To get the right people on board, we turned over 300 of the top 350 leaders in the first three years. This was unheard of in large consumer packaged goods companies, which typically have well-established cultures. We promoted 150 people from within and we hired 150 next-generation, high-performance leaders from outside; they’re running the company now, or out successfully running other companies.
Our next step was to establish a clearer, focused agenda. We were already the world’s largest soup maker — so we focused on expanding our soup capabilities into the broader simple meal category and on building out our healthy beverage platform with a focus on vegetable-based beverages. Vegetables came into the plant; we sent them in one direction to make soup and in another to make our best-selling V8 juices. We also owned a couple of tremendous baked-goods assets: Pepperidge Farm in North America and Arnott’s in Asia/Pacific. We built the number three position in baked snacks in the world. We shed everything else.
While we were downsizing and making these changes, the share price dropped almost to $19. But we were building for the future.
S+B: How did you do that?
CONANT: We reworked things on multiple fronts. For instance, we addressed the two biggest consumer issues with Campbell’s soup. To help people find the soup they were looking for, we developed an innovative shelving system. We also improved the healthfulness of our soups by reducing sodium without compromising on taste.
We revamped our executive compensation with longer-term goals. A major share of a leader’s salary was linked to long-term compensation, based on Campbell’s total shareholder returns versus a peer group of companies, over a rolling three-year period. That kept people sufficiently focused on the future. I think that kind of balance needs to find its way more fully into the corporate sector. Yes, people need to be rewarded in the short term; they have bills to pay. But they also need to be sufficiently dispassionate about everyday issues, so that they can build a greater company tomorrow as well.
Engagement was especially important to me in the leadership area. If your top people are not wildly engaged in the work, you can’t expect commitment from the people on the front lines. So we worked hard on getting the organization mobilized and self-directed. We built the engagement of our top 350 people up from that two-to-one ratio to 77-to-one. We did this while shedding assets and tightening the organization.
After it was clear we would recover, we made two big, long-term bets, which we could have delayed — and our near-term earnings performance would have been better as a result — but which we needed to do. First, around 2007, we invested $135 million in an enterprise resource planning (ERP) system. This, over time, would allow us to manage our cost structure as effectively as other large food and beverage companies. Second, in 2008, we opened offices in Russia and China, the two largest soup-consuming countries in the world. Neither country had a major commercial soup manufacturer; it was all homemade. But we believed that their growing number of middle-class consumers would soon want convenience foods. We invested $50 million to $60 million a year building our capabilities there. To justify the investment, only one of the two countries had to “work,” and after I left, Campbell Soup doubled down on China and pulled back on Russia.
S+B: How did you know that making this long-term investment was the right thing to do?
CONANT: All our analysis suggested that we couldn’t sustain our growth profile for the long term without these measures. I was willing to take the risk. While the decision has yet to be proven out completely, we delivered quality sales growth and 10 straight years of earnings-per-share growth. By the time I left in 2011, we had record high returns on invested capital. We had a good P&L, great cash flow, and a good balance sheet. And we were still building the business for the future; we had record high investment. Our stock price came back up, but not to $60 again; it reached $40 just before the economic crash, and it’s in the mid-$30s now, in 2012. We were also able to raise the shareholder dividend in each of the last 10 years.