Stanley Black & Decker’s John Lundgren On Making Mergers Work

This is the first in a series of discussions with CNEXT Leaders. In partnership with Chief Executive, CNEXT exclusively represents an active community of former CEOs with extensive experience within respected, multi-billion dollar organizations. If you are interested in a confidential conversation about CNEXT and its services, e-mail  Inquiries@C-NEXT.com

Over 30 years, multiple attempts to combine hand tool supplier Stanley Works and power tool manufacturer Black & Decker blew up, floundering over tricky but typical negotiation hurdles like agreeing on valuations and post-deal leadership. Then came John Lundgren, who took the helm of Stanley Works in 2004 and managed to finally bring the merger to fruition six years later. Widely viewed as one of the most successful integrations in decades, the merger exceeded its original target of $350 million in cost synergies by 43 percent within three years and created a platform for growth that has tripled its share price. In the interview to follow, Lundgren, who retired as chairman and CEO of the combined entity in 2016, reflects on the experience of combining two American icons.

On merging companies

We were rigorous in terms of focusing on people, process, profits. Every Monday morning, like death and taxes, we held an integration meeting that might go as long as four hours. Attendance was not optional.

We had 13 focused teams, each consisting of a Stanley executive, a Black & Decker executive and a subject matter expert. We’d do a deep dive on one or two areas at every meeting with bowling charts. There was a lot of green and a little yellow, and if something was red, we talked about it. Was it a bad estimate, or did you need more resources? What was the problem? There was obviously accountability, these were people’s full-time responsibility. A lot of their variable compensation would be based on achieving these objectives, which were audited internally and externally.

The beauty of it was—this sounds tough but it can happen in any big organization, particularly with a lot of moving pieces and matrices—there was nowhere to hide. If a distribution center hadn’t been moved, a piece of equipment hadn’t been installed, there really were no excuses. If we heard, “Well, we haven’t gotten this or that approval,” I’d say,

“Excuse me, you have the CEO and the CFO on the phone once a week. I don’t recall being asked to approve that.” So there was no excuse other than, “Hey, we made an estimate on a project or a program that just wasn’t any good.” Okay, let’s cut that in half and figure out where we’ll find the rest to fill the gap.

On Picking the Team

We’ve done acquisitions and integrations where people spent a third of their time on that and two-thirds on their day jobs. With this deal, we pulled a handful of senior people out of their day jobs to work on integration 100 percent, made it clear what they were to focus on and aligned their compensation to achieving those goals. That created a lot of opportunities for their No. 2 or their rising stars to step up. It didn’t always work out perfectly, but more often than not it allowed people to realize their full potential.

In terms of building a team, about a third of the people, particularly those from Black & Decker, said, “I was a director running this big business. I won’t be doing that anymore. I’m going to cast my net elsewhere.”

Another third expressed interest, but about half realized very quickly it wasn’t for them, and they were managed out of the company—gracefully, we think.

The last third said, “This is what I’ve been waiting for all my life. It’s a meritocracy. If we achieve objectives, I’ve got both economic and career growth. Put me in, coach. Where do I sign?” Seven, eight years later, they’re half of the people running the company.

The folks who stepped out of their day jobs, particularly those with experience on the Stanley side, realized it wasn’t forever and it might even be better than the job they left. That’s the beauty of how profitable growth creates an opportunity for everyone.

On Self-Evaluation

In the midst of the merger and working on the senior team, without informing the board, I had 360-reviews done on myself, my COO and the senior management team. When I shared them with the board they were absolutely stunned.

As CEO, I always did a self-assessment, “Here’s how I think I did relative to the goals, here’s how I think we, as a team, performed as a company, here are some things I wish we’d done better,” every year just to help them in their assessment. Then I would commission 360s on myself and the No. 2 person and share the results with the board.

Now, had they turned out horribly, I might not have been quite as eager to share the results, but I didn’t have to make that decision because it seemed like we were doing what was expected of us and were respected as leaders.

I didn’t know it was in the envelope before it was opened, I had no idea. But once the envelope was opened, I was much more comfortable sharing with the board that I had it done—let me say it that way.

On Cutting Costs

On day one, I was stunned to find out that R&D, advertising, promotion, sponsorship, etc. were all part of SG&A at Stanley. I said, “Guys, it’s like cholesterol, there’s good cholesterol and bad cholesterol. R&D, sponsorship, promotion, brand building—that’s good cholesterol.

Money we spend because we have to report earnings, maintain a legal function, run our systems—costs of doing business that don’t directly touch customers or build our brand—that’s bad cholesterol. It does nothing but reduce our margins.”

So I said, “For every dollar you cut out of the bad, we can spend 50 percent on the good and still save a lot of money.” I’m grossly oversimplifying, but we truly approached it that way.

You cut the horrible systems inefficiencies causing us to duplicate and triplicate efforts, save $3 million and reinvest half of that in growing the business. Over time, we created a culture of investing against organic growth in terms of product development, innovation, brand building, brand support. And, however many years later, a $2 billion business was $12 billion.

On Having people to Talk with

Early on in my tenure at Stanley, I was very, very fortunate to have a seriously experienced and capable board, given the relative size of the company. I had Jack Breen, the CEO of Sherwin-Williams, an incredibly experienced, high-integrity guy who really knew the difference between a director’s role and the CEO’s role. I had Emmanuel Kampouris, who ran American Standard, an incredibly successful CEO, and Stillman Brown, who was the CFO at United Technologies in both the Harry Gray and George David era. Also John Opie, one of Jack Welch’s vice chairmen, who ran GE Lighting.

These were serious people. These guys were all on my board, day one. They were incredibly valuable throughout that period and, most importantly, during the merger. “Let’s go forward,” they said. That helped.

In addition to a supportive board during the merger I had a guy named Steve Schaubert, who I had known earlier in my career, a very senior partner at Bain. He passed away a few years ago. He was a Baker Scholar at Harvard Business School, he was in W’s class at Yale, he was a pilot in Vietnam. He was always someone I felt I could get the unvarnished truth from. He was just a good sounding board, essentially a privileged insider but outside my board.

I don’t care who you are or how comfortable you are in your tenure, I think there are always times when you’re looking for that objective third-party point of view, it’s an opinion you respect, you know. And Steve, for years, filled that role for me, for which I’m eternally grateful.

Read more: An Open Line Of Communication Is Your Biggest Opportunity