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STEVE JOINER: You’ve worked for several marquee global companies in a variety of both financial and operating positions. What led you to Newell Rubbermaid in 2009?
JUAN FIGUEREO: I was excited about the brands and the [company’s] story. Over three-to-four years, the company redesigned itself into more of a consumer products company. It went from a company that used to be focused on products to a company that’s more focused on consumers and end users. Coming out of that process, they were ready to focus more on the consumer and international expansion. I was excited about doing something to leave a legacy, and coming really at the best time, after all the heavy lifting was done. Also, when I checked around about Mark Ketchum, our CEO and my boss, most people gave him rave reviews.
Analogizing the current economic recovery to a baseball game, what inning are we in?
I’ve been fortunate to live in many countries, and some of them were going through really tough economic situations. For example, I was in Brazil in the late 1980s and early 1990s, when they were still in the middle of hyperinflation. So some parts of this movie (deep and prolonged recession), I have seen before. Looking at the technical indicators, I think we’re more than halfway there, maybe in the seventh inning. However, most people measure the economy by its impact on them and, in most cases, that relates to jobs, unemployment, and what’s happening with their neighbors. If history is any indicator, when we look at the last recession, employment levels were really slow to come back after the recovery. And from that standpoint, we are still in the early stages, less than halfway there. We could have another two years before we see unemployment get back to the pre-recession levels.
Considering that you’ve lived in a variety of countries and worked globally for the majority of your career, how is the U.S. economy positioned against other nations’ economies?
There’s a lot of concern about the economy, and rightfully so, but we also need to remember that we’re still the largest economy in the world by a wide margin. And we are still the most innovative economy from the standpoint of patents; we file the most patents. We roll out the most innovation into the world and we have arguably the most flexible labor force in the world. Those are things that were there before and are there now, and hopefully they’ll continue to be there for us in the future.
Having said that, there are issues that need to be addressed. One of them is that we have the highest corporate [income] tax rate among our peers in the developed world. The regulatory environment is getting more difficult for business, and even though the current administration seems to be changing its views, the fact is that their actions are still not friendly to business in the overall economy. Then we have the baby-boom generation, which was great for one of my former employers—at Pepsi, their choice of “A New Generation” slogan was really driven by baby boomers as a whole mass of people that was growing up and consuming more of everything. Well, now we’re aging and that’s a very big drag on the economy. It starts with the healthcare sector but it puts a big drag on almost everything. Fortunately, I think these things are easy to see and all of them can be addressed. In general, the U.S. economy is still the best economy in the world. Whether or not that will continue to be the case depends on the kinds of policies the government implements over the next few years.
“Accelerate global expansion” is a stated goal of Newell Rubbermaid. What specific strategies are you using to maximize your global investments?
As I mentioned, our company is now far more focused on the consumer and the end user. Everything that we develop is based on consumer research. We know that the middle class is a sweet spot for most of our products. So when we look at geographic expansion, we are focusing our efforts where there is faster growth in the middle classes or faster development of purchasing power in the existing middle classes. Not surprisingly, that includes Brazil and China, probably in that order for us. It also includes some other parts of the world, including Eastern Europe and Russia. For us, it’s about focus on the middle classes.
What do you see as the benefits and pitfalls of global expansion?
It’s no secret that the faster-growing economies are not in the developed world. If you have a company that’s focused on growth, you’ve got be somewhere other than North America and Western Europe. But there are a lot of pitfalls. One of them is in emerging economies. Because they’re emerging, by definition they’re different from what a lot of people are used to in the developed economies. You have to adjust and adapt. There are also cultural differences. In addition, in most cases, you’re going to be dealing with macro issues, currency, etc. of the particular country. You have to be really careful that you understand what you’re getting into. You have to understand the market and the culture first. I would say to be careful of M&A in the short term, because some of these markets have, not overvalued currency, but relatively highly valued currency compared to the U.S. dollar. If you are looking at it while sitting here in the U.S., this may not be the best time to buy in some of those places. Joint ventures would be a better strategy. But I would say the most important thing is to understand your market and the customer, and adjusting for differences in the economy and culture.
You mentioned Brazil and China, which are the two largest booming economies. For companies that haven’t yet expanded into those regions, do you have any advice?
If somebody’s not there yet or not executing plans, they should be aware that they’re late and that’s going to work against them. Within your specific industry you may not be too late, but you’re still late, and the latecomers always, always have to pay a price. Brazil’s industry has a longer history, and is more developed and more sophisticated in some respects than China’s. So in almost every category, you can expect that there will be strong, entrenched, experienced competitors in that market. In Brazil, in most cases, the best approach is an M&A strategy, where you go in and acquire somebody to get a base. If you don’t have scale, they’ll kill you.
China is big; it’s growing; it’s the biggest promise this world has ever seen from an economic-development standpoint. Even if the majority of the population continues to be poor for the rest of their lives, China still has a promise of having a middle class that will be larger than the entire population of the U.S. In China, even though it is developing very fast and learning, the businesses there generally tend to be less sophisticated than in Brazil. The government in China has far more influence than anything we are used to. So in China, it probably makes the most sense to go with a joint venture. You find the right partner, one that can help you navigate the waters, deal with the government and understand the culture. That is the approach Wal-Mart took rather than making an outright acquisition from the get go. There’s also room for organic growth strategies in a lot of categories in China, but that’s more dangerous. If you go that route, you have to be sure that you have enough local knowledge and talent to understand a very different culture from almost anything we are used to in North America.
You’re also looking to expand in countries other than Brazil and China. What factors determine where your investment dollars go?
In addition to Brazil and China, we are looking at places like Eastern Europe, Russia, etc. When we look at these places, we’re looking at the middle classes. These are places where the middle class is either growing or increasing its purchasing power. We try to make sure that each of our business units has done its homework before they go into a market, to ensure that they have the right to win. A right to win basically means the right product portfolio. If they don’t have the right product, they don’t have the right to win; we don’t allow them to go in. It’s about focus on the macros and the middle class, and then you look at your own portfolio and ask yourself, do I have the right to win? And if so, what’s the status of the competition there?
Newell over time has proven that M&A can create significant value. How do you define success in the current deal environment?
To me, success in M&A is fairly simple. Assuming you’ve got the right strategy, the question is, do your M&A efforts help implement or accelerate your business strategy? And do the M&A efforts do that in a way that does not significantly change your risk profile? In other words, does M&A create shareholder value without betting the farm? As far as I’m concerned, it’s as simple as that.
When you say “betting the farm,” are you talking about managing liquidity risk and not over-leveraging the business?
Yes, but also the deal itself. Most deals end up not living up to expectations. They fall short of what management intended at the beginning, and some of them end up destroying value. It is something that you have to be really focused on and you have to be really good at it. You’ve got to look at your own balance sheet and at the company you’re considering, but you also have to look at the deal itself. There’s a lot of risk. There are only a few things in business where you’re dealing with someone who is, in theory, just as smart as you are. He or she knows the business they’re selling to you a heck of a lot better than you do. A lot of people forget that and get into trouble.
Once a deal closes, whether it creates value ultimately depends on whether it’s appropriately managed and integrated. What are Newell’s secrets for successfully integrating companies?
When I was with Wal-Mart, we did quite a bit of research on the people who were the best acquirers, both upfront in terms of not overpaying for the business, but also integrating the business. We spent quite a bit of time understanding how they did things and learning from them, implementing the best practices. Newell already had a lot of those best practices in place and we are continuing to bring in some more. First and foremost, you need to be clear upfront about the strategy for the project. What is it that you’re trying to do? Once that’s determined, you need to test against it more than once. Do it upfront, but also do it at later stages in the deal to make sure that the strategic fit is still there.
There are also some best practices for ensuring that you lower the risk of the deal. For example, in due diligence, you should assign operators together with external consultants. Operators know what to look for. They know some aspects of business that even the most experienced consultant might not know. So have operators involved, and ideally, operators who will have a continuing role in the business so that they are held accountable post-acquisition. Another important best practice is to have a plan to identify key people in the target business, the people who you want to keep. Communicate with them early to minimize angst and uncertainty, and put in place a strong incentive plan to capture the synergies that were identified in the deal. Doing these things lowers the risks of integration.
Do your due diligence processes differ for global transactions?
Outside of the U.S., everything is far more complicated when it comes to deals. You still have to do everything that you have to do in the U.S. And then—this is what I used to tell the team when I worked in M&A—always be clear that there are things that can hurt, that can have an adverse impact; and then there are things that can kill the economics of the deal. It’s important to be clear about what those are and to deal with them upfront. There is such a thing as deal momentum. You get into a dealing-with-the-issues mindset and you don’t even realize as things accumulate that you’ve gotten to the point where you should walk away. One way to prevent that is to be very clear going in about the kinds of things that would cause you to walk away. When doing deals outside of the U.S., it’s important to understand that things are different in other parts of the world. If you’re going to get operators involved in the diligence, get people who have experience in the local market; get consultants who are based in and experienced with that market. Depending upon the market, you should spend an inordinate amount of time on legal and tax issues. You need to understand not only what the issues are but also how the issues may change once the deal is done. Sometimes, frequently in some countries, small issues in the hands of the local owner can become big issues once they are in the hands of the foreign owner. All of these things are key considerations.
Juan, if you don’t mind, I would like to shift away from M&A and address the ever changing role of the CFO. As chief financial officer, how do you see your role expanding and evolving in this uncertain economy?
First and foremost, a CFO needs to be proactive. If I told you that there are things that I need to be doing that are different from what I’m actually doing, I would not be doing my job. I think you have to be proactive. You can’t wait for the uncertainty to change your style. You need to anticipate it and adapt to it before it hits you. The CFO needs to be the right-hand person to the CEO when it comes to strategy development. The CFO needs to help enable, through processes, robust strategy development. He or she needs to demand this from the business units, or from whoever is responsible for corporate development, or do it himself or herself if necessary. There’s also governance. The CFO and his or her team need to be relentless about ensuring that the strategies that were developed and agreed to are implemented by the business. This means ensuring that the annual operating plan, budgets, compensation, bonus objectives and business reviews all flow from the strategy. There needs to always be a direct link, a clear alignment with the business strategy.
This has always been a key part of the role of the CFO, but it’s particularly important now in this environment. Because there’s so much volatility and uncertainty, the CFO needs to be very proactive in anticipating the potential risks. He or she needs to always be looking at the overall capital structure and balance sheet of the company to ensure that it’s at the level it needs to be to support the strategy. This is also to protect against unforeseen issues or negative surprises. The CFO is responsible for making sure the company does not get into trouble because it was overly optimistic.
Given the current risk environment and uncertain economic times, what kinds of things keep you up at night
I sleep very well at night because we take care of everything that is controllable. I know that something is going to hit us that we didn’t anticipate because it always happens. There are always surprises, but if your business is robust and you’ve got the right people in place, you ought to be able to trust them. I do worry about things that have to do with the macro environment. Are we going to go into a double-dip recession in the U.S.? I don’t think there’s any chance of that, but it’s still a concern. What’s going to happen in the meantime with the regulatory environment? Is that going to continue to create uncertainty that keeps consumers from spending? Will that put a cap on growth for us in North America? And in the rest of the world, as we’re focused on global expansion, there’s always macro risk. Particularly in developing countries, something always comes up. Some of it you can identify in your risk assessment and some of it will catch you by surprise.
Lastly, do you have any other words of either advice or caution for CFOs?
Use your technical expertise, the analysis capabilities of the finance function, to ensure that the best projects from a shareholder value-creation standpoint get funded. Most people do this, but it’s important to over emphasize it in this kind of environment. Just as important is a willingness to pull the plug when you’ve made a mistake. Companies spend an inordinate amount of time and resources trying to fix problem children. The problem children frequently demand a lot more attention than the ones that have the most promise. When you’ve identified a problem, pull the plug—pull it completely and admit you’ve made a mistake. Finally, be paranoid about the enterprise risk-management process. Ask the questions about what could go wrong. If you’ve got a business that’s expanding, be paranoid about ensuring that you have covered the major risks. This includes the risks that you’ve already identified as well as those that may not yet be on the radar.
Juan, thank you very much for sharing your thoughts with me today. I have enjoyed our time together and I am certain others will benefit from your insights.
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