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5 Plays 3M’s New CEO Must Run to Win

Dow LeaderboardHow do you pick a successor to the CEO whose six years at the helm coincided with 40% growth in company sales? Very carefully. When 3M (NYSE:MMM) CEO Sir George Buckley hands over the reins of the diversified technology giant the day after his 65th birthday on Feb. 24, he can do so with confidence that his successor understands the company and will stay the course.

Buckley is handing the keys to Swedish-born, 33-year 3M veteran Inge Thulin, who was given the title of executive vice president and chief operating officer last year in anticipation of Buckley’s mandatory retirement. Thulin has headed 3M’s international operations since 2003. That gives him a lot of street cred from Day One — particularly since nearly 70% of the company’s sales are outside the U.S.

The stakes are high for 3M to get this changing of the guard right, particularly since the company whose innovation culture led to the launch of products like masking tape, the heart-lung machine and Post-It notes fumbled badly with its last CEO retirement. When L.D. DeSimone reached the company’s mandatory retirement age in 2000, 3M nabbed a big-name outsider: former Jack Welch disciple and GE (NYSE:GE) efficiency maven James McNerney. 3M was lucky to live through it.

McNerney slashed payrolls, tightened budgets and replaced 3M’s freewheeling culture of innovation and collaboration with Six Sigma processes and military-inspired discipline. McNerney fired 11% of 3M’s workforce and imposed unforgiving efficiency standards. Many longtime 3Mers found the new atmosphere to be downright Darwinian as scientists and engineers fought for survival.

Four years later, a company that once boasted a third of its sales from products released in the past five years saw that figure slip to one quarter. Luckily for 3M, in 2005, McNerney got the job offer of a lifetime: CEO of Boeing (NYSE:BA), leaving 3M to search for new leader. This time, the company valued cultural compatibility above big-name bling, settling on Buckley, an Englishman with a PhD in electrical engineering who was then CEO of billiards-equipment maker Brunswick (NYSE:BC).

Buckley rolled back many of McNerney’s initiatives and labored to restore 3M’s creative, collaborative culture. He cut costs strategically, rode out the “economic tsunami” of 2008 and 2009 and went on a buying spree for “bolt-on” companies and overseas manufacturing facilities. Today, nearly a third of 3M’s sales once again come from products launched in the past five years, and the stock has rebounded from a recession-era low of $41 to $87.

That’s a very hard act for anyone to follow — that’s why some analysts downgraded the stock when the 3M board didn’t waive the mandatory retirement policy for Buckley. But Thulin is the ultimate insider, having spent his professional life at 3M. That’s a huge advantage because he understands the eclectic mix of order and chaos that makes the culture work profitably. And his deep international expertise is essential if 3M is to excel and grow in the 21st century as it did in the 20th.

While every new CEO wants to be his own man and put his or her signature on a company, if Thulin is to succeed, he must draw deeply from his predecessor’s playbook. Here are five plays he must run:

1. Prioritize Innovation

The very different reigns of McNerney and Buckley prove the point that innovation is the lifeblood of 3M. “It’s said that the average person walking on the surface of the earth touches 17 3M products every single day,” Buckley has said.

To continue that legacy, Thulin will need to celebrate successes, avoid punishing failures and continue to value the “lessons learned” during the process of innovation. He also will need to foster collaboration and know the right time to pull the plug on new ventures.

2. Global Growth Is Local

Thulin must continue to aggressively focus on growing the business globally by boosting 3M’s presence locally, particularly in emerging markets. Buckley believed that 3M’s biggest global competitors are young, agile, small-to-midsize companies with $20 million in annual sales two years ago and $200 million today. Thulin must continue the drive to make 3M essentially a local competitor in global markets by manufacturing, sourcing, leading and developing locally. He must also continue to prioritize China, India and Latin America. The strategy extends to producing specific products for these markets. Thulin has a good start: On his watch, 3M already has 37 labs and 30 technical centers located outside the U.S.

3. Practice ‘Double Vision’

Thulin must balance keeping one eye on future targets and the other on today’s bottom line. “I have to look at the world with double vision,” Buckley said in an interview with The Economist. “I’ve got one eye on the quarter, because unless you deliver on those promises in the quarter you will not get the chance to play in the long term. But on the other hand, unless you play for the long term, the future won’t be there when you want it. So you have to deal with that dichotomy.”

4. Value Managerial Continuity

While McNerney moved managers around every 18 months, Buckley slowed the pace, often keeping managers in place for four years. “They have to be in the job long enough, not only for their successes to visit them, but for their failures to visit them,” Buckley said. Thulin, who has headed international operations for nine years, likely sees the value of developing people, relationships and expertise in one area.

5. Invest In Leadership Development

Buckley believed in the value of investing in training and leadership development, particularly in areas such as strategic thinking. When asked why he wouldn’t rather save money on training by recruiting talent from outside the company, he responded: “I’d sooner own a fish farm than be reliant on catching a few fish.” Thulin needs to carry on that legacy of grooming the next generation of leaders and managers if 3M is to continue to compete globally for the long haul.

The bottom line: Bet on Thulin to stay the course, at least in the short term. That’s good news for shareholders. Thulin recently indicated that he will continue to pursue the priorities Buckley put in place. But make no mistake, Thulin is no Buckley clone. He’s hard-charging and results-oriented, so only time will tell how that different leadership style will impact 3M’s culture.

With a market cap of $61 billion, 3M is trading around $87, about 26% above its 52-week low last October. The stock went ex-dividend Feb. 15 with a yield of 3.2%. The stock has a price-to-earnings growth (PEG) ratio slightly over 1, indicating that the stock is fairly valued.

If you’re already long MMM, it’s a good idea to hold. But I’d probably wait until the dust settles on the succession to buy.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Article printed from InvestorPlace Media,

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