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BBVA
Q&A WITH CHARLES RIVER’S JAMES FOSTER
JANUARY/FEBRUARY 2005 $4.95
AT THE CENTER OF GLOBAL BUSINESS®
XEROX
CEO Anne Mulcahy
Proves That Teamwork
Makes the Leader
▲
m a g a z i n e
INSIDE
JANUARY/FEBRUARY 2005
VOLUME 5
ISSUE 1
STEVEN L. MINTZ DEPUTY MANAGING EDITOR, FINANCIAL
SHARON KAHN EDITOR
MARK YARM ASSOCIATE EDITOR
EMILY JANNEY ASSISTANT EDITOR
ROMAN LUBA DESIGN DIRECTOR
JULIA MICHRY ART DIRECTOR
LESLIE STEIGER ASSISTANT ART DIRECTOR
NATSUMI NISHIZUMI DESIGNER
STEPHANIE KIM ACTING PHOTO EDITOR
SARA CAHILL, CHITRA K. VEMURI COPY EDITORS
GILLIAN ALDRICH SENIOR RESEARCH EDITOR
STEPHANIE TSAO, KAYLEIGH KULP INTERNS
LISA WHITLOCK-TIGH ACCOUNT MANAGER
MICHAEL WRONSKI STUDIO MANAGER
ROBIN KALIN ASSISTANT TRAFFIC MANAGER
24
ADVERTISING
GEORGE J. BAER III DIRECTOR OF ADVERTISING SALES
248.988.7896
SHANNON FALKENHAGEN ADVERTISING ASSISTANT
248.988.7764
WYNNE MEDIA COMPANY EAST COAST 212.869.1410
RICKERT MEDIA MIDWEST
312.464.9125 CHICAGO 952.830.1252 MINNEAPOLIS
PATRICK DOYLE NORTHWEST 415.777.4383
M GROUP DALLAS/HOUSTON JACK MILLER 972.985.4045
R.W. WALKER & COMPANY SOUTHWEST 213.896.9210
RICHARDS/MCLAUGHLIN MEDIA SOUTHEAST 770.888.2212
EDITORIAL CONSULTANT TO THE NYSE
JEANNE COTRONEO DARROW
PUBLISHING
TIM HILDEBRAND PRESIDENT
FREDERICA WALD VICE PRESIDENT,
SALES AND DEVELOPMENT
DOUG KNIFFIN VICE PRESIDENT, OPERATIONS
12
“Sometimes when you
come through a crisis, you
become a better listener.”
18
— Anne Mulcahy, CEO, Xerox Corp.
RHONDA HARGROVE DIRECTOR,
NEW BUSINESS DEVELOPMENT
SINEAD WHELAN PRODUCTION DIRECTOR
AMY NEFF THIND BUSINESS MANAGER
FEATURES
EDITORIAL
[
[
BRETT GILMAN DIRECTOR, MARKETING OPERATIONS
COVER IMAGE — FRONT ROW, LEFT TO RIGHT: GLORIA CASTRO, ANNE MULCAHY,
CHRISTINE LOWERY, RUTH CASTILLO. SECOND ROW: MAXINE PLUMMER,
GEETA ARORA, GREGORY L. TYNDALL. THIRD ROW: THOMAS P. HERLIHY,
G R E G O R Y R . P I N G S , E N R I C O S A N TA M A R I A .
LEONORA WIENER EXECUTIVE EDITOR
CHARLENE BENSON CREATIVE DIRECTOR
JULIE CLAIRE PHOTO DIRECTOR
VALÉRIE VAZ COPY CHIEF AND TRANSLATIONS DIRECTOR
RAY DICECCO RESEARCH EDITOR
12
MEDIA SALES AND MARKETING
JACK HAIRE EXECUTIVE VICE PRESIDENT, TIME INC.
COVER STORY
Teamwork Makes
The People Company
24
CLAUDE BORAL BUSINESS MANAGER
NYSE MAGAZINE WELCOMES READER COMMENTS AT
NYSE@TIMEINC.COM.
China’s Western Blend
As China embraces the market model,
its companies are going global.
CEO Anne Mulcahy credits employees
and customers with propelling Xerox
into a sleek document, technology and
services company.
LISA POLS GENERAL MANAGER
SPECIAL REPORT
The Lure of China
China is now the world’s top foreign
direct investment destination.
E-MAIL SUBSCRIPTION CHANGES TO CP_NYSESUB@TIMEINC.COM.
nyse magazine is published by the New York Stock Exchange in conjunction with Time Inc. Custom Publishing. © 2005 New York Stock
Exchange Inc. All rights reserved.
New York Stock Exchange, NYSE, The New York Stock Exchange, the
NYSE logo, nyse magazine and At the Center of Global Business are
registered trademarks or service marks of the NYSE. Other trademarks
and service marks owned by the NYSE may be used by the NYSE from
time to time. All other trademarks, trade names, service marks and logos
used in this publication are the property of their respective owners.
Neither the NYSE, its affiliates, officers, directors, employees, agents or
licensors nor Time Inc. Custom Publishing makes or has made any
recommendation regarding any services, products or securities issued
18
CEO ROUNDTABLE
The Global Company
Gone are the days when transnational exporting was enough to
be considered a global company.
Today, four company leaders say, it
takes that — and a whole lot more.
34
CORPORATE PROFILE
Latin Commitment
CEO Francisco González is making
Spain’s BBVA the hometown
bank for Latin America — and
the U.S. Southwest.
by any of the companies identified in this publication. Please seek the
advice of professionals, as appropriate, regarding the evaluation of any
specific security, index, report, opinion, advice or other content.
CONTINUED
n y se M A G A Z I N E IS PUBLISHED BY THE NEW YORK STOCK EXCHANGE IN CONJUNCTION WITH TIME INC. CUSTOM PUBLISHING. © 2005 NEW YORK STOCK EXCHANGE, INC. ALL RIGHTS RESERVED.
COVER PHOTO: JESSE FROHMAN; THIS PAGE, CLOCKWISE FROM LEFT: JESSE FROHMAN; LI LIQUN/CORBIS; DOUGLAS FRYER
JIM AUGUSTINE 972.867.9569
▲
INSIDE
JANUARY/FEBRUARY 2005
CONTINUED
41
VOLUME 5
ISSUE 1
THE NYSE MAGAZINE INDEX
ACCENTURE LTD. (ACN) 17
AGILENT TECHNOLOGIES INC. (A) 43
ALTANA AG (AAA) 9
ALUMINUM CORP. OF CHINA LTD. (ACH) 29
ANHEUSER-BUSCH COS. INC. (BUD) 33
BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBV) 4, 34
BANCO BRADESCO S.A. (BBD) 37
BANCO LATINOAMERICANO DE EXPORTACIONES S.A. - BLADEX (BLX) 7
BANCO SANTANDER CENTRAL HISPANO S.A. (STD) 36
BANK OF AMERICA CORP. (BAC) 37
BASF AG (BF) 28, 33
BAUSCH & LOMB INC. (BOL) 45
BAYER GROUP (BAY) 8, 41
BENTLEY PHARMACEUTICALS INC. (BNT) 8
BOEING CO., THE (BA) 8
BP PLC (BP) 6, 28
BRADLEY PHARMACEUTICALS INC. (BDY) 9
BRISTOL-MYERS SQUIBB CO. (BMY) 9
6
CAMPBELL SOUP CO. (CPB) 43
CANON INC. (CAJ) 17
CARNIVAL CORP. (CCL) 7
CHARLES RIVER LABORATORIES INTERNATIONAL INC. (CRL) 45
CHEVRONTEXACO CORP. (CVX) 6
CHINA EASTERN AIRLINES CORP. LTD. (CEA) 29
CHINA LIFE INSURANCE CO. LTD. (LFC) 29
44
CHINA MOBILE (HONG KONG) LTD. (CHL) 28, 29
CHINA NETCOM GROUP CORP. (HONG KONG) LTD. (CN) 29
CHINA PETROLEUM & CHEMICAL CORP. (SNP) 28, 29, 33
CHINA SOUTHERN AIRLINES CO. LTD. (ZNH) 29
CHINA TELECOM CORP. LTD. (CHA) 29
CHINA UNICOM LTD. (CHU) 28, 29
CITIGROUP INC. (C) 9, 17, 37
CLOROX CO., THE (CLX) 47
CNOOC LTD. (CEO) 26
COACH INC. (COH) 10
COOPER INDUSTRIES LTD. (CBE) 10
COVANCE INC. (CVD) 9
CREDIT SUISSE GROUP (CSR) 27
DAIMLERCHRYSLER AG (DCX) 8
DARDEN RESTAURANTS INC. (DRI) 6
DICK’S SPORTING GOODS INC. (DKS) 9
DILLARD’S INC. (DDS) 17
DOW CHEMICAL CO., THE (DOW) 42
DUPONT (DD) 41, 42
EASTMAN KODAK CO. (EK) 33
ELECTRONIC DATA SYSTEMS CORP. (EDS) 17
EMBRAER-EMPRESA BRASILEIRA DE AERONÁUTICA S.A. (ERJ) 8
ENZO BIOCHEM INC. (ENZ) 9
FLUOR CORP. (FLR) 19
GENERAL DYNAMICS CORP. (GD) 8, 9
CLOCKWISE FROM TOP LEFT: BRYAN CHRISTIE DESIGN; COURTESY BP; DEAN KAUFMAN; BRYAN CHRISTIE DESIGN; NEIL FLEWELLEN
GENERAL ELECTRIC CO. (GE) 33
GENERAL MOTORS CORP. (GM) 32, 33
48
GUANGSHEN RAILWAY CO. LTD. (GSH) 29
H&R BLOCK INC. (HRB) 7
HAEMONETICS CORP. (HAE) 9
HARRIS CORP. (HRS) 8
HEWLETT-PACKARD CO. (HPQ) 17
DEPARTMENTS
HOME DEPOT INC., THE (HD) 7
HUANENG POWER INTERNATIONAL INC. (HNP) 26, 29
IBM CORP. (IBM) 14, 32
INFINEON TECHNOLOGIES AG (IFX) 30
JILIN CHEMICAL INDUSTRIAL CO. LTD. (JCC) 29
KNIGHT-RIDDER INC. (KRI) 46
4
UPDATE
From NYSE CEO John A. Thain
44
CEO Q&A
James C. Foster, Charles River
Laboratories International Inc.
L-3 COMMUNICATIONS HOLDINGS INC. (LLL) 8
LIBERTY MEDIA CORP. (L) 10
LOCKHEED MARTIN CORP. (LMT) 8
MERRILL LYNCH & CO. INC. (MER) 36
MONSANTO CO. (MON) 19, 41, 42
MOTOROLA INC. (MOT) 33
NEWELL RUBBERMAID INC. (NWL) 7
6
Advancing
the testing of drugs
Of Mice and Meds
UPFRONT
Collaboration under the sea; Soybean
solution; and more
Global Watch: Less pain in Spain;
and more page 8
CEO Forum: Delivering life-extending
OFFICE DEPOT INC. (ODP) 7
PEARSON PLC (PSO) 8
PETROCHINA CO. LTD. (PTR) 29
PFIZER INC (PFE) 48
46
breakthroughs worldwide page 9
41
NEW YORK TIMES CO., THE (NYT) 8
NORTHROP GRUMMAN CORP. (NOC) 7
TECHNOVATIONS
INSIDE THE NYSE
PITNEY BOWES INC. (PBI) 19
POSCO (PKX) 33
NYSE eGovDirect
PROCTER & GAMBLE CO., THE (PG) 33
Listed companies can now file compliance
data on the Web. The central corporategovernance platform contains
value-added benchmarking tools.
REPSOL YPF S.A. (REP) 36
RAYTHEON CO. (RTN) 8
ROYAL PHILIPS ELECTRONICS NV (PHG) 33
SEMICONDUCTOR MANUFACTURING INTERNATIONAL CORP. (SMI) 26, 29
SINOPEC BEIJING YANHUA PETROCHEMICAL CO. LTD. (BYH) 29
SINOPEC SHANGHAI PETROCHEMICAL CO. LTD. (SHI) 29
STORA ENSO OYJ (SEO) 6
SUPERIOR ENERGY SERVICES INC. (SPN) 8
SYNGENTA AG (SYT) 41, 42
TARGET CORP. (TGT) 10, 17
The New Crop
Genetic modification, with
“stacked” traits for health and
environmental benefits, is
changing the face of agribusiness.
TELEFÓNICA S.A. (TEF) 36
TEXAS INSTRUMENTS INC. (TXN) 29
48
FOR STAKEHOLDERS
Hank McKinnell, Pfizer Inc
The United Nations Global Compact
provides a channel into China.
TOO INC. (TOO) 10
TRANSOCEAN INC. (RIG) 6
UBS AG (UBS) 27
UNILEVER NV (UN) 19
VIACOM INC. (VIA) 8
VIASYS HEALTHCARE INC. (VAS) 9
WELLS FARGO & CO. (WFC) 37
XEROX CORP. (XRX) 4, 12
YANZHOU COAL MINING CO. LTD. (YZC) 29
YUM! BRANDS INC. (YUM) 32, 33
ZIMMER HOLDINGS INC. (ZMH) 9
U P D AT E
F R O M N Y S E C E O J O H N A. T H A I N
The new year brings with it new opportunities and new challenges for global leaders and
enterprises. We operate in an increasingly complex environment that demands adaptability and
innovation. The way we approach everything, from corporate governance to regulatory compliance to defining our customer base, is changing. We as leaders must develop effective strategies to sustain and grow our businesses while serving a more diverse constituent group.
This year I have the privilege of co-chairing the World Economic Forum’s annual meeting
in Davos, Switzerland, where I look forward to dialogues on these and many other issues built
around this year’s theme of “Tough Choices for Tough Times.” Beyond the cover story on Xerox,
this edition of nyse magazine tackles some of those issues. For example, in the Roundtable on
DURING HIS RECENT VISIT TO CHINA, NYSE CEO JOHN A. THAIN
MET WITH PREMIER WEN JIABAO.
page 18, CEOs describe how they’re meeting the needs of customers and shareholders in all
corners of the world. The BBVA profile on page 34 exemplifies such strategic global expansion,
as the bank expands into the U.S. Southwest after penetrating markets across Latin America.
The integration of China into the global marketplace is bringing unprecedented opportunities for corporate leaders. Beginning on page 24, our Special Report showcases this dynamic
and complex market. The For Stakeholders column, page 48, also discusses the importance of
doing business in China.
For the NYSE, China is now the single-largest source of listings from the Asia-Pacific region.
The new year
promises a new set of
opportunities and
challenges for today’s
global leaders
and enterprises.
Our 17 mainland China companies have a combined market value of nearly $300 billion. As its
companies embrace high standards of governance and transparency, we expect more listings
from China. We have a cooperative arrangement in place with the Shanghai Stock Exchange,
and this year we look forward to opening a new office in Beijing, our third in Asia.
Innovation starts with customers and finding ways to serve them better. Since arriving at
the NYSE one year ago, my paramount goal has been to strengthen investor confidence.
Therefore, I’ve spent much of my time meeting with customers. All investors must be
assured the opportunity for the best price and the best value from their trading venue.
This goal led to a series of changes. We simplified listed companies’ ability to change specialists. We introduced new technologies, such as NYSE Tradeworks, a new order-management
and messaging system for floor brokers. We created our hybrid-market initiative to respond to
those wanting the ability to trade electronically, instantaneously and anonymously, without
foregoing the benefits of the auction market. And, as explained on page 46, we’re launching
NYSE eGovDirect.com, a Web tool to help companies meet their governance and compliance
requirements. These changes make clear that at the Exchange, the customer comes first.
U.S. MARKET REFORMS
This year is also an important one for the structure of the U.S. equity markets. Since early
2004, the SEC has been working on a proposal for a new structure for our national market
system. We believe this structure, known as “Regulation NMS,” should protect investors
by providing a framework to ensure they receive the best price on their transactions and also
benefit from the forces of competition and innovation that have made our markets the envy
of the world. The SEC has put on the table two alternatives: one of which achieves both these
objectives, the other of which would effectively transform our markets into a homogenized
government utility.
Throughout its deliberations of Reg NMS, the SEC has properly emphasized the importance
of protecting the best prices in each market center. This principle gives investors — large and
small — confidence that if they take the risk to be the best bid or offer, they will not be “traded
through.” Therefore, investors have an incentive to gather at the best price, or better it. The
results are tighter spreads, greater liquidity, and equal treatment for all types of investors.
Order competition is complemented by competition between markets. Intermarket competition spurs innovation and leads to the creation of an array of trading alternatives. Markets
compete on the basis of order aggregation and efficient price discovery. This lowers trading
costs and keeps our markets the best and most dynamic in the world.
Until now, the SEC has successfully maintained the important balance that separates order
competition within markets and competition between markets. But one alternative proposed
by the SEC eliminates the latter by requiring that markets route orders to any displayed limit
order in any market center. Such a proposal would transform our market system into a virtual
Consolidated Limit Order Book, or CLOB. The CLOB has been proposed in the past, debated at
length, and wisely and repeatedly rejected for a number of reasons; foremost among them, it
would convert our dynamic, diverse and internationally competitive markets into a governmentmandated, one-size-fits-all monolith.
Today, the preferences of investors and issuers, rather than regulation, determine which
market models are successful. Investors in U.S. markets benefit from spreads that are among
As China pursues a
market-driven model, we
expect more listings
from this dynamic and
complex market.
the tightest and transaction costs that are among the world’s lowest. They also benefit from
the freedom to choose the type of execution that is right for their order, whether they are a
retail investor purchasing 100 shares or an institution trading one million shares.
Companies cite lower volatility as one of the most important criteria of market quality. In
2002 and 2003, 51 companies switched to the NYSE from NASDAQ, and over the next year
their intraday volatility fell, on average, by half. That decline is evidence of the value of the
auction market, where live, thinking human beings add judgment to the price-discovery process
and, when necessary, inject liquidity. This is particularly important at openings and closings,
with earnings surprises or when markets are disrupted by unusual events or takeover news.
Regulation should not undermine the forces of competition, but should instead set the
framework on which competition thrives in a way that best serves investors. Today, this competition is driving significant change at the NYSE — leading us to evolve our business model
to meet our customers’ demands while providing best price protection. We should avoid
trying to fix something that is not broken.
We applaud the SEC for taking on the complex and important task of modernizing and
Regulation should not
undermine the forces of
competition, but should
set the framework
on which competition
thrives in a way that
best serves investors.
strengthening the way our equity markets function. We all need to take the time to focus on
and unite around a public policy that is best for our markets and for investors. By striking the
proper balance between healthy and effective market competition and incentives for investors
to compete within each market center, the SEC will ensure that America maintains its position in financial markets.
RESPONDING TO THOSE IN NEED
The NYSE community joined the rest of the world in mourning the victims of the tsunami that
struck the nations of South Asia. The New York Stock Exchange Foundation, the private
philanthropic foundation established by the NYSE, donated $1 million in support of relief and
recovery efforts in the region. The donation will be divided equally between Americares and
Save the Children.
Sincerely,
All investors must be
assured the opportunity
for the best price and
the best value from their
trading venue.
JANUARY/FEBRUARY 2005
NYSE@timeinc.com
UPFRONT
NEWS AND TRENDS FROM THE GLOBAL BUSINESS COMMUNITY
E X P L O R AT I O N
COLLABORATION UNDER THE SEA
Oil companies and scientists say they have taken collaboration to new heights by
exploring the depths — 10,000 feet or more below the surface of the ocean.
TRANSOCEAN INC.
(RIG), BP PLC (BP) and CHEVRONTEXACO CORP. (CVX) say they
have teamed up with the U.K.-based, government-run Southampton
Oceanography Centre and several remotely operated vehicle (ROV) companies to
create the Scientific and Environmental ROV Partnership using Existing iNdustrial
Technology (SERPENT). The SERPENT organization says corporations provide
scientists access to their ROVs to do undersea studies of the environment and
marine life near oil and gas installations. SERPENT reports that, to date, the program has resulted in the discovery of two new species of marine life.“SERPENT will
help people understand that drilling and scientific research go hand in hand,” says
Robert L. Long, president and CEO of Transocean. Adds Dave Blackwood, director
and business unit leader of BP’s North Sea operations: “The scientists get access to
cutting-edge technology to gather data without the prohibitive costs.” In return, he says, BP and other companies “get improved access to specialized scientific knowledge” about the conditions at the bottom of the
THE AUREILIA MEDUSAE
JELLYFISH WAS DISCOVERED
AT THE BASE OF AN OIL RIG.
ocean and the potential impact on the platforms and drilling sites. — Mardy Fones
PHILANTHROPY
UNITED WITH UNICEF
Worldwide, 121 million school-age children are denied education, according to UNICEF. One way to break cycles of poverty
and dependency in developing countries is by improving literacy among girls, says Jukka Härmälä, CEO of STORA ENSO OYJ
(SEO), an international paper and board manufacturer. To address this need, Stora Enso says it has become UNICEF’s first
global corporate partner in the area of basic education. The company says it will be contributing to a campaign to expand
educational opportunities in 25 countries, from Afghanistan to Zambia, where girls lag behind boys.
Anne-Marie Grey, UNICEF chief of international and corporate alliances, says Stora Enso is a partner for UNICEF’s Education
over five years and providing additional funds, raised by employees, and in-kind gifts, such as paper. UNICEF says it uses funds to
train teachers, buy teaching materials and provide financial aid and other assistance for students.
“One of our aims is to help UNICEF attract support from other global corporations by demonstrating that a
constructive five-year alliance with UNICEF can generate positive results both for the company and for children,”
says Härmälä. “The long-term social and economic progress of the developing world is essential to Stora Enso’s
long-term profitable growth,” he adds. — MF
TICKER TAKES
[OUT
TO SEA]
RED LOBSTER, A DARDEN RESTAURANTS INC. (DRI) SUBSIDIARY, SAYS U.S. CONSUMERS SPEND MORE THAN $55 BILLION YEARLY ON FISH AND SHELLFISH PRODUCTS.
FROM TOP: COURTESY BP; PHOTONICA
program because its basic product, paper, is integral to education. Stora Enso says it is contributing $250,000 annually to UNICEF
RIGHT NOW ON nyse.com
B E Y O N D TA X E S
FIFTY YEARS AND COUNTING
JAIME
RIVERA
The company that says it got its start with a small ad in a Kansas City
newspaper 50 years ago is now providing financial advice as part of its
CEO, BANCO LATINOAMERICANO DE
EXPORTACIONES S.A. - BLADEX (BLX)
tax services, says Mark A. Ernst, chairman, president and CEO of H&R BLOCK
INC.
(HRB). The move will help expand the
WHERE DOES
GROWTH LIE FOR
YOUR COMPANY?
client base for the U.S.’s largest tax preparer (in
revenues and sheer number of tax returns
submitted), explains Ernst. “Clients with both
a financial and tax relationship with us are
Bladex is about trade services. Trade is
expanding in Latin America. So the company sees growth opportunities along
both dimensions of our business model:
clients and products. We currently do
business with about 134 banks; there
are more than 500 banks in the region.
As far as products go, we offer services
in about 25 percent of the trade-finance
product area. So the growth opportunities are significant.
more loyal than those with just a tax relationship,” says Ernst.
As H&R Block celebrates its 50th anniversary
this year, Ernst notes that the company has often
tweaked its formula. He points out that bookH&R BLOCK
LAUNCHES NEW
TAX PREPARATION
SOFTWARE.
keepers Henry and Richard Bloch started the company to
fill the void when the U.S. Internal Revenue Service
stopped helping citizens file their income taxes. In recent
years, H&R Block says, it has embraced online filing, and it is now helping
customers set up IRAs and manage their debt. Over the years, Ernst says,
TO READ ALL FOUR QUESTIONS AND ANSWERS
WITH JAIME RIVERA AND EXCLUSIVE INSIGHTS
FROM OTHER CEOS AND GLOBAL LEADERS, GO
TO “4 ON THE FLOOR” AT NYSE.COM.
“the company has learned the importance of changing in ways that are consistent with the strengths of its brand.” — MF
MANAGEMENT
RECRUITING YOUNG TALENT
Entry-level recruits with intellectual horsepower will eventually fill top management ranks at NEWELL RUBBERMAID
INC.
(NWL), predicts CEO Joe Galli. To help pave their way, Galli says there is the Phoenix Program, which
focuses on the company’s in-store marketing and sales force. For college graduates, the company says, the job
comes with a $37,000 salary, a company car and a place on the management track. Since it began in 2001, Phoenix
has recruited nearly 1,600 employees, with approximately one in four candidates applying getting the nod, Newell
COURTESY H&R BLOCK; NEWELL RUBBERMAID
says. Of that elite group, 60 percent are women, 18 percent are minorities and 14 percent speak more than one
language, says the company. After two weeks of training and two months with a mentor, the company reports,
each recruit is assigned a territory of about 10 stores operated by such retailers as THE HOME DEPOT INC. (HD)
and OFFICE DEPOT INC. (ODP). Newell credits its “Phoenicians” with increasing store visibility for its company’s
A NEWELL
RUBBERMAID
“PHOENICIAN”
TAKES
INVENTORY.
products and brands and maintaining customer presence. Starting this year, Newell adds, Phoenix will expand from sales and marketing positions to training future leaders for posts in human resources, manufacturing, engineering and finance. “Phoenix is the most
economical way we’ve found to grow our own talent,” says Galli. “The real payback is long-term. We already have Phoenicians who are
product managers at age 25,” he adds. “In 10 years, they will be our vice presidents, and in 15 years they’ll be presidents.” — MF
THE 900 MILES OF WIRE AND CABLE THAT GO INTO A NORTHROP GRUMMAN CORP.
(NOC) AIRCRAFT CARRIER ARE ENOUGH TO STRETCH FROM DALLAS TO CHICAGO.
CARNIVAL CORP.’S (CCL) THREE CONQUEST-CLASS SHIPS
SERVE 45,300 EGGS AND 60,480 STRIPS OF BACON WEEKLY.
All information obtained from the respective companies.
UPFRONT
THIS MONTH
IN HISTORY
1886
On Jan. 29, Mercedes-Benz founder
Karl Benz was granted a patent for the
first successful gasoline-driven car.
Mercedes-Benz today is a division of
DAIMLERCHRYSLER AG (DCX).
1904
On New Year’s Eve, THE NEW YORK TIMES
CO. (NYT) held the first rooftop celebration at 1 Times Square in New York City.
The event inaugurated its Times Square
headquarters.
1915
1970
BAYER GROUP (BAY) made aspirin available in the form of a tablet Jan. 1.
G L O B A L W AT C H
GENERIC DRUGS
LESS PAIN IN SPAIN
For marketers of generic drugs, southern Europe’s siesta is over. Spain has
emerged not only as a growing consumer market but also as a producer, says Jim
Murphy, president, chairman and CEO of BENTLEY PHARMACEUTICALS INC. (BNT).
The Exeter, N.H.-based company says it manufactures and markets generic and
branded drugs. The company reports that its two Spanish subsidiaries,
Laboratorios Belmac and Laboratorios Davur, furnish a foothold in Spain and an
entrée into Europe, which, the company adds, now generates most of Bentley’s
BENTLEY’S
GENERIC DRUGS
MOVE INTO EUROPE.
revenues. “Spain is the ideal market,” says Murphy, because it offers growing consumer demand and an educated, motivated work force. The European Union
offers a $75 billion market for Bentley’s generic medicines, which treat cardiovascular, gastrointestinal, neurological and infectious diseases, he says.
In Europe, says Murphy, close contact with drug regulators has streamlined the
approval process. “You can talk directly to regulators and get guidance about the
steps required to get a generic approved,” he says, adding that harmonization of
regulatory guidelines in Europe and the U.S. will propel growth of generic drugs
on both sides of the Atlantic. — MF
DEFENSE
PARTNERS IN ARMS
THE BOEING CO.’s (BA) Boeing 747, still
the world’s fastest subsonic jetliner,
entered commercial service with a New
York-to-London flight Jan. 21.
Collaboration is a tool for fostering client relationships and opportunities, says Brazilian aircraft maker
EMBRAER-EMPRESA BRASILEIRA DE AERONÁUTICA S.A.
The Financial Times, published by
PEARSON PLC (PSO), went on sale in
the U.S.S.R. for the first time Jan. 21.
ERJ 145 aircraft to carry the U.S. Army’s electronic
AN EMBRAER ERJ 145 WAS MODIFIED TO CARRY
U.S. ARMY INTELLIGENCE TECHNOLOGY.
gence technology, the company says, it has teamed
with LOCKHEED MARTIN CORP. (LMT), L-3 COMMUNICATIONS HOLDINGS INC. (LLL), HARRIS CORP. (HRS),
GENERAL DYNAMICS CORP.
1985
VIACOM INC. (VIA) introduced the VH1
music video broadcasting channel Jan. 1.
SOURCE: ALL FACTS OBTAINED FROM
RESPECTIVE CURRENTLY LISTED COMPANIES.
and imaging Aerial Common Sensor (ACS) intelli-
(GD) and RAYTHEON CO. (RTN). “For partnerships to work,” says Maurício
Botelho, Embraer president and CEO, “it’s a matter of understanding that you are not the owner of the
project, that you must listen and be prepared to evaluate information on a rational basis.”
ACS can detect enemy communications, radar emissions and troop movement via a networked airground communication system, unmanned aerial vehicles and ground bases, Embraer reports.
Modifications to the ERJ 145 design to accommodate ACS will take place at the company’s first manufacturing facility in the U.S., now under construction in Jacksonville, Fla., says Botelho. — MF
USING COILED TUBING, SUPERIOR ENERGY SERVICES INC. (SPN) LAST YEAR SET A WORLD RECORD FOR THE LONGEST SINGLE, CONTINUOUS SUBSEA PIPELINE CLEANING, ON A 14,800-FOOT STRETCH OF PIPELINE LOCATED 1,200 FEET BELOW THE OCEAN’S SURFACE.
FROM TOP: GETTY IMAGES; COURTESY EMBRAER
1976
(ERJ). In its new $7 billion contract to deliver 57 of its
NEW MARKETS
GLOBAL CAPITAL
The United Nations International Year of
C EO
FORUM
EXTENDING LIFE
What are the challenges to delivering life-extending breakthroughs
to patients throughout the world, and how can they be overcome?
Microcredit began Jan. 1, ushering in a concerted
effort to make small business loans and other
financial services available to the world’s poorest
borrowers, says Christina Barrineau, the U.N.
Capital Development Fund’s (UNCDF) chief technical adviser. Sums as small as $10 have launched
tiny companies in developing countries, including
those in Latin America and Africa, she says.
Borrowers, mostly women, she explains, use the
In the developing world, delivering medical care is challenged by poverty, lack of
infrastructure and — as in the case of HIV/AIDS — the scope of the problem. In this
area, pharmaceutical companies, including Bristol-Myers Squibb, are working with
partner organizations to expand access to lifesaving medicines, as well as to build
health-care capacity. — PETER R. DOLAN, CHAIRMAN AND CEO, BRISTOL-MYERS
SQUIBB CO. (BMY)
As medicinal research continues to develop, pharmaceutical companies have
improved their research methods — e.g., in the field of genetic engineering — and
we are constantly trying to investigate ever-more complex diseases caused by multiple interrelated factors. I am confident that we will be able to come up with causal
therapies for chronic diseases in the decade to come. — DR. H.C. NIKOLAUS
SCHWEICKART, PRESIDENT AND CEO, ALTANA AG (AAA)
proceeds to purchase raw goods that they turn into
saleable goods and services.
The Citigroup Foundation, part of CITIGROUP
INC.
(C), and the UNCDF have teamed up this year
to strengthen microcredit worldwide, an important
step toward bringing communities into the financial mainstream, says Citigroup Vice Chairman
Stanley Fischer. “Microfinance will enable us to
reach many poor people who need access to finance
to take advantage of the opportunities around
them,” he says. Since 1999, the Citigroup Foundation
reports, it has loaned nearly $20 million to microLEFT: JANE SWEENEY/GETTY IMAGES; CEO FORUM IMAGES: COURTESY RESPECTIVE COMPANIES
finance institutions in 50 countries. “This is a real
The challenge is to balance the costs of the health-care system with the demand
for innovation. The high prices that U.S. consumers pay subsidize lower prices in
third-world countries. The real innovation in health care will be putting the healthcare providers and the patients back together and reducing administrative barriers
and costs. — RANDY H. THURMAN, CHAIRMAN, PRESIDENT AND CEO, VIASYS
HEALTHCARE INC. (VAS)
While there is much debate about whether regulatory systems are equipped to cope
with the flow of medical innovations, the most important challenge worldwide is
improving patient quality of life in a measurable and affordable manner. We’ve
placed a great deal of emphasis on minimally invasive joint replacement, and we
have studies under way to prove the economic benefits. — RAY ELLIOTT,
CHAIRMAN, PRESIDENT AND CEO, ZIMMER HOLDINGS INC. (ZMH)
Patient access to life-extending therapies, in both industrialized and developing
nations, is a vital responsibility. It is imperative that government, private and humanitarian organizations work together to develop domestic and international systems to
manage the cost burdens of medical care, and to build infrastructures to deliver
these services. — DANIEL GLASSMAN, CHAIRMAN, PRESIDENT AND CEO,
BRADLEY PHARMACEUTICALS INC. (BDY)
service to a neglected part of the world economy,”
Fischer adds. — MF
One challenge is to strike a balance between emerging therapeutic technologies
and medicines and the ability to deliver these breakthrough products in a
cost-effective manner. Personalized medicines will emerge in the next decade to
create more specific and directed therapies to reduce the adverse effects produced by current medications. — BARRY W. WEINER, PRESIDENT, ENZO
BIOCHEM INC. (ENZ)
Driving research and development productivity is a challenge. R&D costs have
escalated to $1 billion per drug compared to $230 million in 1990. Increasing
efficiency and reducing time to market have become more critical than ever
before. One key solution to this dilemma is partnering with providers of preclinical and clinical services to help improve speed to market and to control costs.
— JOE HERRING, PRESIDENT AND CEO, COVANCE INC. (CVD)
A key challenge to delivering life-extending breakthroughs to patients is the cost
of providing these therapies in countries with little health-care infrastructure. This
challenge can be partially overcome through education of health-care providers
in how to use technology wisely to solve larger problems. These education programs are being implemented around the world. — BRAD NUTTER, PRESIDENT
AND CEO, HAEMONETICS CORP. (HAE)
LOANS OF $50 CAN LAUNCH SMALL BUSINESSES IN AFRICA.
A TOMAHAWK CRUISE MISSILE LAUNCHED FROM A GENERAL DYNAMICS
CORP. (GD) SUB CAN HIT A TARGET UP TO 1,000 MILES AWAY.
TO TELL US WHAT YOU THINK ABOUT THE TOPIC OF MEDICAL CHALLENGES,
OR TO LET US KNOW WHAT OTHER QUESTIONS YOU’D LIKE TO SEE CEOS ANSWER
IN THESE PAGES, PLEASE CONTACT US AT NYSE@TIMEINC.COM.
DICK’S SPORTING GOODS INC. (DKS) YEARLY SELLS 37,352 MILES
OF FISHING LINE, EQUIVALENT TO 1.5 TIMES AROUND THE EQUATOR.
UPFRONT
CORPORATE ID ?
[ NAME
THIS COMPANY ]
UTILITIES
SOYBEAN SOLUTION
Soybean oil is transforming the transformer business, says Cooper Power
Systems Inc., a division of
COOPER INDUSTRIES LTD.
(CBE). Based on a com-
monly available food-grade soybean oil, Cooper Power Systems’ Envirotemp
FR3 fluid is a fire-resistant, environmentally friendly medium that efficiently
transfers heat from power transformers while improving their performance
and durability, the company reports. The product can be added to the petroleum-based insulating fluid in existing transformers or used as a stand-alone
product in new transformers, the company adds. Bill Martino, president of
Cooper Power Systems, says,“Soybean oil eliminates the fire and
The founding family chose the company name to suggest
the horse and buggy and an association with American
saddlery.
The founder attributed the inspiration for his product to
the texture of a baseball glove and the patina that it
develops over time.
environmental hazards associated with mineral oil,
which is petroleum,” and is currently used in 93
percent of transformers in the U.S.
Cooper Power Systems predicts new transformers using Envirotemp FR3
fluid will last twice as long as those
transformers using mineral oil. “As
U.S. utilities seek ways to improve the
Like fingerprints, no two products made by this
company are identical.
performance and reliability of the nation’s
distribution grid, Envirotemp FR3 fluid is
there to meet requirements for safety and envi-
SEE ANSWER IN RIGHT MARGIN. ALL CLUES PROVIDED BY THE COMPANY.
ronmental protection,” says Cooper Industries
President and COO Kirk S. Hachigian. — MF
R E TA I L
THE TWEEN SCENE
It’s a store for her. That’s one reason girls in the so-called tween demographic (ages seven to 14) are drawn
to Justice, a chain of retail stores TOO INC. (TOO) launched in 2004, says Sally Boyer, president of Justice.
“Girls think our assortment is fabulous, and moms love our prices,” she says. The total girls’ apparel and
accessory market is worth some $10 billion a year, Too says. Of course, parents — who do most of the
TWEENS SHOP AT TOO INC.’S
JUSTICE STORES FOR
AFFORDABLE FASHIONS.
purchasing — are important, Boyer adds. “The most important thing mothers want for their girls is to see them be happy
and to fit in,” she says. Parents also focus on “fashion, convenience and price,” she adds. To address those concerns, she
explains, the average item of clothing in a Justice store sells for about $15, and stores are located in “power centers,” which,
she explains, are strip malls with major retail draws such as TARGET CORP. (TGT) stores.“Data over the past five years show people are migrating out of traditional shopping malls to these neighborhood power centers,” Boyer says, “especially in the children’s market.” As of year-end 2004, Too had 35 Justice stores in power centers in large cities, mostly east of the Rockies, Boyer
says. The success of the power-center concept has led to a commitment to add 50 to 75 Justice stores in 2005, she says. — MF
IN 2004, SHARK WEEK PROGRAMMING ON THE DISCOVERY CHANNEL, A NETWORK PARTLY OWNED BY LIBERTY MEDIA CORP. (L),
ATTRACTED 23 MILLION VIEWERS, AN AUDIENCE THAT IS ROUGHLY THE SIZE OF THE POPULATION OF SAUDI ARABIA.
CLOCKWISE FROM TOP LEFT: BETTMANN/CORBIS; SPENCER JONES/PICTUREARTS/CORBIS; COURTESY TOO INC.; CORPORATE ID ANSWER: COACH INC. (COH)
The company was founded in a Manhattan loft in 1941,
and its headquarters are still located in a loft building in
Manhattan.
THE
PE
O
PLE
COMPANY
CEO ANNE MULCAHY
CREDITS EMPLOYEES
AND CUSTOMERS
WITH PROPELLING
XEROX INTO A
SLEEK DOCUMENT,
TECHNOLOGY AND
SERVICES COMPANY.
B Y
S U S A N
C A M I N I T I
P H O T O G R A P H Y
W
B Y
J E S S E
F R O H M A N
hen Anne Mulcahy expounds on the future of XEROX
CORP. (XRX), it’s not so much about the Stamford,
Conn., company’s vigorous, three-pronged push into
digital production printing, multifunctional office systems and
consulting services. Instead the chairman and CEO talks about
people. She talks about the 60,000 employees who remain at
Xerox following years of cost cutting, and she talks about
the company’s customers. “This is really about working with,
listening to and learning from our customers,” Mulcahy says,
pointing to Xerox’s new iGen3 $500,000 digital color press.
“Sometimes when you come through a crisis you become better
listeners. Maybe a little humility is a positive thing.”
C O V E R
S T O RY
F R O M L E F T:
A N N E M U L C A H Y, X E R O X C H A I R M A N
AND CEO; GLORIA CASTRO, HUMAN
R E S O U R C E S ; E N R I C O S A N TA M A R I A ,
MARKETING; AND GEETA ARORA,
B U S I N E S S S T R AT E G Y
T
he crisis that Mulcahy, 52, refers to involved bring-
“When there was a tough decision to be made — shutting down
ing Xerox back from the brink of bankruptcy after
a business unit or layoffs — I was the one who communicated
stiffened competition, billing problems and the
it to our people,” Mulcahy says. “I told them why.”
evolution of digital desktop printing threatened
But Mulcahy explains that she also talked about how, together,
the company’s core business, she explains. To slash
they could fix the company’s problems, painting a picture of how
expenses, Xerox reports, it eliminated 30,000 jobs
the new Xerox would look. “When I spoke with Xerox people, it
over the past three years. The company closed whole divisions,
was always about what the company was going to look like when
including the ink-jet printer business she had
started, says Mulcahy, adding that Xerox also sold
half its stake in Fuji-Xerox, a long-standing Asian
joint venture, for $1.3 billion in cash. By year-end
2004, Xerox reported it had slashed its debt by
half since the end of 2000. Xerox also announced
it ended the third quarter with $3.4 billion in
cash, a year-over-year increase of $1.1 billion.
XEROX’S PEOPLE FACTOR
M
ulcahy says she joined Xerox as a saleswoman in 1976, soon after graduating
from Marymount College with a bache-
lor’s degree in English and journalism. Working her
way through different parts of the company,
“I WANTED
EMPLOYEES
TO BE
PASSIONATE
ABOUT THE
FUTURE,
NOT JUST
INTENSE
ABOUT THE
TURNAROUND.”
— Anne Mulcahy
Chairman and CEO
including sales and human resources, which she
had headed, Mulcahy recalls, she became the chief of
staff for former chairman and CEO Paul Allaire, who
retired in 1999. In May 2000, at the departure of his
successor, G. Richard Thoman, who had joined the
company from IBM CORP. (IBM) three years earlier,
Allaire returned to run Xerox until his replacement
could be found, according to the company. That
same day, the board picked Mulcahy to be Xerox’s
president and COO, the company reports.
Mulcahy admits that some critics doubted she could be the
we came through the turnaround,” Mulcahy recalls. “I wanted
catalyst to remake Xerox into a profitable enterprise. “Everyone said
employees to be passionate about the future, not just intense about
the company needed someone to come in with a fresh set of eyes
the turnaround,” she adds.
who could look at things from a dispassionate, unemotional perspective,” she recalls with a smile. “I thought we’d approach things
THE POWER OF TEAMWORK
differently,” Mulcahy insists. “From the beginning I said, we’re going
A
to look at this challenge from a very emotional, passionate perspective. I wasn’t going to try to answer 90-day expectations of Wall
Street or leverage short-term objectives then bail. We were making
a set of decisions that would give this company a bright future.”
lthough she says she strongly believes that the buck stops
with her, Mulcahy insists that she understands the power of
teamwork. Mulcahy is rarely at corporate headquarters,
but when she is, she stops by employees’ offices to chat about business opportunities, customer wins or, just as important, news of
In those early days, Mulcahy says, she “lived on planes,” visiting
new babies, homes, marriages and the “real life” priorities that
employees all over the world — in town-hall meetings, face-to-
make everyone tick, observes Senior Vice President Ursula Burns,
face, anywhere that would give her a chance to talk with workers.
who is president of Xerox’s $12 billion (reported 2003 sales) busi-
ness group operations. “Her energy is contagious, and her commitment to Xerox and Xerox people is unflappable,” Burns adds.
Perhaps her most critical decision during the turnaround was to not
cut research at a time when the company was gasping for cash, Mulcahy
Mulcahy and Senior Vice President and CFO Larry Zimmerman,
says.“A lot of people outside the company would have preferred that we
the IBM executive whom Mulcahy tapped as her new chief financial
dramatically cut R&D,” the CEO admits.“I know we were trying to save
officer, refer to each other as “partners.” Says Zimmerman, “There are
the company from financial bankruptcy, but I didn’t want to be caught
so few instances in which Anne and I haven’t been aligned, or even
in a technological drought at the end.” Today, Xerox reports, it invests
agreed to disagree. We tend to have the same vision for this company.”
about 5 percent of revenues in R&D. Mulcahy says that the invest-
F R O M L E F T:
T H O M A S P. H E R L I H Y,
OFFICE SERVICES;
R U T H C A S T I L L O,
W O R L D W I D E A U D I T;
M A X I N E P L U M M E R,
T R E A S U R Y; G R E G O R Y
R. P I N G S , E D I T O R I A L ;
A N D M A R I LY N
PA G A N, L AT I N /
CARIBBEAN GROUP
Burns, who has worked at the company in various capacities
ment is paying off in the 40 new systems the company launched in
since 1981, adds that Mulcahy is “phenomenal at getting people to
2004, including color and black-and-white digital presses, production
pull in one direction. Everyone knows how committed she is to
copier/printers, multifunction office systems and printers that, the
this company, and they trust her instincts,” Burns says.
company reports, have earned more than 125 awards worldwide.
According to the company, about two-thirds of current revenues come
GROWTH AREAS
from products introduced within the past two years.
ow that the company has turned the corner and profitability
Xerox is focusing on three key areas, says Mulcahy: digital pro-
is no longer an issue, Mulcahy says, more than 74 percent
duction printing, color and multifunctional systems for offices of
of current revenue comes from key growth areas in office
any size, and business-consulting services. The production market,
digital, production digital and value-added services. Combined,
she explains, addresses the ever growing demand by graphic-arts
she notes, these businesses delivered 7 percent growth in the third
companies, commercial printers and large corporations for color
quarter. Xerox reports that it expects revenue growth of 3 percent
and variable-data printing that uses digital technology rather than
in 2005 and 5 percent in 2006.
offset presses. The digital process, Mulcahy adds, enables travel
N
companies to print personalized cards referring to specific customers’
following page.) “Most companies don’t even understand what
upcoming vacations, or lets financial planners create a brochure full
they’re spending on total document management,” explains
of personalized financial information and retirement projections
Mulcahy. She adds: “They’re amazed at the total numbers and by
for each client. Xerox reports that digital printing now accounts for
the fact that we can deliver savings of about 30 percent through an
$4.5 billion, or a little less than a third of total 2003 revenues.
office document assessment.”
Xerox says it is now replacing its stand-alone copiers with all-in-
In addition, Xerox reports that it is banking on its proprietary
one networked devices. This equipment can print, copy, fax and scan
innovation in color-printing technology to continue boosting
LESSONS FROM AN
EMOTIONAL TURNAROUND
In the world of modern management theory, says Anne Mulcahy, it’s almost a sacred principle:
When a company is in trouble, only the objective, unsentimental eyes of an outsider can really get
the job done. But the 28-year company veteran says she chose to buck that conventional wisdom
when she became CEO. Her mantra, says Mulcahy, consisted of three points:
FOCUS ON the things that make the company great. Mulcahy says that scores of people
told her that she had to kill Xerox’s culture to turn the company around. “I am the culture,”
she shot back. With decades at Xerox under her belt, Mulcahy says, she had credibility when
she proclaimed that people weren’t the problem. Making them part of her solution, she says,
gave Xerox the steam it needed to make the turnaround successful.
BE BRUTAL about what does not work. Closing Xerox’s ink-jet printer division — a business
she had started and helped grow — was one of Mulcahy’s most painful decisions, she explains,
but one she felt was necessary. “When there’s no good story, don’t pretend there is,” Mulcahy
insists. “Make the decision and move on to the next thing.”
BE TRANSPARENT in your communications. Mulcahy says she didn’t ever consider leaving it
to lieutenants to break bad news about layoffs or division closings. “If people were going to hear
from me about why we could make the company great again, I had to be the one to explain why
certain tough decisions had to be made,” she says. “I didn’t try to make everything pretty.”
in black-and-white and color, according to the company. Activity in
revenue. “Eventually, all documents will use color, so color-print-
the networked devices business is growing by double digits, says
ing technology represents a big opportunity for us,” says Mulcahy.
Mulcahy, as more companies realize the cost benefits of replacing
This emphasis will also boost Xerox’s bottom line over the long
dozens of single-function devices, such as desktop printers and fax
run, she acknowledges. Creating color documents generates five
machines, with just a couple of multifunction systems.
times the revenues of black-and-white pages, since color pages
typically require much more toner coverage than black-and-white
DOCUMENTATION
I
ones, the company explains.
n fact, through an assessment tool based on Six Sigma prac-
Xerox reports that today it sells approximately 30 color
tices, Xerox reports, it can help corporate customers under-
printing system models, ranging from high-volume devices for
stand their total document costs. Furthermore, the company
production environments to desktop solid-ink printers and color
suggests that the best ways for corporate clients to reduce these
multifunction systems. The company indicates that revenue from
costs is through more effective use of printers, copiers, facsimile
color printing continues to grow about 20 percent each year and
machines and scanners. (See “Customer-Led Changes” on the
now accounts for 24 percent of total revenue.
Mulcahy also explains that the growing (and lucrative) world of
content-management and business-consulting services will grow
sales 15 to 20 percent this year and each of the next five years.
Mulcahy says she realizes that the heavy lifting at Xerox is far
CUSTOMER-LED
CHANGES
from over. Analysts point out that HEWLETT-PACKARD CO. (HPQ)
Retailer DILLARD’S INC. (DDS) told Xerox that it was wasting money, time
remains a tough rival in printers, and CANON INC. (CAJ) and others
and tons of paper in its daily operations at more than 300 stores across
are strong contenders in commercial printers. But Mulcahy
the country, says Anne Mulcahy. Training materials, hiring paperwork, and
notes that would-be competitors including
ACCENTURE LTD.
SYSTEMS CORP.
(ACN), ELECTRONIC DATA
(EDS) and IBM are partner-
ing more with Xerox to leverage Xerox’s core
competency in document management with
their IT-related services. Xerox estimates the
document management market at around
$17 billion in annual sales worldwide.
A QUESTION OF FAITH
S
till, Mulcahy insists that her faith in
the Xerox team remains unshakable.
“I was always amazed that during
the toughest times, such as closing a division or announcing a layoff, I would hear
from employees,” she says. “They’d ask,
‘How are you doing? How are you holding
up?’ They knew these were ugly, ugly deci-
accounts-payable invoices were all handled in different
XEROX
TECHNICIANS
PRACTICALLY
MOVED
INTO ROYAL
IMPRESSIONS’
HEADQUARTERS,
AND A WALL
WAS BUILT
AROUND THE
IGEN3 TO
PROVIDE
PRIVACY AND
A CONTROLLED
PRODUCTION
ENVIRONMENT.
ways, according to the $7.6 billion (2004 revenues)
retailer, creating delays and increased costs, says Dillard’s.
Following advice from Xerox’s Global Services team,
Dillard’s says, it installed a multifunction, networked system that allows managers to go directly online to print
whichever forms they need, when they need them. Kent
Wiley, Dillard’s vice president of training and support,
says that new software enables accounting teams to scan
paper invoices electronically into accounts-payable systems and lets store managers retrieve training materials
rather than the company having to routinely print out
hundreds of packets and ship them to stores. “With the
options Xerox presented to us,” says Wiley, “we’ve saved
time, improved functionality and cut costs.”
Xerox says it also tapped customers to develop the
iGen3 $500,000 digital-color press, which Mulcahy notes
can print 100 full-color pages per minute at a quality rival-
sions and that I wasn’t making them lightly.
ing that of traditional offset printing. She
That counts for a lot.”
says that when Xerox was developing the
These days, Mulcahy reports, she works just
iGen3 in 2002, it selected longtime
as hard as she did in Xerox’s darkest days,
customer Royal Impressions, a private
although she spends her time differently. “It’s
I G E N 3 D I G I TA L C O L O R P R E S S
much nicer to be meeting with customers and
not bankers all the time,” she says with a laugh.
marketing and communications company
in New York City, as the test site.
During the test Xerox technicians practically moved
Mulcahy says her schedule has let up enough recently to allow
into Royal Impressions’ headquarters, and a wall was built around the
her to accept a seat on the board of directors at CITIGROUP INC. (C).
iGen3 to provide privacy and a controlled production environment, says
(She adds that she also is on TARGET CORP. ’s [TGT] board.) Today,
Christopher DeSantis, Royal Impressions’ president. “When we sug-
Mulcahy says, she views her Citigroup board membership as a good
gested something during the test phase, they listened and made
thing for Xerox. “It’s a defining financial-services company,” she
changes,” says DeSantis, who reports that his company now owns two
explains. “In addition, it’s in New York City, so I can meet with
sedan-size iGen3s, and is currently negotiating for a third machine.
customers on the days when we have board meetings.”
As for her own tenure at Xerox, Mulcahy says she has no desire
to go anywhere else. “I’ll retire from this company,” she says.
In developing the iGen3, Mulcahy says, Xerox created a technology
command center in Rochester, N.Y., that allows technicians to monitor
every one of the hundreds of iGen3s now up and running. If one of the
But would she consider another turnaround elsewhere, now that
machines suffers from a color inconsistency, she explains, a technician
she’s experienced the intensity of one? “No,” Mulcahy says with a smile
can tap the user interface from the command center and adjust it. Says
underscored with steel. “This is where I want to be and where I want
Mulcahy: “It’s great to have a person respond to a problem, but it’s even
to stay. It really wouldn’t be meaningful for me to go anywhere else.”
better to head off the problem in the first place.”
The
Global
Company
A CEO DISCUSSION
In the following pages, the leaders of four multinational
companies speak about the challenges, opportunities
and responsibilities of operating globally.
B Y
S U S A N
C A M I N I T I
I L L U S T R A T I O N S
D O U G L A S
F R Y E R
B Y
C E O
ASK
TODAY’S
BUSINESS
LEADERS
TO
EXPLAIN
THE
R O U N D TA B L E
D I F F E R E N C E
between a domestic company and a global one — then stand back. The answers encompass issues ranging
from where products are made to how a company views itself as a citizen of the world.
nyse magazine interviewed the heads of several global enterprises to discuss what it takes to operate on
today’s world stage: ALAN BOECKMANN, chairman and CEO of international contractor FLUOR CORP. (FLR);
HUGH GRANT, chairman, president and CEO of MONSANTO CO. (MON), which sells seeds and herbicides to
farmers around the world; MICHAEL CRITELLI, chairman and CEO of PITNEY BOWES INC. (PBI), which
defines itself as the world’s leading provider of integrated-mail and document-management products
and services; and ANTONY BURGMANS, chairman of consumer products company UNILEVER NV (UN), based
in the Netherlands. Each of these multinationals has been doing business around the globe for
decades. Fluor, for example, started venturing outside the U.S. back in the 1940s and now indicates its
operations span 25 countries on six continents. Monsanto has offices in 46 countries, Pitney Bowes
operates in 120 countries, and Unilever does business in 150 countries, according to the companies.
These CEOs explain how they are tailoring their efforts to take goods and services all over the world and
meet varying shareholder expectations. They discuss their responsibility in curing society’s problems
and how they see their own role as global leaders changing in the years ahead.
Q
How do you define a global company?
HUGH GRANT , MONSANTO :
A global company helps solve customers’
problems — the problems they have in their particular market or
global perspective, then “domestic” will depend on the country
you are talking about, not just the U.S.
economy or region or niche. It applies its products, services,
experience and deep understanding to those very local or regional
MICHAEL CRITELLI , PITNEY BOWES :
customer needs.
attitude than anything else. It involves looking at the whole pic-
Being global, I think, is more an
ture to see where deployed assets make the most sense, where peoANTONY BURGMANS , UNILEVER NV :
A global company not only oper-
ates on a worldwide scale but is also accepted by individual local
ple are best situated and how we use the best partners, products
and processes to extend goods and services to every market.
communities. It forms part and parcel of local economies. So
operating globally means more than just exporting products from
BURGMANS :
the country of origin to other regions; it means contributing to local
out its long-term strategy and create value for shareholders and other
economies by creating value through the salaries and taxes it pays and
stakeholders. That is true for the CEO of both a global company and a
the raw materials it buys.
local company. But a global company leader needs to have a wider
The primary role of any CEO is to lead the company, to set
scope, as influences impacting the company can come from anywhere.
ALAN BOECKMANN , FLUOR :
Asking that question, that way, is really
You have to be aware of important trends and developments at an early
a litmus test. If an American company refers to domestic business
stage in order to make the right decisions at the right time. This is true
as only the business being done in the U.S., then you can be sure
now and will be even more so in the future, when the speed of devel-
it is not viewing things in a truly global way. If you really have a
opments impacting the business will only grow faster and faster.
How does the CEO role in a global
company differ from one that operates in
one or maybe two countries?
BOECKMANN :
In a global company the onus is on the CEO to form
centers of power, and it’s important that those centers are distributed
interest in the concepts of leadership and how to lead change in
corporate cultures.
globally. Of course, you have to be a good decisionmaker, but you also
have to be a political scientist.
CRITELLI :
In our case I have to know and build relationships with the
By that I mean you have to be able to gauge what it takes to find the
postal leaderships in many countries. When this company was less
right partners, whether they be full partners or subcontractors. They’re
global, my predecessor would have spent significant time with the
the ones with the in-depth knowledge of the local economies. They
Postmaster General of the U.S. I do that too. But I also have to meet
know the local suppliers.
with my counterparts in other countries, and Pitney Bowes has to be
in tune to the diverse needs of postal leaders all around the world.
GRANT :
The global company skill sets for leadership fall less and
less in the command-and-control column and increasingly into
the lead-by-consensus column. Corporate headquarters, for example,
become less the font of all wisdom and more the knowledge-management center for the enterprise. When looking at it from this
perspective, you can understand why there has been such intense
Q As a global company, how do
you tailor your efforts to bring
goods and services to different
parts of the world?
BURGMANS :
With new technologies the world is getting smaller, and
often we find that consumer needs are, in fact, the same. But sometimes
they are not, and you have to adapt to this.
For example, Unilever produces washing powder. The sole
purpose — to clean clothes well and make them smell good — is
universal. The differences involve consumer habits. In a rural, developing country, women wash clothes in a river, whereas people in a
modern society use a machine. Those differences require different
washing powders to do the job. Packaging is also different. For
example, in wealthier countries people can afford to buy a month’s
supply of shampoo. In poor countries, where a whole bottle of
shampoo is the equivalent of a week’s pay, we offer small sachets of
our products at a low price.
CRITELLI :
Ten years ago Pitney Bowes had a plan to develop a global
product in our regulated-postage-meter business. At the same time,
we figured customers in our high-end mail-finishing business
would demand more differentiation.
In fact, it has gone in the opposite direction. In the European
Union, the product differentiation, market by market, is greater
Michael Critelli
PITNEY BOWES INC.
today than it was five years ago, and it’s getting more so because
each country wants to have something that can’t easily be
we rely so heavily on local partnerships. No company can
have perfect understanding of all markets at all times. In our
case, partnerships can include seed producers, manufacturers, university specialists, veterinary practitioners — a
whole range of people we work with to meet customer needs.
Q Do shareholder
expectations differ
around the world?
BOECKMANN :
Although we operate worldwide, 95 percent of
our shareholders are from the U.S. Having said that, as a
global company we have to be in tune with differences and
respond accordingly. For instance, in the 1980s we had a
severe situation over the fact that we were doing business in
South Africa. We had shareholders who told us they didn’t
want us there. We had clients who took projects away from
us because of it. But as a global company you are going to
Alan Boeckmann
F L U O R C O R P.
be doing business all over the world. You need to do what’s
best for the company and all shareholders.
GRANT :
Shareowners are the same the world over. They
want to see their investment grow. They want to see
ongoing success. They want to see you continue to add
replicated. When it comes to our advanced mail-production
value to the business, and they don’t like to be surprised. That
systems — the high-end business — our non-U.S. markets have
translates the same the world over.
caught up to the U.S. markets in terms of their appetite for technology. What this tells us as a global company is we absolutely
need to stay close to the markets we do business in, because we
don’t always know how customer demand is going to play out. If
you don’t do what the customer wants, you don’t get very far.
Q Then do companies have a social
responsibility to cure the world’s ills?
BURGMANS:
Shareholders expect a decent return on investment.
Increasingly, though, we see that this is not their only parameter. More
BOECKMANN :
There’s a term someone else coined — I won’t take
and more often they take into account the company’s behavior in terms
credit for it — that I like, “glocal.” You have to think globally but act
of environmental and social issues. We are convinced that decent
locally. No matter where you are, you have to be local in terms of pres-
corporate behavior in the long run adds to shareholder value.
entation, the ability to execute and the ability to hire.
Stakeholders expect companies to behave as good corporate
citizens, and only those that do so will survive in the long run. You can
GRANT :
The best example here, I think, is a real one. If Monsanto
not expect companies to solve all the big problems, like famine or
tries to sell a product, such as our Bollgard insect-protected cotton,
obesity or AIDS, but let me give you an example of how we can make a
to all cotton farmers around the world, we will have very spotty
difference: A lot of Unilever’s raw materials are crops such as spinach,
success. We have to understand how the cotton farmer in the
peas, palm oil, tomatoes and tea. We are also one of the world’s largest
Mississippi Delta manages the business, and we have to under-
processors of fish. You need water too, for cooking, washing, making
stand how the cotton farmer in India manages the business.
tea or growing crops for our food products. By developing initia-
Understanding the difference is critical to our success. That’s why
tives in sustainable development in three areas — agriculture,
fisheries and clean water — we make sure that our raw material sources are sustainable and that we contribute to the
preservation of our natural resources.
BOECKMANN :
Clearly, as a global company we operate at
the approval of our local neighbors. If you’re not a good
neighbor, if you’re not giving something back to society by
protecting resources or creating jobs, you are going to suffer.
If you are a good neighbor, there are benefits. You get to be
the employer of choice. You get the ability to have your views
heard on critical issues and have some credence given to
them. You get the follow-on work.
When it comes to social responsibility, you have to
take a realistic view of where you can make a difference.
For instance, I chair the Engineering and Construction
Governors of the World Economic Forum. Every year we
sit down and ask what issues that we as a group have the
power to deal with that we couldn’t as individual companies. The first year we discussed HIV/AIDS. Well, we did
not take that on. We took on the issue of corruption and
how to prevent it. This didn’t mean we weren’t concerned
Hugh Grant
MONSANTO CO.
about HIV/AIDS. It just didn’t seem that our group had
the resources or wherewithal to make a difference.
GRANT :
I don’t believe global companies can cure the
world’s ills, but they can be part of the cure. No other kind of
is outsourced, and this percentage is likely to rise. It’s clear that coun-
enterprise can transfer innovation and technology as quickly and
tries that have high wages will need to be strong in other fields, like
effectively as multinational corporations can. Global companies
science and technology, to keep a competitive edge.
have a wealth of experience and understanding that can be put to
great use in dealing with problems such as hunger, for example.
GRANT :
Monsanto adheres to a seven-point statement of commitment to
many companies, such as those in the information-technology indus-
social responsibility that we call the Monsanto Pledge. It is much
try, has not been an issue for us. The nature of Monsanto’s business is
more than a code of ethics, however; it is how we try to manage
very, very different. So much of what we do requires face-to-face con-
our businesses around the world. No one has ever gone to jail for
tact with farmers, and we can’t outsource it. Put another way, if your
taking the high road in ethics. If it means you forgo some oppor-
business depends on personal relationships, you can’t outsource it.
The offshore-outsourcing issue that has been a problem for
tunities, they weren’t really opportunities to begin with.
CRITELLI :
Q As a global company, do you see
outsourcing as a long-term win
for the consumer?
BURGMANS :
We’ve identified some areas where we thought it would make
sense — and it has — and some areas, where, after experimentation, it
didn’t. For example, about 10 percent of our customer-care calls are
handled in the Philippines. Those are mostly for our low-end products,
and because overseas labor is cheaper, outsourcing helps us keep these
products affordable for more customers. After a while, we thought
Low-tech products are more likely to be outsourced than
customer service for our high-end products could be done from the
products in which we have invested a lot and which contain proprietary
Philippines as well. It didn’t work. The customers calling about the
knowledge. At the moment, about 15 percent of Unilever’s production
high-end products wanted a much more complex interaction.
In March I was in our call center in Manila, listening to Filipino
In India, we’re supplementing our R&D staff with anthropologists to
employees doing consumer-satisfaction surveys. They were efficient
watch how people in rural Indian post offices work, in order to come
and meticulous. But every so often we get a customer who expresses
up with better solutions. That kind of interaction with customers is
unhappiness with the company for reasons unrelated to the survey.
only going to get more intense in the years ahead.
Rather than stop the survey and address the customer’s problems right
there, the Filipino employees are inclined to simply move ahead and do
GRANT :
what they’ve been told, which is to complete the survey, and that’s what
growing today. Farmers, for example, are not brand loyal. They are
they did. American employees would understand that it is more impor-
value loyal. Give them better value, and they will buy your product
tant to address the unrelated problem. So I think where tasks require
or service. That places competition in Monsanto’s industry in a very
flexibility, cultural sensitivity to customers and complex interactions,
different context. It means that innovation has to move forward on
those kinds of tasks are going to stay in or come back to America.
a nonstop basis, or we will lose those customers. The products that
The seeds of what the world will look like in 2020 are
are beginning to come out now bring benefits to
Q
Picture the world in 2020. What
will it take for a company to not
just survive, but to thrive?
BURGMANS :
our customers’ customers. In effect, we are
helping our customers solve the problems and
meet the needs of their customers.
That depth in the value chain will be needed
for companies to win in the future. It shows that
you really understand what your customer is
It’s not easy to predict what the world will look like in
about and that you have solutions and products to help them
15 years, because the pace of change is so rapid. But I am convinced
succeed. So the companies that thrive in that business environment
that companies will be judged more and more by the way they do
will be the ones that thrive in any business environment — the ones
business. Of course, they will have to give investors a healthy return,
that pay the closest attention to increasing value for their customers.
but they will also be rated by the way they behave in society. How is their
environmental performance? Do companies contribute to the wellbeing of the communities in which they operate? These elements will be
important, because investors will realize it is the only way forward for
companies to be sustainable. Also, part of the role governments play will
be taken over by public/private partnerships in which businesses work
with other nongovernmental organizations. Developing countries, such
as China and Vietnam, will play a bigger role in the world economy.
BOECKMANN :
Companies are going to have to absolutely excel at
innovation. They’re going to have to know how to market themselves
globally and differentiate themselves from competitors globally.
The key to that is understanding how operations translate on a
local level. At Fluor we’re putting a lot of time into creating a truly
global work force. That means you can’t just have management
that thinks globally — although that is essential — but executives
have to be global too. They have to be recruited from all parts of
the world for a deeper understanding of markets that you can’t
really have otherwise.
CRITELLI :
Finding ways to get closer to the customer is what’s going
to define success in the future. For example, some of our R&D
people actually go out on customer sites and observe them at work.
Antony Burgmans
UNILEVER NV
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T H I S PA G E : S T U A RT F R A N K L I N / M A G N U M P H O T O S . O P P O S I T E PA G E : YA N G L I U / C O R B I S
S P E C I A L
R E P O R T
CHINA’S WESTERN BLEND
Over the past 25 years, China has
been transforming itself from a
state-controlled economy to
a dynamic, market-driven one.
Now, that transformation is
moving into high gear — and
going global. According to
China’s National Bureau of Statistics, the country’s economy
grew by 9.3 percent in 2003, the
fastest rate in seven years;
in 2004’s first three quarters, the
bureau says, growth was an even
stronger 9.5 percent. The China
Economic Quarterly predicts
growth of 8.5 percent for 2005.
China’s growth is also dramatically affecting the world
economy. The statistics bureau
indicates that China’s imports
and exports both exceeded $400
billion in 2003. The World Trade
Organization now ranks China
as the world’s third-biggest
AS CHINA EMBRACES THE
MARKET MODEL,ITS COMPANIES
ARE GOING GLOBAL.
exporter (behind Germany and
the U.S.) and third-biggest importer (behind the U.S. and Germany). China in 2004 imported
$334.6 billion worth of goods and services
want to disclose more information to
sions impose huge long-term liabilities, as
from the Asian region, reports the Chinese
investors than I’m required,’” she says. “They
do noncash benefits such as housing and
Ministry of Commerce (MOFCOM). That
look at the investor-relations process as dis-
medical care, he says. In preparation for
S
figure, MOFCOM adds, represents one-
closure rather than as a way of communicat-
going public, CNOOC was one of the first
P
fifth of the total imports in the region.
ing how great their business is. A U.S. listing,
state-owned companies to start linking pay
O
Nevertheless, China’s companies are still
however, encourages Chinese companies to
to performance and to the amount of
T
maturing in their technological, managerial
take a more shareholder-friendly approach.”
responsibility an employee shouldered, says
L
and financial capacity, says Shi Miaomiao,
[Editor’s note: The NYSE currently accepts
Qiu. The company also increased salaries
I
deputy director general of the department
home-country practices on governance mat-
dramatically, but cut out benefits such as
G
for WTO affairs, MOFCOM. Shi says the
ters for foreign issuers and requires them to
housing, he says, and switched to a defined-
H
government now encourages major Chinese
disclose the significant differences between
contribution pension plan.
T
companies to zou chuqu (“go out” in
home-country practices and the Exchange’s
English) into international markets. By
requirements for domestic companies.]
partnering and trading with non-Chinese
N
suppliers and buyers, she says, Chinese com-
investor relations very seriously, says
of China National Offshore Oil Corp., is a
Chairman Li Xiaopeng. “The first thing is
to have the mentality that investor relations
panies can enhance their technological
C
H
I
N
A
(HNP) also takes corporate governance and
(CEO), the listed subsidiary
CNOOC LTD.
matters, and then you have to
resources and competitiveness.
“China has a group of compa-
ensure that you have the right
nies that already possess some tech-
people and structures to imple-
nological and economic strength,
ment that mentality,” he says.
are familiar with international busi-
Li notes, for example, that even
ness practices and have adapted to
before 2002, when the Chinese
the fierce competition of interna-
government began mandating that
tional markets,” says Shi. But over-
domestically listed firms have
seas listings, she adds, enable China
to tap international capital, supplementing the still limited domestic
Chairman Li Xiaopeng
says Huaneng Power’s
audit committee is
mainly independent.
year by the Chinese government for
institutional shareholders “will improve the
competitive strength.” This blend of new capital and technology, Shi adds, will help China
restructure major industries and companies.
GOVERNANCE
A
Company policy now calls for
pendent, a standard adopted last
influence of foreign strategic and
and boost Chinese companies’ international
had two independent directors.
one-third of the board to be inde-
supply of funds. More broadly, the
quality of Chinese enterprise management
independent directors, Huaneng
THE FIRST THING IS TO
HAVE THE MENTALITY
THAT INVESTOR
RELATIONS MATTERS.
— LI XIAOPENG, CHAIRMAN
HUANENG POWER INTERNATIONAL INC.
domestically listed firms. HPI’s audit committee comprises primarily independent
and outside directors, says Li. He adds that
the company has also established a separate
board of supervisors, whose main task is to
ensure HPI’s financial stability and compliance with China’s laws.
lso, U.S. listings help establish high
Bush notes that listing on foreign
standards of corporate governance
prime example of how internationally listed
exchanges is part of a broad government
and investor relations, stresses Fredy
companies have pioneered internal manage-
strategy to restructure major industries. All
Bush, vice chairman and CEO of Xinhua
ment reforms, says CFO and Senior Vice
but one of the 17 NYSE-listed Chinese
Financial Network Ltd. She acknowledges
President Mark Qiu. In a traditional state-
companies are units of big SOEs, she says
that governance is a serious challenge for
owned enterprise (SOE), he notes, pay is
(the exception is SEMICONDUCTOR MANU-
many Chinese companies. “State-owned
based mainly on seniority and rank rather
FACTURING INTERNATIONAL CORP.
firms traditionally think in terms of ‘I don’t
than on performance. Defined-benefit pen-
and most are listed on the Hong Kong stock
[SMI]),
T H I S PA G E A N D O P P O S I T E : Q U E N T I N S H I H
O
H U A N E N G P O W E R I N T E R N AT I O N A L I N C .
exchange as well as on China’s domestic
company, China Huaneng Group, reports
growth industry; it is also a prime exam-
Shanghai Stock Exchange. “For large com-
that it controls more than 30GW of gener-
ple of how the Chinese government is
panies with global ambitions and a need for
ation capacity, or about 9 percent of the
restructuring key industry sectors through
foreign exchange, a listing overseas is the
national total; HPI itself boasts 19GW of
the creation of vigorous, internationally
best option,” says Stephen Green, a senior
capacity. To maintain its share, China
listed companies.
economist for China at Standard Chartered
Huaneng Group says, it aims to double its
Like the telecommunications and oil
Bank in Shanghai and the author of two
generating capacity to 60GW by 2010.
industries before it, the power sector is
books on China’s stock market.
being restructured through a process of
Sectors that have already listed major
assets overseas include telecommunications, oil and petrochemicals, says Bush.
Over the next two years, electric utilities,
insurance companies and banks are likely to
dominate China’s overseas listing candidates, according to research by the China
managed competition, notes Hui. At the
CHINA IS NOW THE
WORLD’S NO. 1
MARKET FOR CELL
PHONES AND NO. 2
MARKET FOR PCS.
—MARCO MORA, COO, SMIC
Economic Quarterly.
end of 2002, the former quasi-monopoly
State Power Corp. was broken up and its
assets divided among five power-generating
companies and two power transmission
companies. This, explains Hui, increased
the number of overseas-listed “window
companies” that could tap foreign capital to
fund the power plants that must be
POWER FOR GROWTH
built over the next several years.
lectrical power has emerged
Today, China reports, it has 27
as a major bottleneck to
public electric utility companies, of
China’s economic growth
which HPI is the largest listed one,
in the past two years, say media
but only four of those companies
reports, citing insufficient instal-
are listed internationally.
E
lation of new power capacity. Last
summer 24 of China’s 31 provincial power grids suffered shortages, says Alice Hui,1 head of
Listing overseas, according to
SMIC operates
China’s first
advanced silicon
chip foundry, says
COO Marco Mora.
Li, also helps a sector improve
management skills. “The environment has become much more
Asian utilities research for the
competitive,” he acknowledges.
UBS Securities Asia Ltd. unit of
UBS AG
“We have to focus on improving
(UBS). To meet demand, she says,
our excellent management team and
the government plans to nearly double
A significant part of that growth in gener-
China’s installed power capacity to more
ating capacity will come via HPI, which
than 730 gigawatts (GW) by 2010, from
will expand existing plants and build new
391GW in 2003.
ones, according to Li Xiaopeng.
increasing our intellectual capital.”
THE TELECOM CALL
T
he telecommunications industry
began its revamp much earlier,
Hui explains that a key part of this plan
Li, who is also the president of China
is HPI, which describes itself as one of
Huaneng Group, says that HPI, although
China’s largest independent power pro-
still majority state-owned, represents a
Asian telecom research for the Credit Suisse
ducers and the NYSE-listed subsidiary of
new breed of Chinese companies that
First Boston unit of CREDIT SUISSE GROUP
the state-controlled China Huaneng
embrace profitability and shareholder
(CSR). Until the 1990s all services were pro-
Group. Hui, citing the company’s annual
value. Li points proudly to the fact that, as
vided by local telecom agencies, which
report, says HPI’s 2003 net profits and
HPI’s annual net profit doubled over the
came under the jurisdiction of a central-
revenues totaled $656 million and $2.8
past four years, it has each year paid out
government ministry, he explains, adding
billion, respectively.
more than half of its earnings in investor
that limited competition was then estab-
The electrical utility market is frag-
dividends. This, says Li, shows that HPI is
lished between a small number of large
mented, according to analysts. HPI’s parent
not merely a leading player in a high-
state-owned companies.
points out Edison Lee,2 head of
S
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H
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O
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C
New roads in Shanghai
anticipate a fourfold
increase in the number of
cars by 2020.
H
I
N
A
about 65 percent of China’s cellular market,
URBANIZATION WILL
BRING HIGHER INCOMES,
LARGER HOUSES
AND AN INCREASING
NUMBER OF CARS.
and CHINA UNICOM LTD. (CHU), whose $5.7
— WANG JIMING, PRESIDENT, SINOPEC
market, for instance, is now divided between
CHINA MOBILE (HONG KONG) LTD. (CHL), which
listed on the NYSE in 1997 and now controls
billion international offering in 2000 is the
a situation that is not likely to change
soon. And competition has slashed profits,
he acknowledges. “The amount of price
competition has been much more than
investors expected four years ago,” says
Lee. As a result, even as mobile-phone
usage has soared, the companies’ revenue
largest IPO by a Chinese company to date. A
per user has fallen, he admits. The next
stated objective of both telecom listings was
mobile-phone users in the world, 320 mil-
step, says Lee, will be for the companies to
to tap expansion capital.
lion in September 2004, according to the
learn to compete on quality of service and
But introducing a profit-oriented,
Ministry of Information Industry. China’s
user options rather than simply on price.
market-driven mind-set was a bigger goal,
mobile users outnumber the country’s 307
Lee explains. “The major objective of the
million fixed-line users, the ministry adds.
THE OIL EQUATION
nother key challenge for a growing
government in listing these companies was
(China also has one of the fastest-grow-
to improve internal management, create
ing populations of broadband users, largely
new efficiencies and introduce more
provided by fixed-line telephone companies;
A
market-oriented thinking,” he says. “Now
Internet users totaled 87 million as of July
warns Wang Jiming, vice chairman and
these companies are under pressure from
2004, notes the China Internet Network
president of CHINA PETROLEUM & CHEMICAL
investors to maximize profits.”
Information Center, which says the 31 mil-
CORP.
lion broadband users represented a 79 per-
Noting it is China’s second-biggest oil
cent increase from the beginning of 2004.)
company by revenues, Sinopec reports
Lee points out that both China Mobile
and China Unicom have instituted sweeping
China will be to ensure reliable supplies of raw materials and energy,
(SNP), commonly called Sinopec.
management reforms. Competition between
Lee notes that privatization is not com-
major joint ventures in China with multi-
the two networks has driven prices down
plete — the two mobile operators remain
national oil and chemical companies such
and given China the biggest population of
majority-held by their state-owned parents,
as BP PLC (BP) and BASF AG (BF).
LIU LIQUN/CORBIS
Lee notes that China’s mobile-phone
THE TECH SECTOR
At a conference in New York last summer,
crucial, says Wang, because domestic pro-
Wang noted that “the Chinese economy has
duction cannot meet demand. In 2003,
entered a period of heavy industrialization,
according to China’s National Bureau of
characterized by accelerated development in
Statistics, China produced 1.2 billion barrels
the automobile, steel, petrochemicals and
of crude oil, slightly more than its 2002
producer and consumer of high-tech prod-
machinery industries.” The proportion of
output. Imports, according to the bureau,
ucts, according to MOFCOM, which reports
China’s population living in cities will rise
rose by 31 percent over the previous year, to
that China’s exports of high-tech products
from 40 percent now to 55 percent by 2020,
nearly 650 million barrels.
more than quadrupled in the last four years
B
ut China’s growth is not merely a
story about resource consumption.
The country has become a major
predicts Wang, who suggests urbanization
CNOOC was set up in 1982 as a mech-
to $160 billion in 2004. High-tech imports
will bring with it higher household incomes
anism to import foreign expertise in devel-
were equally high, at $160 billion, the agency
and larger houses.
oping China’s offshore reserves, explains
notes. MOFCOM reveals that, by far, the
Wang predicts that China’s total car
Qiu. CNOOC reported that, after two
biggest imported item is silicon chips.
count will multiply to 100 million in 2020,
decades of operating almost entirely in
China’s 2004 semiconductor imports were
from 28.4 million in 2003. Inevitably,
China’s territorial waters, in 2002 it pur-
$60 billion, or nearly 10 percent of China’s
these trends will challenge China’s crude-
chased stakes in three major oil and gas
total imports, says the agency.
oil supplies. Although vehicles accounted
fields in Indonesia and Australia. These
“China has become the hub of the world
for just a third of China’s oil consumption
deals added nearly 700 million barrels of
electronics industry,” says Marco Mora, chief
in 2003, “incremental gasoline and diesel
oil-equivalent to the company’s reported
operating officer at Semiconductor Manu-
consumption by automobiles accounted
reserves at a cost of about $1.2 billion,
facturing International Corp., or SMIC. The
for 76 percent of incremental growth in
according to the company.
Italian-born engineer says he joined SMIC at
Qiu is quick to point out that “all our
the urging of the company’s chairman, pres-
To meet demand, says Wang, the gov-
international projects must meet three cri-
ident and CEO, Richard Chang. The two had
ernment is developing a comprehensive
teria: They must be within the company’s
worked together first at TEXAS INSTRUMENTS
strategy that encourages energy efficiency
capacity, they must provide shareholder
INC.
and conservation while diversifying the
value, and we must be confident we can
at a startup chip producer in Taiwan that
supply of crude oil and refined oil products.
integrate them with our existing opera-
Chang headed, says Mora. Established in
Finding stable and reliable import sources is
tions,” says Qiu.
2000, SMIC calls itself China’s first advanced
oil product consumption,” says Wang.
(TXN) in the 1980s and 1990s and later
THE NYSE’S ROSTER IN MAINLAND CHINA
LISTING
DATE
COMPANY
TICKER
2003 REVENUES
(BIL. $)
INDUSTRY DESCRIPTION
7/26 /93
Sinopec Shanghai Petrochemical Co. Ltd.
SHI
Crude oil processor
10/6 /94
Huaneng Power International Inc.
HNP
Utility
5/22 /95
Jilin Chemical Industrial Co. Ltd.
JCC
Chemicals producer
5/13/96
Guangshen Railway Co. Ltd.
GSH
Passenger railway and freight transport
China Eastern Airlines Corp. Ltd.
CEA
Air carrier
6/24/97
Sinopec Beijing Yanhua Petrochemical Co. Ltd.
BYH
Resins and plastics producer
7/30/97
China Southern Airlines Co. Ltd.
ZNH
Commercial airline
Mobile telecommunications services operator
2/4/97
10/22 /97
China Mobile (Hong Kong) Ltd.
CHL
Yanzhou Coal Mining Co. Ltd.
YZC
Preparer, seller and transporter of coal
4/6/00
PetroChina Co. Ltd.
PTR
Petroleum and natural gas producer
6 /21/00
Integrated telecommunications operator
3/31/98
China Unicom Ltd.
CHU
10/18 /00
China Petroleum & Chemical Corp.
SNP
Petroleum and petrochemical operator
12/11/01
Aluminum Corp. of China Ltd.
ACH
Aluminum producer
11/14/02
China Telecom Corp. Ltd.
CHA
Wireline telecommunications services operator
12/17/03
China Life Insurance Co. Ltd.
LFC
Life insurance provider
Semiconductor Manufacturing International Corp.
SMI
Integrated-circuit manufacturer
China Netcom Group Corp. (Hong Kong) Ltd.
CN
Fixed-line communications operator
3/17/04
11/16/04
3.5
2.8
2.5
0.3
1.7
1.4
2.1
20.4
0.8
36.7
8.2
51.3
2.8
14.3
9.5
0.4
7.2
SOURCE: NYSE; REVENUES FROM RESPECTIVE COMPANIES
silicon-chip “foundry” — that is, it makes
according to Bush, with the nation’s
chips on contract for semiconductor design
P
“China is now the No. 1 market in the
O
world for cell phones and the No. 2 market
T
for PCs,” Mora continues. “The market for
CHINESE COMPANIES
LIST ON THE NYSE
TO INTRODUCE MORE
MARKETORIENTED THINKING.
L
consumer electronics like DVD players and
— EDISON LEE, CREDIT SUISSE GROUP
I
digital cameras also is growing. Simply, the
G
internal demand for anything containing a
H
silicon chip is enormous,” he says.
firms such as key customer INFINEON
T
TECHNOLOGIES AG (IFX), says Mora.
going comprehensive reforms that are
nonperforming loans, a legacy of decades
of government-mandated lending to
underperforming SOEs. Now two of the
country’s biggest banks, China Construction
Bank Corp. and Bank of China, are underexpected to culminate in listings on U.S.
stock markets in 2005, says Bush.
Mora says SMIC’s main goals are to help
“These banks seem convinced that
Mora says SMIC’s key asset is its interna-
satisfy China’s demand for chips and to raise
international standards of governance will
tional character. Its five semiconductor fabri-
the level of chips produced there. The tech-
cause changes in corporate culture needed
O
cation plants are exclusively in China: three
nological level of a chip is measured by the
to start solving the nonperforming-loan
N
in Shanghai and one each in Beijing and
width of its circuitry in fractions of a micron.
problem,” she indicates.
Tianjin, he notes. However, Mora points out
Of China’s 55 fabrication plants, only 10
From where many Chinese companies
that CEO Chang is a China-born 20-year
(including SMIC’s five) can make chips with
are coming, “it’s a huge leap,” Bush adds,
veteran of the semiconductor industry in the
circuits smaller than 0.35 microns, he says.
but also a great opportunity to establish
C
H
I
N
A
U.S. and Taiwan. Of the company’s 7,000
employees, 1,000 — including the majority
of senior management, says SMIC — are
themselves as global competitors. The
WHAT’S NEXT
world, she says, will be watching.
nother goal, says Mora, is for
Although Mora says the largest single
A
shareholder is the Shanghai city govern-
responsibility standards to become models
ment, which owns 10 percent through an
for Chinese industry. This is essential, says
investment company, SMIC drew its initial
Bush, as China prepares to tackle its
$1 billion investment mainly from venture
largest-ever industry restructuring to date:
2 Edison
capitalists in the U.S. and Asia. When it went
that of the state-owned banks.
for Credit Suisse First Boston, is not an officer, director or
from 22 countries other than China.
public in Hong Kong and New York in 2004,
SMIC’s international management,
1 Alice
governance and corporate social
Securities Asia Ltd. unit of UBS AG, is not an officer,
The country’s financial system is widely
regarded as the weak link in its economy,
it reports, it raised another $1 billion.
Hui, head of Asian utilities research for the UBS
director or a member of an advisor board of any Chinese
power companies mentioned in this article. Neither she nor
UBS have positions in these securities.
Lee, head of Asian telecommunications research
a member of an advisor board of any Chinese telecom companies mentioned in this article. Neither he nor Credit
Suisse have positions in these securities.
CHINA’S GDP AND EXPORT GROWTH
FOREIGN DIRECT INVESTMENT
Foreigners have invested more than
$250 billion in China just in the past five years.
China’s growth is having a major impact on the world economy. Although GDP grew fastest in the early
1990s, exports continue to build.
(Bil. $)
Exports
(Bil. $)
300
300
500
500
250
250
Real GDP
Growth (%)
Exports
Real GDP Growth
15
15
12
12
400
400
200
200
*
300
300
99
150
150
100
100
50
50
00
200
66
100
33
00
0
1980-84 1985-89
1985-89 1990-94 1995-99 2000-04*
1980-84
2000-04
1990 1991
1991 1992
1992 1993
1993 1994
1994 1995
1996 1997
1997 1998
1998 1999
1999 2000
2000 2001
2001 2002
2002 2003
2003
1990
1995 1996
* estimated
* Estimate: 2004—9.5 percent
SOURCE: NATIONAL BUREAU OF STATISTICS OF CHINA;
ESTIMATE BY CHINA ECONOMIC QUARTERLY
C H A RT S : T R O Y D O L I T T L E
S
banks burdened by about $240 billion in
THE LURE OF CHINA
H OW C H I N A H A S B E C O M E
T H E WO R L D ’ S TO P
FOREIGN DIRECT INVESTM E N T D E S T I NAT I O N .
URING A QUARTER-CENTURY
maintaining its domestic market as a pro-
growing market is not an option anymore;
of economic reforms, China has
tected bastion for domestic firms.” For exam-
it’s a necessity,” GM Chairman and CEO
attracted some $500 billion in for-
ple, IBM CORP. ’s (IBM) recently announced
Rick Wagoner said at the time.
eign direct investment (FDI) —
sale of its PC business to Lenovo Group Ltd.
10 times the amount that went to
reportedly garnered IBM an 18.9 percent
Japan between 1945 and 2000, notes the
equity stake in the Beijing-based company.
YUM!’S CHINA STORY
Along with Pizza Hut and Taco Bell, YUM!
Organisation for Economic Co-operation
At least nine NYSE-listed companies
BRANDS INC. (YUM) operates Kentucky Fried
and Development (OECD). In 2003, says the
have invested $1 billion or more in China,
Chicken, or KFC, which it says is China’s
OECD, China drew $53.5 billion, making it
reports the China Economic Quarterly (see
most widespread fast-food chain, with
the world’s top FDI destination, surpassing
page 33) and a number say they plan to
more than 1,000 outlets in some 260 cities.
the U.S. Between 1979 and yearend 2003,
greatly increase investment. GENERAL MOTORS
When Taiwan-born, American-educated
U.S. businesses alone invested $44 billion in
CORP. (GM), for instance, notes that last sum-
Sam Su took over KFC’s infant China oper-
more than 41,000 Chinese ventures, accord-
mer it moved its Asia-Pacific headquarters
ation in 1989 as director of marketing for
ing to China’s Ministry of Commerce.
from Singapore to Shanghai and announced
the North Pacific region, KFC had just four
In contrast to other East Asian countries,
it will invest $3 billion over the next three
stores in China, he says.
China has allowed foreign firms to assume
years in new and existing facilities. “Having
Over the years, says Su, who is now KFC’s
strong positions in such sectors as autos,
a strong presence in this dynamic and
president, Greater China, he recruited a
group of industry veterans to help him train
information technology and manufacturing
equipment, says Massachusetts Institute of
Technology researcher George Gilboy.
“China made a strategic choice to open its
economy to large-scale foreign direct investment,” says Gilboy. “This means that China
cannot emulate a key feature of the Japanese
and South Korean development model —
U.S. BUSINESSES ALONE
HAVE INVESTED
SOME $44 BILLION
IN MORE THAN
41,000 JOINT VENTURES.
and develop local managers. Together, he
explains, they rebuilt KFC’s entire system to
reflect the unique challenges and opportunities of China. In site development, for example, KFC China has established itself as the
preferred retail partner for real estate developers and mass merchandisers, says Su,
T H I S PA G E A N D O P P O S I T E : C O U RT E S Y O F R E S P E C T I V E C O M PA N I E S
D
BASF’S CHINA APPROACH
that this plant was China’s first proposed
“China, as the main driver for growth in
world-class chemical project.
the Asian region, has an important part in
our
Two of China’s most active
FDI partners, Yum!
Brands’ KFC, and BASF
global
strategy,”
says
Blumenberg explains that the centerpiece
Jürgen
of the site, which is slated to cost $2.9 billion
Hambrecht, chairman of the German
before its mechanical completion late this
chemicals conglomerate BASF AG (BF). He
year, is a “cracker.” A chemical complex of
adds that by 2010 BASF aims to generate
various pipes under high pressure, he says,
20 percent of its global chemical sales in
“cracks” the larger naphtha molecule into
Asia, with 70 percent of its regional sales
smaller molecules such as ethylene, the basic
I
derived from local production.
building block for most chemicals and plas-
G
Of 19 wholly owned subsidiaries and
tics. Supporting nine plants producing a
H
joint ventures in China, the integrated
variety of chemical products, the cracker will
T
petrochemicals plant in Nanjing (about a
be the first foreign-funded complex of its
three-hour drive from Shanghai) is one of
kind in China, BASF reports.
T
L
O
N
ing to BASF. Government approval for
of the world’s fastest-growing chemical
BASF-YPC Co. Ltd., the 50-50 joint ven-
markets, notes Blumenberg. “China, the
C
ture with CHINA PETROLEUM & CHEMICAL
third-largest national chemical market
H
(SNP), or Sinopec, seems glacial by
worldwide today, will become the second-
I
N
Western standards, admits Dr. Bernd
largest by 2010,” he predicts. Even with dra-
Blumenberg, president of the venture. He
matically increased domestic production
ters and hypermarkets that are mushroom-
says nearly five years elapsed between
from plants such as BASF’s in Nanjing,
ing across China share something in com-
submission of the letter of intent and the
Blumenberg says, he expects China will
mon: a prominent KFC store.
signing of the joint venture contract in
import large portions of its chemical needs
Concludes Su: “We have rebuilt our sys-
2000. But Blumenberg notes that the
over the next decade, giving BASF a great
tems around the realities of China. The
approval came faster than that for several
opportunity for import sales as well.
result is that the China operation is Yum!’s
competing projects.
fastest growing. Given the enormous size
The reasons for the relative speed, he
Arthur Kroeber is managing editor of the
of the market, Yum! China has the poten-
says, were early and strong support from
China Economic Quarterly, a newsletter on
tial to even outstrip our parent in the U.S.”
central-government officials, and the fact
China’s economy and business environment.
MAJOR CORPORATE FOREIGN DIRECT INVESTORS IN CHINA
**
REVENUES
(BIL. $) MAJOR PROJECTS IN CHINA
Motorola Inc. (MOT)
3.4
4.7
Long-standing, wholly owned mobile-phone and battery production in Tianjin. Nine joint ventures produce cell phones and telecom equipment.
Royal Philips
Electronics NV (PHG)
2.6
7.5
35 joint ventures in light bulbs, LCD monitors, medical equipment and other fields. TV-distribution agreement with TCL, a Chinese TV manufacturer of
which Philips is also a shareholder. Shanghai center is planned as R&D hub for Asia-Pacific; 12 other facilities handle product development for China.
POSCO (PKX)
2.3
3.3
$2.25 billion invested in 17 existing steel plants; an additional $700 million will be invested in a Jiangsu plant, construction of which began in
2004. Posco also exported 2.5 million tons of steel, 37 percent of its total steel exports, to China in 2003.
BASF AG (BF)
2.0
1.7
Major investments include a naptha-cracker and an integrated petrochemical site in Nanjing with Sinopec subsidiary Yangzi Petrochemical; a
wholly owned Shanghai plant making raw material for spandex; and a set of joint ventures, with Sinopec affiliates, for polyurethane in Shanghai.
General Motors Corp. (GM)
2.0
2.3
Four joint ventures, including a $1.5 billion factory with Shanghai Automotive Industrial Corp. to build passenger sedans. An additional $3 billion
will be invested over the next five years to expand existing plants and build new ones.
General Electric Co. (GE)
1.5
2.6
A medical CT-scan plant in Beijing, plastics plants in Guangzhou and Shanghai, and a lighting plant in Shanghai. Aircraft leasing and jet-engine sales.
Eastman Kodak Co. (EK)
1.2
1.0
Four plants in China produce photo film and X-ray film. Kodak franchises photo-development shops in most major cities. Recently bought a
20 percent stake in Lucky Film, China’s largest domestic photo-film maker.
Anheuser-Busch Cos. Inc. (BUD)
1.2
N.A.
Owns 27 percent of Tsingtao Beer, 100 percent of Harbin Brewery and 97 percent of Wuhan Brewery.
The Procter & Gamble Co. (PG)
1.0
N.A.
Two major joint ventures in Guangzhou and Tianjin produce detergent, shampoo, toothpaste and paper products. A leader in product distribution.
Yum! Brands Inc. (YUM)
0.8
1.1
Operates 1,045 KFCs and 131 Pizza Hut and Taco Bell outlets in China. China is Yum!’s third-largest revenue producer, behind the U.S. and Japan.
*Includes export sales
O
This will give BASF a big leg up in one
noting that most of the new shopping cen-
INVESTMENT
(BIL. $)
P
its most important investments, accord-
CORP.
COMPANY
S
S O U R C E : C H I N A E C O N O M I C Q U A R T E R LY
A
C O R P O R AT E
P R O F I L E
BBVA
n July 2004 a six-branch bank in Southern California
called Valley Bank was sold for a reported $16.7 million. What
would ordinarily make only a blip in the local business press
instead made headlines around the world. Why? Because Valley
UNDER CHAIRMAN AND
was bought by BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBV), better
CEO FRANCISCO GONZÁLEZ ,
BBVA IS BANKING ON
known as BBVA.
Spain’s BBVA reports it has $375 billion in assets, 35 million
customers in 37 countries and a product portfolio of commercial
and wholesale banking services, pension-plan management and
insurance. The bank bills itself as the leading financial player in
Latin America.
So why would such a banking powerhouse be interested in tiny
Valley Bank? The reason, explains Francisco González Rodríguez,
BBVA’s chairman and CEO, is that it is part of a deliberate sequence of
acquisitions BBVA has made in 2004 on both sides of the Rio Grande.
by
JULIE MOLINE
photography by
MICHELE CUREL
LATIN MARKETS
—
AND NOW
THE U . S . SOUTHWEST .
CHAIRMAN AND CEO FRANCISCO
GONZÁLEZ EMBARKED ON A
SERIES OF ACQUISITIONS TO MAKE
SPAIN’S BBVA THE LEADING
FINANCIAL PLAYER IN LATIN AMERICA.
F
irst was the all-cash, $4 billion acquisition of the
González, now 60, admits that most banks in Spain, large and small,
40 percent of Grupo Financiero Bancomer S.A.,
have been run by generations of dynastic families. That was true of BBV
Mexico’s largest bank in terms of value of loans and
as well, until González took over, according to the company.
deposits, that BBVA didn’t already own. (Its initial investment
An economist by training, González says that he was also an IT pro-
in Bancomer was made in June 2000, says José Ignacio
grammer before founding his own brokerage house, FG Inversiones
Goirigolzarri Tellaeche, BBVA’s president and chief operating officer.)
Bursátiles, in 1988. When he sold it to MERRILL LYNCH & CO. INC. (MER) for
In September 2004, in another all-cash deal, BBVA acquired
a reported $400 million in 1996, he says, FG was Spain’s leading inde-
Hipotecaria Nacional S.A. de C.V., Mexico’s largest privately owned
pendent brokerage by market share. The courtly, dapper González says
mortgage lender by market share, with a loan portfolio of $2.2 bil-
his entrée into the top echelon of commercial banking came in 1996,
lion, says BBVA. “We are staking our entry into North America via
when, he says, Spain’s then-ruling Partido Popular party chose him to
Mexico,” says Goirigolzarri, the architect of the North American plan.
head Argentaria, the state-owned bank that was being privatized. Under
Founded in 1857 as a currency-issuing
his direction, the privatiza-
house, the bank was then known as Banco de
tion was completed in 1998.
Bilbao. It became Banco Bilbao Vizcaya (or
González’s finance and
BBV) in 1988 and in 1999 merged with Banco
high-tech background was
Argentaria S.A. to become BBVA. (González
useful at Argentaria, which,
was chairman of Argentaria and, BBVA says,
he says, was struggling with
orchestrated the merger.) BBV had acquired
the “rather chaotic” process
banks in Puerto Rico, Peru, Colombia, Argen-
of integrating the retail
tina, Venezuela and Chile, and Argentaria had
businesses of three formerly
a historic presence in countries such as
state-owned banks it had
Panama, Uruguay and Paraguay, BBVA says.
merged with. Each had dif-
BBVA says it is Spain’s second-largest bank
ferent systems, customer
in terms of assets, behind BANCO SANTANDER
bases and corporate cul-
(STD). BBVA has sig-
tures, all of which needed to
nificant stakes in Spain’s TELEFÓNICA S.A. (TEF)
be integrated quickly and
and REPSOL YPF S.A. (REP), the bank adds.
efficiently, González says.
CENTRAL HISPANO S.A.
Getting so many differBEYOND THE TURNAROUND
ent organizations to work
What makes BBVA’s expansion story so com-
together during restructur-
pelling is that as recently as two years ago, the
ing and ferreting out and
bank was in the midst of a crisis, says
exploiting synergies was
González. In 2002, says the CEO, BBVA
paramount, González says,
informed Bank of Spain about some old BBV
adding, “But out of all that
offshore accounts. González found out about
the accounts after the merger with BBV, he
flux would come the founBBVA
President and COO
JOSÉ IGNACIO GOIRIGOLZARRI
dation of a strong and tech-
explains, and argued passionately (and suc-
nologically adept organiza-
cessfully) for full disclosure. He says his initia-
tion with a unified culture.”
tive launched regulatory and criminal investigations into whether those
BBVA adopted a new focus, he says: “Rather than sell products, the tra-
accounts might have been used to pay directors’ pensions and to com-
ditional approach of Spanish banks, we moved toward selling service.”
bat hostile takeovers. The ensuing uproar, he says, forced the resignation
González says that with the rallying cry ¡Adelante! (which means
of 15 directors, all of whom harked back from BBV. Although most of
“press forward”), BBVA embarked on a restructuring effort in 2003 that
the executives were later cleared of wrongdoing, González adds, both
divided the company into three new business units: Retail Banking
the CEO and the other co-chairman resigned. In that atmosphere,
Spain and Portugal, Wholesale and Investment Banking, and The
González, alone, took over the helm as chairman and CEO.
Americas. “The objective was to build an organization that would allow
us to get closer to customers. In our view it’s the client, not the bank,
10 pension-management companies and eight insurance companies
who is the hero in our success story,” González says.
in 14 countries, most notably in Peru, Argentina, Venezuela and
To restore trust, González says, one of his first acts as sole chairman
Colombia. (BBVA’s Brazilian subsidiary was sold to BANCO BRADESCO
[BBD], a leading local player, in 2003, according to BBVA, which
was to launch new corporate-governance rules. The new code, accord-
S.A.
ing to the company’s governance report — a 55-page document that
adds that it has a 5 percent stake in Bradesco.) For now, Goirigolzarri
now accompanies the bank’s annual report — calls for a maximum of
says, the bank is satisfied with organic growth in the region, which,
16 directors and requires that at least two-thirds be independent, as
in aggregate, brings in one-third of the company’s revenues.
defined by New York Stock Exchange guidelines. BBVA adds that both
Mexico is another story. The country’s housing market is booming,
the audit and remuneration committees are now composed only of
BBVA says. Citing Mexican government figures, BBVA forecasts that
independent directors, and board members can no longer sit on the
Mexicans will build more than 20 million new homes during the next
boards of other companies in which BBVA has interests.
25 years. “The purchase ratifies our leadership in the mortgage business, which is definitely going to be one of the most
“ OUR
CUSTOMERS PUT THE FINANCIAL SECURITY OF THEIR FAMILIES
dynamic components in the Mexican economy,” says
AND THEIR FUTURES IN US . WE SECURE THEIR TRUST THROUGH
Jaime Guardiola, deputy chairman and CEO of
TRANSPARENCY AND THROUGH STRICT ADHERENCE TO THE LAW .”
Mexican subsidiary BBVA Bancomer.
González calls recent Mexican investments —
The decision to name foreign directors, analysts say, was meant to
including $4 billion for the 40 percent of Bancomer it did not already
counter any appearance of unfair influence the descendants of the
own — “low-risk and high-return.” He says that the Mexican banking
original founders may have had. “Our customers put their faith in us,”
system is on its firmest footing since the peso devaluation crisis of 1994
says González. “They put the financial security of their families and
and 1995. “If you analyze Mexico in terms of GDP, it’s as important as
their futures in us, and we must secure their trust. We do that through
Spain,” González adds. “But if you analyze the Mexican financial sys-
transparency and through strict adherence to the law. Our objective,
tem, it’s in an early stage.” In Spain, 97 percent of the population has a
ultimately, is to be an exemplary corporate citizen.”
bank account, he says. In Mexico, only 30 percent does, which “means
The scandal temporarily deflated BBVA’s share price, analysts say,
a market rich with potential,” González explains.
but did little long-term harm. BBVA says it met the 2002 goal of 10 per-
Competitors see the possibilities as well. CITIGROUP INC. (C), for
cent profit growth, adding that it ended 2003 as the No. 1 bank on the
one, reports it bought Grupo Financiero Banamex S.A., which has a
EURO STOXX index of European companies in terms of return on
reported 1,400 branches and 4,800 ATMs in Mexico. BANK OF
equity and the No. 3 bank in terms of earnings per share. In the first
AMERICA CORP.
nine months of 2004, its net earnings rose a reported 18.4 percent com-
ping up cross-border banking services, analysts note.
pared with the same period in 2003.
(BAC) and WELLS FARGO & CO. (WFC) are also step-
But BBVA’s leaders say they are relying on the strength of the
Bancomer brand in Mexico and the synergies it can build via its port-
BRAVE NEW WORLD
folio of financial products and services. A key part of the strategy, in
Globalizing may be the most expeditious way for Spanish banks to
Mexico and everywhere else BBVA does business, says González, “is
grow, analysts say. Spain, they explain, is crowded with competitors,
building a relationship with customers throughout their life cycle —
which include not just banks but cajas, government-backed savings-
not just checking and savings accounts but also credit cards, student
and-loan institutions. Banking restrictions in Europe make growth via
loans and mortgages.” (See “The CSR Mix,” page 38.)
cross-border consolidation difficult, says González. The Italian govern-
In Mexico, it also means tapping into the lucrative cross-border
ment reportedly blocked BBVA’s attempt to buy UniCredito Italiano
remittance business, Goirigolzarri adds. Mexicans living in the U.S. sent
S.p.A. in 2000 — a deal, analysts say, that would have been Europe’s first
$14.5 billion in remittances across the border in 2003, reports Mexico’s
cross-border bank merger. And BBVA cannot expand its 14.9 percent
central bank, Banco de Mexico. BBVA says that, through its Bancomer
stake in Italy’s Banco Nazionale del Lavoro S.p.A. due to a regulation
Transfer Services (BTS) unit, its market share of that commission-
that set a 15 percent stake cap, according to analysts. With local growth
based business soared from 13 percent four years ago to 40 percent in
stymied, BBVA says, it set its sights on the New World.
2004. BTS, adds Goirigolzarri, is now BBVA’s global platform for immi-
BBVA already has a significant presence in Latin America, the
company reports, with $14 billion invested since 1995 in 10 banks,
grants sending money transfers throughout Latin America and
Northern Africa and, in the future, to anywhere else in the world.
NORTH OF THE BORDER
model that works in Spain to other Spanish-speaking countries. When
Bancomer’s remittance business provides BBVA entrée to the north,
we entered the Mexican market, our principal interest was to put
says Goirigolzarri. Hispanics, the fastest-growing demographic in the
Mexicans in charge of operations. Of Bancomer’s 30,000 employees,
U.S., are 13 percent of the U.S. population, BBVA notes, but only 65
only five are Spaniards. What we introduce to these banks is our phi-
percent have checking accounts, versus 95 percent of the general
losophy, which is to deliver new, better products, better service and less
market. “The Bancomer brand name resonates with Mexican cus-
cost. By our centralizing the back office for all of Latin America in
tomers,” Goirigolzarri says. “For them, Bancomer is Mexico, and it’s
Mexico, our costs are going to be much more competitive than those of
very meaningful to them to see an institution they trust, from their
the local banks.”
If the stakes are high in the Americas for BBVA, they’re perhaps even
home country, setting up operations on U.S. soil.”
Because buying a bank takes less time than applying for a license
higher for González. The legacy he would like to leave when he retires
to establish one, Goirigolzarri says, BBVA began acquiring U.S.
in five years, he has said, is to make BBVA one of the world’s top 10
banks in regions where high densities of Mexicans live. Two
banks, as measured by market capitalization. ¡Adelante!
months after the Valley Bank acquisition in
California, BBVA says, it bought Texas’s
Laredo National Bancshares Inc., a holding
company of two banks that BBVA says has a
combined 35 branches, total assets of $3.4
T
billion and deposits of $2.8 billion. This
$850 million deal, says Goirigolzarri, is typical of BBVA’s acquisition pattern — financed
internally, to make the purchase accretive
immediately, and featuring both business
and retail customers.
he
CSR MIX
Good corporate governance isn’t just about clean
numbers and clear communication with shareholders, González maintains. He says he puts corporate
social responsibility (CSR) in the mix as well. “That means
more than donating to charity,” says the BBVA CEO. “It means
being morally responsible in every aspect of business.” For exam-
ple, González notes, the governance code outlines ethical criteria
“This transaction gives us a top position in
regarding employee relations, including investment in professional develop-
one of the priority markets for our U.S.
ment. (BBVA reportedly spent 22 million euros in training in 2004.) The code also details the
strategy,” says González. “Laredo has a massive
way the bank chooses and negotiates with suppliers, describes energy conservation plans
Hispanic presence, more than 5 million peo-
and calls for increased lending to projects that improve the environment, according to BBVA.
ple. And about 38 percent of the border trade
BBVA also offers products and services with a CSR spin, insists González. In Spain, the
between the U.S. and Mexico is done through
CEO says, the bank offers credit cards in cooperation with humanitarian organizations. For
Laredo.” Once the deal closes in the first quar-
example, 0.7 percent of payments on an International Red Cross card go to that organization,
ter of 2005, González says, Laredo will become
González explains. He notes that BBVA has also launched socially responsible investment
part of BBVA’s newly formed U.S. division,
funds, including a mutual fund that donates 0.55 percent of total funds under management to
which, he says, now comprises BBVA Puerto
various nongovernmental organizations. Another fund donates 0.45 percent to the applied
Rico and BTS. In the U.S., BBVA says, it is also
developing a private equity fund, in partnership with Palladium Equity Partners LLC, that
will invest in small and medium-size Spanishspeaking enterprises.
medical research foundation at Spain’s University of Navarre, he adds.
But one of the most striking examples of BBVA’s CSR philosophy is the way the bank focuses
on the financial needs of its customers’ families, González insists. He points to The New Baby
Loan, a zero-percent-interest, no-fee loan that is meant to cover expenses arising from the
birth or adoption of a child. The Young Blue program, according to BBVA, offers credit cards
for students, mortgages for people acquiring their own home (the bank allows repayment over
40 years, rather than 30) and small business loans for young entrepreneurs. In Chile, BBVA
LOCAL MARKETING, GLOBAL BACK OFFICE
says, it offers 100 percent mortgages for customers unable to make a down payment.
Before expanding further in the U.S.,
González says he is particularly fond of Ruta Quetzal, a BBVA-funded trip through Spain and
Goirigolzarri says, “we want to see whether the
Latin America that each year allows 300 teenagers to learn about one another’s cultures.
approach we developed for California and
The objective in all these efforts, González explains, is to merge two simultaneous goals.
Texas will work to our satisfaction.” He
In addition to being a good corporate citizen, BBVA’s aim is “to develop fruitful relationships
explains, “We don’t simply export the business
with customers across their life spans,” he says. “That way, we all do well.”
T E C H N O VAT I O N S
I N N O V AT I O N S I N T E C H N O L O G Y
The New Crop
G E N E T I C M O D I F I C AT I O N I S C H A N G I N G T H E F A C E O F A G R I B U S I N E S S .
S
(SYT) reports that last fall it donated a new
“There is a lot of momentum in the plant biotechnology industry as a
strain of Golden Rice that contains beta-carotene to the
whole,” says Hugh Grant, Monsanto’s chairman, president and CEO.
Rice Humanitarian Board to help address the chronic
Monsanto’s business model, once rooted in chemicals, is now mostly based
problem of vitamin A deficiency and resulting blindness
on seeds and genomic traits, says Grant. He says that this business segment’s
in developing countries. “The world’s population is fore-
gross profits nearly doubled in 2003, to $1.37 billion, up from $709 million
cast to reach 8 billion by 2025,” says Syngenta CEO Michael Pragnell.
in 2002. Adds Dr. Friedrich Berschauer, chairman of Bayer CropScience, a
“If we want to meet the challenge of feeding this population, we need
unit of BAYER GROUP (BAY): “We see plant biotechnology as a very promis-
to improve yields in agriculture and enhance nutritional values.” And
ing tool to complement conventional crop-protection solutions. We are also
genetic modification, the science behind the Golden Rice strain, can
focusing on new plant-based business ventures geared toward innovating
help, says Pragnell.
quality traits in the areas of nutrition, health and biomaterials.”
YNGENTA AG
Typically used to make crops resistant to insects or herbicides — and
About 85 percent of U.S.-grown soybeans and 45 percent of U.S.
sometimes both — genetic modification, or GM, is resulting in great
corn have been genetically modified, says the U.S. Department of
Agriculture (USDA), which, along with the U.S.
gains in agricultural production, according to crop science
Environmental Protection Agency, regulates the agri-
companies. For example, there are 4.1 bushels more per
cultural production of GM crops in the U.S. The
acre of insect-resistant corn than conventional corn,
reports MONSANTO CO. (MON), which adds that the
USDA adds that 76 percent of the cotton acreage
crop netted U.S. farmers an average $16.46 more per
planted in the U.S. in 2004 had biotechnology traits.
acre in 2000. But that’s just the beginning, say biotech
On a world level, Pioneer Hi-Bred International
companies. The next decade’s wave of modified crops
Inc., a division of DUPONT (DD), reports that industry
and seeds, the companies report, will contain “stacked”
research shows 55 percent of the soybeans, 21 percent of
the cotton and 11 percent of the corn grown outside the
traits for health and environmental benefits in addition to
U.S. have been genetically modified. Jerry Steiner,
insect and herbicide resistance.
Scientists say that modifying the DNA of living organisms such as
Monsanto’s executive vice president of commercial acceptance in charge
plants, animals and bacteria lets them select and transfer a gene for a
of global business strategy, says that worldwide planted acres devoted to
single characteristic to another organism of either the same or a differ-
biotech crops have increased more than 10 percent every year since they
ent species. The process — known as recombinant DNA technology,
were first introduced in 1996, with an increase of 15 percent in 2003.
genetic modification, genetic engineering or transgenic science — is a
Controversy in the European Union about labeling GM food
products involves complicated regulation standards that vary by
modern method of plant splicing to create hybrids, scientists say.
Syngenta reports it is broadening its range of GM products to
country, explains Steiner. But he says he hopes the European
offer more options to growers and consumers, such as a lower-cost,
Commission’s decision last May to end its six-year moratorium on
more efficient ethanol produced from modified corn for alternative
the importation of biotech crops “will open up opportunities for
fuel, available in 2006. Syngenta says it is also exploring biopharma-
more U.S., Latin American and African farmers to expand their use of
ceuticals — medicines made with specially developed plant proteins.
traits in some crops.”
BY JENNIFER L. HANSON
|
[ Continued on next page ]
I L L U S T R AT I O N S B Y B RYA N C H R I S T I E D E S I G N
TECHNOVATIONS
HEART-HEALTHY SNACKS
LAB WORK
Companies such as MONSANTO CO. (MON) and Dow Agro-
Scientists say technologies for detecting and identifying genes
Sciences LLC, a wholly owned indirect subsidiary of THE DOW
have revolutionized their understanding of gene structures,
(DOW), say they’re developing oils from crops that
enabling them to create genetic maps for many organisms and
are virtually free of trans fats, for heart-healthy snack foods.
then to determine how to modify gene expression. SYNGENTA AG
Produced when manufacturers add hydrogen to vegetable
(SYT) says it spent $727 million in 2003 across all lines of busi-
oil, trans fats increase a product’s shelf life but also raise
ness, including R&D spent on biotech. “The business identifies a
consumers’ cholesterol levels, the FDA says. Dow Agro-
particular trait we would like to see introduced,” says Jeff Stein,
CHEMICAL CO.
Sciences says its canola oil has higher levels of healthy
director of regulatory affairs for North America with the Syngenta
mono-unsaturated fats, similar to those of olive oil. “The Holy
Seeds business unit, “and our scientists attempt to translate that
Grail for healthy oils,” says Pete Siggelko, vice president of Dow
desire into a product.” Adds Monsanto’s Jerry Steiner: “We’re now
Agro-Sciences’ plant genetics and biotechnology group, “will be to
applying our gene discoveries on corn and soybean genomes in
modify an oil to improve heart health while maintaining the taste.”
Phase I field trials of drought-tolerant crops.”
Tobacco plants modified for
antibiotic resistance become
the first transgenic crop approved
by the U.S. Environmental
Protection Agency.
1992
First genetic transformation
of a plant cell is performed on
a petunia.
1983
The National Institutes of Health
forms the Recombinant DNA
Advisory Committee to oversee
recombinant genetic research.
1982
1974
BIOTECH TIME LINE
The U.S. Food and Drug Administration
declares that transgenic foods are “not
inherently dangerous” and do not require
special regulation.
TECHNOLOGY OF THE TRANSFER
Once DNA fragments to be transferred
have been identified, the next step is introducing them into another plant’s cells, say
scientists. A popular method, they say, is
using a soil bacterium called Agrobacterium
tumefaciens as a go-between, because of its
natural ability to transfer its DNA to the cells of host
plants. Mary-Dell Chilton, now principle fellow at
Syngenta, says she adapted the technique 20 years ago
to create the first transgenic tobacco plant.
Agrobacterium transformation traditionally has been
tion or biolistic transformation,
scientists in the field of
GM say they hope a portion of
harder with grassy crops such as rice and wheat, according to
the plant will adopt the DNA and follow its
Monsanto, so in such cases, scientists use a gene gun. The gun
genetic instructions so they can culture the
fires foreign DNA, which is carried on minute pieces of gold
tissue and grow whole plants. DUPONT (DD)
or tungsten particles, into a plant’s cells, the company
reports that it holds the patents on the gene gun and
explains. Using this technology, known as ballistic impregna-
licenses its use.
Acres
(mil.)
200
WORLD BIOTECH CROP PRODUCTION
Six countries grew 99 percent of the global GM crop area in
150
2003. The remainder was planted by Australia, Mexico,
100
Romania, Bulgaria, Spain, Germany, Uruguay, Indonesia,
the Philippines, India, Colombia and Honduras.
50
1996
1997
1998
1999
2000
2001
2002
2003
GLOBAL GM CROP ACREAGE
In 2003, 167.2 million acres of commercial GM crops were
grown worldwide, an increase of 15 percent over the previous
year’s figure and nearly 40 times the amount grown in 1996.
Japanese researchers develop a
biotech coffee bean that is
naturally decaffeinated.
2004
The first herbicide-resistant biotech
crop is commercialized: Monsanto’s
Roundup Ready® soybeans.
2003
The FDA approves the delayedrotting FLAVRSAVR™ tomato. It’s
made by Calgene Co. (acquired by
Monsanto in 1997) for the CAMPBELL
SOUP CO. (CPB).
1996
1994
CHARTS SOURCE: INTERNATIONAL SERVICE FOR THE ACQUISITION OF AGRI-BIOTECH APPLICATIONS (ISAAA) GLOBAL REVIEW OF TRANSGENIC CROPS 2003
In May the EU lifts its six-year moratorium on GM products. That month
Syngenta’s biotech corn is approved for
European import and sale but
not cultivation.
TIME LINE SOURCES: BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO); EUROPEAN COMMISSION ON BIOTECHNOLOGY
THE BIG TEST
News reports show that ethical, health and environmental
about $22,000, the bioanalyzer connects with a laptop to provide
concerns about GM foods have led many groups, especially in
an analysis when a chip is inserted, says Jensen. He adds that the
the European Union (EU), to demand labeling of such food
kit, which costs $300, has 25 chips that screen for several DNA
items. Distinguishing transgenic foods requires a way of
sequences in 40 minutes. “Testing is not cheap, and complex tech-
detecting and measuring GM ingredients, says AGILENT
nical and regulatory issues are involved,” he says.
TECHNOLOGIES INC. ’s
(A) Mark Jensen,
“Every EU country has a dif-
senior applications chemist. “It’s prob-
ferent testing protocol, and
lematic when testing foods where the
they have had a difficult
DNA sections being sought have
time agreeing on the per-
been destroyed by processing and
centage of GMOs allowed,”
cooking,” he adds.
Agilent says it introduced its 2100 bioan-
Jensen adds. “Keeping up with different protocols is nerve-racking for companies,
alyzer and DNA 500 LabChip® kit in 2000 to provide a way for
because if testers find one hot spot, they can reject an entire boat-
both commercial buyers and sellers of crop products to ana-
load of seed.” In November a committee of the European
lyze small fragments of DNA for traces of genetically modified
Commission, an EU body, reportedly failed to agree on proposals
organisms (GMOs) likely to survive processing. Priced at
to overturn bans on some GM products in five EU nations.
5
.
CHARLES RIVER CEO
JAMES C. FOSTER, IN
ONE OF THE COMPANY’S
LAB ANIMAL
STORAGE ROOMS
CHARLES RIVER
CEO JAMES C. FOSTER,
IN ONE OF THE
COMPANY’S LAB ANIMAL
STORAGE ROOMS
?
Q&A
J A M E S C . F O S T E R , C H A I R M A N , P R E S I D E N T A N D C E O, C H A R L E S R I V E R L A B O R AT O R I E S I N T E R N AT I O N A L I N C .
Of Mice and Meds
W
e’re taking the load off drug and biotechnology companies so they can spend more time nurturing and developing new
compounds,” which are the basic components of preclinical drug candidates, says James C. Foster, chairman, president
and CEO of CHARLES RIVER LABORATORIES INTERNATIONAL INC. (CRL). The Wilmington, Mass.-headquartered company,
which reports operating more than 90 facilities in 20 countries, says it is a full-service global provider in the drug-discovery and -development process. Its clients are pharmaceutical and biotech companies, as well as government and
academic research centers, according to the company. In addition to its preclinical services, Charles River says, it markets research models —
mice and rats, some of them genetically altered to mirror human disease states such as diabetes, obesity and hypertension.
Foster, 53, says he was trained as a lawyer but has learned plenty of science along the way. For more than 25 years, Foster says, he held a number of positions in the company before he was named president in 1991, CEO in 1992 and chairman in 2000. He took over as CEO from his father,
Henry, a veterinarian who founded the company in 1947. Henry Foster sold Charles River to BAUSCH & LOMB INC. (BOL) in 1984, but according to
James Foster, Charles River turned out to be an unwieldy fit with its new parent, with its focus on eye care. So in 1999, the younger Foster says, he
arranged for private investors to buy back the company. Charles River, which now reports 8,000 employees worldwide, says it has grown mainly
through its 23 acquisitions since 1994. The largest and most recent acquisition is Inveresk Research Group Inc., a move that extended Charles River’s
reach into clinical testing — testing drugs on human patients — according to Charles River.
WHAT IS CHARLES RIVER’S ROLE IN DRUG RESEARCH?
Getting a drug to market used to take 10 to 12 years; now it takes 12 to 15.
WHAT ARE THE BENEFITS OF YOUR MERGER WITH
INVERESK RESEARCH?
It used to require $400 million to $500 million; now it needs $800 million
We were looking for a significant footprint overseas, and its preclinical
to $900 million. This is primarily because of the complexity of the disease
drug-testing business has a large European component. They have a
targets that the pharmaceutical companies are pursuing. Over the past six
clinical business — the last step of the drug-development process —
to eight years, our business has been driven very much by the outsourcing
that we don’t have. The clinical business is important to our clients,
trend, in which drug companies find companies like ours to perform a lot
particularly to a lot of young biotech companies that have never
of the basic drug-development services they used to do internally.
brought a drug to market before, have never had an FDA filing, and
therefore have never had to do human testing.
HOW HAVE GENETIC ADVANCES AFFECTED YOUR FIELD?
We offer a wide variety of animal research models that are genetically
manipulated to exhibit conditions of human disease. A model can express
WHAT ARE THE MOST IMPORTANT LESSONS YOU’VE
LEARNED AS CEO?
traits of human diabetes such as insulin resistance. These models provide
When companies have a core competency or a couple of core competen-
researchers better, faster predictors of how a drug will work in people.
cies, they think they can move into unrelated areas and do those as
DESCRIBE THE ADVANTAGES OF YOUR RECENTLY
ESTABLISHED SCIENTIFIC ADVISORY BOARD.
well — those are the moves that tend to kill companies. So have an
understanding of what your strengths are, and find more ways to grow in
that area through new technologies or acquisitions. Also, if your clients
The board helps us watch advances in technological areas that we would
think you’ve outgrown them, that’s the kiss of death. In the past 10 years
not otherwise know about. Board members live and work in areas out-
we’ve grown 10 times as large, but most of the customers who were our
side of our company — academics, pharmaceutical executives, biotech
customers 10 years ago still deal with the same people at Charles River
researchers, venture capitalists, clinicians. They are our filters for new and
and still feel as important and have the same response time as before.
emerging technologies, on the licensing side and the acquisitions side.
Being responsive is your most powerful tool in any business.
I N T E RV I E W B Y M A R K YA R M
|
PHOTOGRAPH BY DEAN KAUFMAN
I N S I D E T H E N YS E
THE GLOBAL MARKETPLACE UP CLOSE
NYSE eGovDirect
I N F E B R U A R Y, T H E E X C H A N G E L A U N C H E S A N O N L I N E
C O M P L I A N C E - M A N A G E M E N T S O L U T I O N F O R U. S. L I S T E D C O M P A N I E S .
B
roader governance requirements prompted the New
eGovDirect.com is an Independence Wizard program that guides
York Stock Exchange to develop eGovDirect.com ,
users through a series of questions regarding a director’s relation-
an interactive Website designed to help executives of
ship to a company and its executives.
SM
listed companies file
“It really helps companies know
and manage compliance
how the Exchange interprets the inde-
information more efficiently. Janice
O’Neill, NYSE vice president of corporate compliance, said the new Website,
which will launch in February, is a stark
improvement over the Exchange’s current communication system.
“We have significantly expanded
our corporate-governance requirements,” says O’Neill, explaining the
Exchange’s motivation for the new
compliance-management solution.
“We knew that if a listed company
could access us electronically, it would
be more efficient,” she adds.
THE EXCHANGE’S
NEW WEBSITE ACTS
AS A CENTRAL
CORPORATE-GOVERNANCE
PLATFORM THAT ALLOWS
NYSE-LISTED COMPANIES
TO EFFICIENTLY
FILE AND MANAGE
CORPORATE-COMPLIANCE
INFORMATION AND EASILY
ACCESS VALUE-ADDED
BENCHMARKING TOOLS.
The Exchange’s new standards
pendence standards,” O’Neill explains.
The fully secured, password-protected Website also allows NYSElisted companies to manage compliance
information at their convenience.
Preformatted pages simplify and expedite the submission of dividend information, shareholder-meeting dates,
shares issued and outstanding, fiscal
calendars, and the profiles of board
members and corporate officers. In
addition, an electronic template on
eGovDirect helps corporate executives
create and file their Annual and Interim
Written Affirmations, says O’Neill.
require U.S. listed companies to fill
the majority of their board positions
AN INTERACTIVE EFFORT
with independent directors. In addition,
Recognizing the need for a new system
under the new rules, these companies’
to gather governance information, the
nominating, corporate-governance,
NYSE invited ideas from its listed
audit, and compensation committees
companies as part of eGovDirect’s
must be composed entirely of inde-
development process. Executives from
pendent directors. Corporate-gover-
108 companies participated in two
nance guidelines, as well as codes of
rounds of focus groups conducted by
business and ethics, must be adopted
the Exchange. Focus-group participant
and disclosed. Company CEOs must
Gordon Yamate, vice president and gen-
also certify compliance with the new NYSE corporate-governance
eral counsel at KNIGHT-RIDDER INC. (KRI), says it was an interactive effort.
“The NYSE showed us specific screens and asked us how each
standards annually.
The Exchange’s newly adopted rules also include five “bright-line
tests” to determine director independence. Among the features of
looked and if it worked for us,” Yamate relates. “We had a lot of input
into the system’s design.”
BY DANIEL GROSS
Although adoption of eGovDirect is voluntary, O’Neill says that she
Peter Bewley, senior vice president - general counsel for THE CLOROX
expects widespread use to begin quickly. “Focus-group participants saw
CO.
the value of the site immediately,” O’Neill recalls. “They were eager to be
new Website. “It serves as a tickler system for me,” Bewley explains. “It’s
the first to use it.”
my responsibility to make sure filings get done on time, and eGov lets me
Introduced as a pilot program in November 2004, eGovDirect.com
was subsequently tested in December and January by 80 companies,
some of which eagerly volunteered for early access to the Website.
(CLX), says that he appreciates the convenience of the Exchange’s
know by e-mail when items are due.”
If a company fails to file a Written Affirmation on time, it receives an
alert on its own customized eGovDirect home page, says O’Neill.
O’Neill says she expects a formal
Listed companies that need to
launch of the Website for U.S. listed
expand their boards will also be able
companies this February.
to use the valuable search feature to
“We want to get this out by proxy
identify experienced candidates.
season, in time for annual meetings
For example, a listed company
and required reporting,” O’Neill says.
seeking a new audit-committee
The Exchange has plans to
member can narrow the search
expand eGovDirect.com to non-
profile to women with audit-com-
U.S. companies in 2006.
mittee experience who are living
in the eastern U.S. and who have
BEYOND DATA COLLECTION
already served on the boards of
Beyond its corporate-compliance
NYSE-listed companies.
filing features, eGovDirect also
centralizes corporate-governance
ROLLOUT STRATEGY
information for easy access by users.
The Exchange has plans for an
“Ultimately, eGovDirect will
extensive outreach campaign to
offer a suite of value-added bench-
inform its customers about the
marking and management tools so
benefits of eGovDirect.com upon
companies can compare their key
the Website’s launch in February.
information with that of other
Based on feedback from focus
companies in their peer group,”
groups, the Exchange expects an
O’Neill points out.
overwhelming majority of its listed
For example, the unique bench-
companies to utilize the site.
marking feature of the eGovDirect
“We have a team dedicated to the
site can help listed companies com-
successful rollout of the site,” O’Neill
pare their governance structures
says. “Once our customers get com-
with those of other individual companies, or chart the comparison
according to industry or market
capitalization. The system auto-
fortable with eGovDirect, I believe
THE FULLY SECURED,
PA S S W O R D - P R O T E C T E D W E B S I T E
ALLOWS NYSE-LISTED COMPANIES
TO MANAGE COMPLIANCE INFORMATION
AT THEIR CONVENIENCE.
matically updates when new data is
entered, ensuring that users are provided the most current information and profiles available.
Because it archives data and tracks company-filing histories,
that everyone will want to do
business this way,” she adds.
“eGovDirect is very straightforward, and that’s probably what
makes the Website so elegant and useful,” offers Knight-Ridder’s Yamate.
“My guess is, once people start using this, they will come up with other
ideas in terms of new iterations and additional features,” he adds.
eGovDirect.com anticipates recurring actions, such as dividend payments, and automatically e-mails filing reminders to the appropriate
To get more information on eGovDirect.com, please send an e-mail to
corporate office.
cmastroddi@nyse.com.
FOR STAKEHOLDERS
VIEWS FROM HANK MCKINNELL, CHAIRMAN AND CEO, PFIZER INC
A Channel Into China
N
early 30 years ago, I was
At Pfizer we have crossed that bridge and
among the first Pfizer
invested in China’s human, financial and
employees to set foot in
social assets. Our China employees work in
China when I attended a
four state-of-the-art plants, a management
trade fair held in the wel-
center and a trade company. For more than
come twilight of the Cultural Revolution.
a decade, we have sponsored community
Although I could sense the promise of China’s
health initiatives across China, focusing on
market then, I could hardly have envisioned
prevention and treatment. This includes
that today China would be attracting $1 billion
sponsoring hospital-management training
a week in new foreign capital investment. In
programs with Beijing University and
China’s feverish, competitive environment,
launching the Pilot Rural Cooperative
success requires companies to go beyond
Medical Systems in Yunnan Province. Pfizer
traditional channels to prove their value to
also supports the Lifeline Express, a train-
society and willingness to invest long term.
based eye hospital that serves farm families,
offering free cataract operations and treat-
Among Pfizer’s valued new channels is the
ments for other visual disorders.
United Nations Global Compact, a voluntary
Such endeavors have long been part of
association of corporations that pledge to
improve their corporate citizenship. Launched
in 2000 the U.N. Global Compact now
includes 1,800 corporations — half from the
developing world — along with dozens of civic
leaders and U.N. agency representatives. This
unique multistakeholder organization unites
the global business world through 10 princi-
COMPANIES LOOKING
TO GROW IN CHINA
SHOULD CONSIDER
SIGNING THE
UNITED NATIONS
GLOBAL COMPACT.
Pfizer, but the Global Compact gives us
another platform for building trust with
China’s business partners and regulatory
agencies. The Compact sets a common
ground for dialogue with leaders from parts
of society that have traditionally been at
odds with corporations — labor, civil
ples that address human rights, the environ-
administration and activist groups —
ment, labor standards and corruption-free
whether in China or the U.S. The dialogue
business dealings. Those who sign the Global Compact agree to aspire to
advance these principles through their global business operations.
isn’t always easy, but it’s becoming more candid and productive.
Of course, Pfizer has numerous other channels into China through
So far, CEOs of 67 Chinese companies spanning many industries have
our own operations and joint ventures. But as the Chinese proverb says:
signed the Global Compact. China’s government is signaling that it takes
“The height of the wall depends on the depth of the foundation.” The
the Compact seriously. Earlier this year Cheng Siwei, vice chairman of the
U.N. Global Compact promotes a common understanding of how
standing committee of the National People’s Congress and widely regard-
multinational businesses can sustain their growth and promote global
ed to be China’s “father of venture capital,” addressed the U.N. Global
stability. Companies looking to grow in China should consider signing
Compact Leaders’ Summit (the largest gathering ever of CEOs focused
the U.N. Global Compact to help them dig a deep foundation for long-
solely on corporate responsibility). He lauded the Compact and affirmed
term investment in a market both dynamic and complex.
economic transition in his country. China sees the principles of the U.N.
Hank McKinnell is chairman and CEO of Pfizer Inc (PFE), the
Global Compact, along with its entry into the World Trade Organization,
global pharmaceutical company. Some 1,500 of its 122,000 employees
as a strategic bridge to the global economic system.
are in China.
NEIL FLEWELLEN
that organizations following its principles would help create a sustainable