What was the biggest challenge your company faced over the last 12 months and how were you able to overcome it with financial leadership? Without question, the most extraordinary challenge that our company has faced is the aftermath of the May 22nd tornado that struck Joplin, Missouri. This disaster occurred within 10 miles of our corporate headquarters, and Leggett & Platt had 94 of our employees dramatically impacted either via loss of life or loss of property. While that figure is staggering to us, it pales in comparison to the thousands of people in total that were (and still are) coping with this event.
Within hours of the tragedy, we established an ad hoc committee, which included our leadership team, to help initiate and coordinate our company’s efforts to respond in an appropriate way. Actions that were quickly taken included 1) a rapid corporate-wide employee roll-call to determine who needed help and how we collectively might provide it; 2) definitive and clear communication to all of our affected employees that their first priority was to help their family members and neighbors in dire need, and that those employees who were relatively un-impacted by the storm would cover their job duties in their absence; 3) establishing numerous volunteer programs to assist in directing aid (such as donated goods and food) to the many victims; 4) identification of L&P facilities to provide short and longer term storage needs; 5) development of a list of products that L&P might be uniquely helpful in providing or procuring (such as temporary bedding for adults and children); and 6) a financial commitment of $1 million to help with the imminent needs of the area.
While none of this activity specifically involved “overcoming a challenge with financial leadership,” it reflected our company’s sincere efforts to assist with an unprecedented challenge that will be with all of us in this area for quite some time.
One last comment I would make about this ongoing saga is that the response from not just our local community, but throughout the nation, has been absolutely phenomenal. The outpouring of support and compassion has been truly overwhelming and it has clearly bolstered the spirits and resolve of everyone here in this “fly-over” part of the country—and it’s a heartwarming reminder to all of us about what is most important in our daily lives.
What has made your company stand out and be successful financially? For well over a century, beginning with the company’s initial public stock offering in 1967, we enjoyed a sustained level of high financial success. From 1967 to 2000, we experienced double digit average annual growth rates in all of our key financial metrics (sales, earnings, cash flow, dividends, stock appreciation, etc.). This track record was generated by a strategic focus on strong, profitable growth in the various markets we served, some of which were ripe for consolidation. Inevitably, our opportunities for additional profitable sales growth became increasingly difficult to prudently achieve, and our key financial metrics began to reflect that reality. In essence, while sales continued to climb after 2000, our earnings and profit margins did not simultaneously improve. Certainly, there were several new influences that were becoming more prevalent in our markets, such as increased offshore competition and higher economic volatility related to unforeseen events such as 9/11, the dot com and housing bubbles, and the onset of dramatic commodity price swings. Nonetheless, between 2000 and 2006, our shareholders had been rewarded with a steadily increasing dividend. However, the value of the equity had been essentially flat during that period and, in essence, we were not creating significant value on their behalf (or more accurately on all of our behalf, since many of L&P’s employees and managers were also long-time shareholders).
In May of 2006, our long-established succession plan occurred, as Dave Haffner became L&P’s CEO. Dave had joined L&P in 1983 and was a key leader during the company’s highly successful run in the 1980s and 1990s, but he was just as frustrated as other shareholders with our performance since that time. As a result, he initiated a thorough review of our business to assess which operations were well-positioned to compete in their various markets and create increased shareholder value, and conversely, which businesses might be more valuable in another owner’s hands. This was a watershed moment, because for the first time, L&P began to consider the merits of divestitures to improve shareholder return. In November 2007, we announced the dramatic shift of our corporate strategy from our longstanding “all-growth” approach to a much more balanced “total shareholder return” model. This model recognized the value of using not only profitable sales growth, but also profit margin improvement, strong dividend yields, and timely share repurchases as key drivers of shareholder value. We announced at that time the plan to 1) divest seven business units, representing approximately $1 billion in sales; 2) improve the profit margins and returns-on-capital associated with our remaining business units; 3) implement a robust annual strategic review process within our business units to help better anticipate changing markets; and 4) plan to grow at a more prudent annual pace of four to five percent. Simultaneously with these strategy changes, we also announced that our goal was to consistently achieve TSR that would place us in the top 1/3 of the S&P 500 over time.
As we stand here today in June 2011, I’m happy to confirm that we indeed sold our seven business units, significantly improved the profitability and returns associated with our remaining business units (even with the major economic downdraft that occurred in 2008/2009), implemented an ongoing strategic planning process, and have indeed achieved our top 1/3 TSR goal, based upon the company’s performance since November 2007.
All of that being said, we certainly recognize that we’re engaged in a marathon and not a sprint, and that this will be an ongoing process.
What is the most important thing you’ve learned in your position? It’s difficult to designate one thing as “most important”, particularly since there has been—and remains—much to learn in this role. However, I will say that a healthy debate of the status quo is very high on the list. There are many examples in all walks of life where continuing to “do-what-we-do” is the right approach. Still, it is often the case that a significant adjustment to the status quo can lead to an even better outcome. During the past several years, this has proven to be true for L&P. The willingness of our management team to question our longstanding (and historically highly successful) growth strategy, and then have the fortitude to make the corresponding “gut-check” changes to chart a different path toward shareholder value, has been quite successful—and it’s been a great reminder that a continuous improvement mindset can be a powerful approach.
Now, if I could only get my exercise habits to move past the current status quo!
How do you prepare for Board meetings and what information is most important for you to present? Our entire senior management team is heavily involved in the ongoing review of our various operations, and ultimately, the communication of this information to the Board. This review includes a detailed assessment of numerous key performance indicators such as interim financial results, assorted efficiency measurements, customer satisfaction metrics, ROI statistics and safety/compliance reports. In terms of the actual presentation activity at the Board level, we collectively discuss the appropriate quantitative data, however we also spend a significant portion of any presentation outlining the key qualitative issues that are most relevant. For example, setting the recent financial results aside, our Board wants to also understand the key trends currently taking place in our various markets involving end-products, end-consumers, customers, suppliers, competitors, specific domestic/international economies, etc. This dialogue is directly correlated to the Board’s role of helping assess overall risk considerations that could have a material effect on the company, both now and in the future. Based upon the assessment of these various considerations, the Board is much better able to refine our overall corporate strategy accordingly.
What advice do you have for other CFOs? To never give advice! (As you might have guessed, I’ve been married to an attorney for over 25 years now.)
In all seriousness, the one bit of advice I’ve certainly received many times myself and find applicable in virtually all situations, is to be a good listener. Specifically, as CFO I know it has greatly helped me understand our challenges (and opportunities) to listen closely to the feedback from our talented employees in Operations, Human Resources, Legal and Mergers & Acquisitions. Similarly, even though I have direct responsibility for areas such as Accounting, Finance, Information Systems, Internal Audit and Tax, I have found that listening closely to the opinions and recommendations of the executives directly overseeing those activities is absolutely essential. In line with that rationale, I also firmly believe in delegating authority to those who have the most direct expertise in their areas of responsibility, while knowing full well that the ultimate accountability for that decision-making protocol will be with me—and also knowing full well that some of those decisions will ultimately be wrong. When those situations do inevitably develop, by working together and having everyone willing to listen when appropriate, corrective steps can be made quickly and effectively.
Matthew C. Flanigan was appointed Senior Vice President and Chief Financial Officer of the Leggett & Platt in 2005. He previously served as Vice President and CFO from 2003 to 2005, President of the Office Furniture Components Group from 1999 to 2003, and in various other capacities since 1997. Mr. Flanigan holds a degree in finance and business administration from the University of Missouri. He serves as a director of Jack Henry & Associates. Matt was first elected as a Director of the Company in 2010.