S+B: How was it that you came to join Campbell?
CONANT: The company was in a very tough spot in 1999. The world was changing; the food industry was consolidating. Campbell was a midsized, US$10 billion to $12 billion company, with the one thing food companies need most: several large and growing categories with the number one or two brand. But it was failing miserably in execution. Sales, earnings, market share, and employee engagement were waning, and the company was involved in several prickly legal situations.
In the year before I arrived, the company had lost half its market value; it had gone from $60 to $30 per share. The leadership team had tried to grow and diversify in unproductive ways; the board felt a change was clearly needed. I’d been director of strategy for Kraft, and I’d helped rebuild Nabisco. I think the board would have preferred someone who had been a CEO already, and who had done this before, but I had skills and experience that suggested I could figure it out.
We did a survey of employee engagement soon after I arrived, and Jim Clifton from Gallup said we had the worst levels of any Fortune 500 company they’d ever surveyed. It was a little less than two-to-one; for every two people engaged in the work, one was looking for another job. In other words, about 6,000 of our 20,000 employees were actively dissatisfied. I had been in toxic environments before; I had gone into Nabisco with Kohlberg Kravis Roberts just after the events described in Barbarians at the Gate [KKR’s 1989 leveraged buyout of Nabisco]. But that was nothing compared to what we encountered at Campbell.
S+B: How did it get that way?
CONANT: The company had fallen into what Jim Kilts, the former CEO of Gillette, calls “the circle of doom.” You overpromise and underdeliver, and in trying to make up the difference, you make bad short-term decisions that compromise your ability to continue to deliver. At Campbell, the executives had acquired a group of diverse companies to keep the growth track positive, but they didn’t adequately integrate [those companies], and they started to miss their numbers. So they raised prices in core categories like soup. Sales went up, but volume actually went down. This invited private-label competition, and enabled a virtually nonexistent brand, Progresso, to establish a foothold in the U.S.
Now they had to keep profits high in the face of competition, so they cut marketing spending, which is the lifeblood of a brand. Short-term earnings were maintained but volume slipped further, and then they went too far in raising productivity to a point where they compromised product quality. They literally began to take some of the chicken out of the chicken noodle soup. Not surprisingly, volume kept coming down, and they took their cost-reduction efforts to another level by cutting overhead. They fired 250 R&D people in one day.
With R&D cut, the product pipeline faltered. People kept getting let go. The best people left. Those who didn’t leave were discouraged. This went on for several years. The organization’s malaise was tragic.
S+B: What was your first year like?
CONANT: I came in with a few principles: a belief in the power of being a focused food company, and the belief that we needed about three years to become fully competitive and several more years to be in a position to drive quality growth in an enduring way. There were no silver bullets. I also knew that you can only win in the marketplace if you win in the workplace first. You’ve got to get “the right people on the bus,” as Jim Collins put it. They’ve all got to be sitting in the right seats, and they have to be highly engaged in the work. “You can’t talk your way out of something you behaved your way into,” I told the staff. “You have to behave your way out of it.”