MeadWestvaco's John Luke: 'Change Simply for the Sake of Change Is an Abdication of Leadership'Published: April 02, 2008 in Knowledge@Wharton
John Luke Jr., chairman and CEO of global packaging giant, was a U.S. Air Force pilot in Southeast Asia during the tail end of the Vietnam era. Since coming home to join and eventually run this large family business, he has been responsible for steering a steady course even as flak comes in from all sides.
Speaking at a recent Wharton Leadership Lecture, Luke, 59, noted that in transforming MeadWestvaco -- created by a 2002 merger of two traditional paper-industry giants -- into a company focused on packaging solutions, he has pushed for what amounted to a radical change in culture and focus of the firm while continually resisting pressure for quick, short-term results.
The need for steady leadership, Luke noted, is "increasingly tested in today's world, where short-term thinking, political correctness and growing pressures for quick returns appear to be limiting traditional assessment and debate that focuses on real, sustainable solutions. Strong leaders must discern and, where appropriate, resist these pressures."
A case study is MeadWestvaco's recent decision regarding more than a half-million acres of timberland the company owned across the southern United States -- land that was no longer needed for the company's new focus on packaging, and thus could be sold to raise cash and boost the bottom line. Indeed, MeadWestvaco did sell off 300,000 acres in Alabama and Georgia. But in the fast-growing coastal region of South Carolina, the company instead created a new development arm and is working with the community and environmentalists on a master plan for some 72,000 acres that will mix real estate and preservation.
Luke said the South Carolina plan is projected, over time, to bring in double the revenue that would have been created by a shortsighted quick sale of the land to another party. He described the plan as "a contrarian approach that was not initially popular and took a lot of hard work and communication effort. We have been able to build a measure of understanding and hope with our investors when initially there was a lot of pressure to just cut and run and generate the cash. Doing that would have been the popular thing, but not necessarily the right thing, for our longer-term shareholders."
Luke, who became CEO of Westvaco in 1992 and has guided the combined company since the merger of Westvaco with Mead, laid out his vision of corporate leadership. Although he is a student of leaders ranging from Winston Churchill to Ronald Reagan, he said he believes that running a corporation requires what Theodore Roosevelt called "applied leadership," which "is about more than inspiring quotations or even historic outcomes."
To Luke, that brand of applied leadership is a function of five steps: Creating a vision; continually assessing opportunities; developing a strategy; communicating that vision and strategy, and motivating your people. He said he has strived to follow that broad blueprint at MeadWestvaco, a company with roots deep in the 19th century, going back to the Piedmont Pulp and Paper Company that was founded by Luke's ancestors in 1888 and later would become Westvaco.
When Luke took over the helm of Westvaco in the early 1990s, he saw that the kind of paper business built by his predecessors and their chief competitors -- regional and fragmented in nature -- would no longer be viable in a rapidly globalizing economy. "It became clear to us, as we moved into the mid-1990s, that the pace of change in a market driven by technology as well as the forces of globalization had accelerated dramatically, and that more concerted transformation was needed."
State-of-the-Art Innovation Center
Shortly after the merger, MeadWestvaco sold its legacy core paper business -- the unit that had focused on business forms, magazine pages and the like -- for $2.3 billion to Cerberus Capital Management so that MeadWestvaco could concentrate on the $400 billion market worldwide for packaging solutions. Packaging is now more than 75% of the firm's business, with more than half of that overseas. The company's current strategy is to target top consumer brands -- such as Coca-Cola, Procter & Gamble, Unilever and L'Oreal -- with an emphasis on the fastest-growing emerging markets, including China, India and Brazil.
The transformation of MeadWestvaco, Luke said, meant shedding commodity products and focusing on more complex, value-added solutions. That started "with consumer insight, innovation, expertise and project management. It includes world-class manufacturing operations and a range of specialized packaging material, combined with design, converting, printing and fulfillment capabilities around the world. It concludes with outstanding service all the way to the retail shelves."
Along the way, Luke made some dramatic changes within MeadWestvaco, which employs 24,000 people operating facilities in some 30 countries and selling products in roughly 100. Those moves included moving the company's headquarters from Stamford, Conn., to a new complex in downtown Richmond, Va., as well as restructuring the corporation around its targeted products and creating shared-service centers to lower costs. MeadWestvaco, which pulled in just under $7 billion in sales in 2007, operates a specialty chemicals unit in addition to its major focus on packaging for consumer products, including cosmetics, healthcare and school supplies.
To drive home the close connection between technology and innovation along with its new emphasis on packaging, MeadWestvaco also opened a state-of-the-art innovation center in Raleigh, N.C., with related facilities in Brazil, China, India and Europe. Those centers have guided the firm into several new areas, including the lucrative market for healthcare packaging.
Luke described two of MeadWestvaco's innovations. One is an extra-strong type of paperboard, called Natralock, that is an environmentally friendly alternative to the type of plastic clamshell packaging commonly used for printer cartridges, memory sticks and other high-end electronics devices. He said Wal-Mart and key customers have been very responsive because the traditional packaging is unpopular. "I don't like it because I take out my penknife and cut myself just like everybody else," Luke noted
The other is a healthcare packaging solution, called Shellpak, with thin, molded plastic "shells" that protect fragile pills with a customer-friendly push-button technology. He said that Shellpak -- as an alternative to traditional orange pill bottles -- is an outstanding fit with Wal-Mart's $4 prescription program for an assortment of generic medications.
The marketing of Shellpak is not only customer-friendly and sustainable, Luke said, but also "reflects my free market bias because it will drive consumer changes in healthcare costs as opposed to government stepping in. It's something we're working to contribute to."
Although Luke describes himself as something of a "free-market conservative" who serves on the board of the American Enterprise Institute, which promotes right-of-center economic policies, MeadWestvaco -- under his leadership -- has been widely recognized for some of its environmental programs. The company has appeared several times as a leader on the Dow Jones Sustainability World Index for its policies on sustainable water pumping systems and fiber usage.
Bringing in New Talent
In addition, despite assuming control of a firm tied to his family for more than a century, Luke has been unsentimental about bringing in new talent to steer the global growth of the firm. "We had some very good people who were very good at doing the things we were doing yesterday," said Luke, who changed compensation patterns and recruitment activities to bring in innovative executives. It's critical for him as CEO, and for the other leaders working with him, to stay ahead of rapidly changing conditions. He recalled the corporate leaders that he himself had listened to as a Wharton MBA student in the late 1970s, and noted that some of the concerns that those speakers addressed -- like unionization and higher labor costs -- have faded while others, such as federal retirement mandates, have been addressed.
These days, however, Luke and MeadWestvaco have to tackle new problems that weren't on the radar screen just a couple of years ago, including a liquidity crisis in the capital markets -- which he said has had little impact on his firm but likely will affect some key customers -- and the shrinking value of the U.S. dollar. The currency situation, he noted, is a short-term boon to a U.S.-based manufacturer like MeadWestvaco, but it is important that the company not rely too heavily on that boost because it won't last. "The challenge is to leverage this without anyone thinking that we're smarter," he said.
Indeed, the dollar situation illustrates Luke's leadership philosophy, which is based on the idea that the greatest challenge for an executive is not just to develop the best long-term strategy, but to stick to it, despite the short-term pressures from shareholders, especially hedge funds that have become increasingly important players. "There are things that all of us struggle with," he said. But the largest challenge is to carve out time and space for a long-term strategic approach and "to place the vessel the right way."
With more than 15 years as a CEO, Luke has used that time and space to radically transform MeadWestvaco. But he also warned about pursuing change that is not well thought out. "In a world where the mantra of change often for change's sake is increasingly commonplace, it is imperative for all aspiring leaders to determine answers to the critical questions of, 'What change?,' 'Why change?,' and 'How change?' if meaningful sustainable success is to be achieved from your efforts," Luke said. "Change simply for the sake of change is an abdication of leadership."