, a former accounttant who is also a professionally trained race car driver.
“We encountered a problem and had to make a quick pit stop,” he says in race track parlance. “For a while, it looked as if we were going to lose the lead, but we made the proper adjustments, and as a result we were able to stay in front of the pack.”
When your former boss starts working for you…that’s success, undeniably. For British entrepreneur Sophie Mirman, this is only one of many signs that says she’s made it. Only 11 years ago, Mirman was a secretary at the international retailer Marks & Spencer, working for a man named Lord Sieff. Today, Sieff is a director of Sock Shop International PLC…and Mirman is his boss. Sock Shop International is the runaway success story in British business, and Mirman, 30, is listed among the 200 top millionaires in the United Kingdom. Her success started with a simple idea: a pair of stockings or socks should be as easy to purchase as a newspaper or pack of chewing gum, especially for train or subway commuters. Thus Sock Shop, specialty retailer, was born.
Mirman and her husband each contributed 1,000 pounds ($1,700) of their own money to establish the first shop. They also offered 49 percent of the company’s equity to anyone willing to contribute 45,000 pounds in financing; there were no takers. The couple finally got the capital from Barclay’s Bank under the Government Loan Guarantee Scheme.
The first Shop opened in April 1983 in the Knightsbridge underground station, one of London’s busiest. Mirman and her husband initially did everything themselves, from collecting merchandise to checking stock. Today, there are 75 specialty shops in the U.K., one in Dublin, and 13 in prime New York locations; ten of those in New York were opened last year, reflect? ing the shops’ growing appeal. Mirman says additional stores are planned for France and other European countries as well.
So far, the company has captured about five percent of Britain’s hosiery market-a sizeable chunk. In 1988, Sock Shop’s performance in the first half surpassed expectations as sales surged 93 percent to $24.2 million from $12.4 million the year earlier. Mirman says the results “reflect the principles…of providing quality products, innovative designs and value for the money to our customers.”
Mirman’s personal popularity is growing with the British government using her photograph to promote 1992. Last March she was voted Entrepreneur of the Year, sponsored by the champagne company Veuve Clicquot and the British Institute of Directors. At the award ceremony, one of the guests was Lord Sieff. He clearly was enjoying the interesting role reversal and, to show his approval, he wore a pair of Mirman originals-racey black and white check socks.