For years Wolters Kluwer, the $5-billion Amsterdam-based publisher of law, medical and professional books and journals, had a basic strategy: Buy a family-run publishing company, strip out a lot of costs, generate a lot of cash, and buy the next company. The 117-year-old Dutch company operates in 25 countries but derives half its revenues from North America.
Through the 1990s that strategy worked well until the industry started to consolidate in 2000. Competitors Reed Elsevier and Thomson began buying in earnest, leaving few properties left. Multiples went up; quality went down. Along the way the Internet happened, forcing everyone to invest in order to offer their products electronically. At the time, Wolters Kluwer failed to recognize that it was at a crossroads and started to see a drop in net income. Facing a crisis in 2003, the company passed over a number of European executives and turned to its North American operating head, Nancy McKinstry, an American who had held various executive posts over the previous 10 years. Earlier in her career she had been a consultant with Booz Allen.
“Being the first non-Dutch CEO and being a female running a Dutch business has helped me in the sense that I’ve been able to make some decisions about the business that would’ve been harder for a European who was entrenched,” says McKinstry, whose first job after graduating from the University of Rhode Island was pricing telecom services for New England Telephone. She changed the company from a holding company to an operational- centered business, allowing for better integration of the some 300 distinct businesses it had acquired. Some 150 million in cost savings from sharing services was stripped out and plowed into new products.
Now in its third year, McKinstry’s transformation plan is showing promise. When she took over in 2003, organic growth was minus 2 percent. In 2005, it was plus 2 percent. Profit warnings tanked the share price. Over the same period it has reclaimed some ground, moving from 8.66 to 17.45. Still much has to be done. CE spoke with McKinstry, who moved her family, including her physician husband, to Amsterdam when she took the job three years ago. She splits her time between the two continents.
What do you see as your advantage going forward?
We have several. One, we have recognizable brands. We’re number one or number two in our respective markets. Good positions to hang your hat on. Second, we’re the only information provider that has a good balance between North America and Europe. As a result, we have more opportunities to globalize our business.
How much in terms of your revenues and profits comes from North America versus other markets?
About 50 percent of revenues and a bit more of our profits come from North America. Europe is a big part of the other 50 percent. Asia is a growing market for us, but it’s still on such a small base that the business is roughly 50/50 North America and outside of North America.
Every company, no matter how good it is, can’t be good at everything. What are you least good at and need to fix?
We have to move beyond restructuring to operational excellence. We’re still learning those skills and beginning to institutionalize the efficiencies so that we can plow savings back into organic growth. We’ve hired a bunch of ex-GE managers. And when you talk to these folks from a GE or a Cisco, this skill seems ingrained in their DNA. This wasn’t part of our culture at Wolters Kluwer. We were good at bottomline management, but not always doing it in a way that was structurally geared to driving the business.
Is SOX-related work a significant income stream for you?
We have an expression here that any change is good for us. Anytime something as fundamental as international accounting standards, SOX or change in tax codes, such as when Reagan changed the tax law back in the early 1980s, it was good for us.
To what degree were the institutional investors patient with your plan?
One of the things that I brought to the party, so to speak, is that I am a good communicator. I’m transparent. I spend a lot of time talking to employees at town hall meetings. I interact with over 6,000 employees each year, talking to them and explaining what we’re doing. I have the same philosophy with customers to make sure I understand what’s going on in the markets. We are fortunate in that most of our investors are long term, however that’s defined today. In the beginning, they were impatient when we first announced the strategy because the shares had traded at 41. Then just before I took over, the shares traded at 8 or 9. Clearly, investors were unhappy.
Sometimes shareholders may have a perspective that I don’t share, and that’s fair enough as long as they understand what we’re doing. It doesn’t always mean you have to agree with each other. I serve at the pleasure of the shareholders. They’re the ultimate owners of the business. I am also an owner in that I have a long-term incentive plan that’s tied to share performance, so I take that seriously.
What was their biggest issue with management and how did you address it?
Back in 2003 they were most displeased about the continued pace of acquisitions, where they believed that we were buying a lot of things, paying high multiples, but destroying value. Having grown up in the business, I knew instinctively that we had to reinvest in the business. The strategy of milking for cash and buying our growth was not working anymore. But there’s always a gap between launching a new strategy and realizing the results. We knew it would work because we sensed it internally. However, it took the market some time to recognize that it would work.
During this period what did you most have to change about yourself?
Two things. One was to recognize that every culture is quite different. It took some time for me to recognize that we’re not going to have a single culture at Wolters Kluwer. Let me explain. We’re in 25 countries, so you have all the external cultural differences. But in reality, every operating company has its own culture, some of which are a product of businesses that we acquired. As a result, many of our businesses still carry cultural elements of whoever was the previous owner or founder. This changes, but only over time. This is a potential strength, but one must turn it into a strength. Had I insisted on one particular way of doing things in, say, France or Italy, it wouldn’t have worked. I had to recognize that there had to be a certain degree of freedom-letting people figure out the solution that worked in their market.
Second, I appreciate the value of over-communication. I was so convinced that this was the right strategy for the business that it took me a bit of time to recognize why the outside world didn’t see it the way I did. My advice to any new CEO is to make sure you get employees engaged because it’s rare that the outside world will understand your strategy from day one. It’s critical to be clear on the message, because there’s a gap between implementation and results.
What developments do you see that may change the business?
In certain areas of law and medicine, truly global players are beginning to emerge. In the past, a law firm or a company might’ve talked about running their business globally, but it was still country-or at least regionally -driven. We see a demand for common information tools that are used worldwide.
For example, we have an e-billing product that connects corporations with the various law firms they deal with. So, if you’re a big company like a GE, one that gets sued all the time, you have tons of legal matters that are outstanding. You also have hundreds of law firms worldwide doing different work for you. These e-billing products act as an audit trail to make sure that people are billing at the rates that they said they would.
In the past, much of this work would have been done manually or with software that was just point to point: one subsidiary dealing with one law firm. Now companies look for global solutions, where they want one product that they can install that works for all their subsidiaries and all their law firms. Today, you can count the number of corporations on your hands that want that level of sophistication, but this will grow.