Dial's "transparent leader" comes to Wharton

By: Kevin Chan-A-Shing, WG'04

Posted: 4/7/03

We've all used products from Dial Corporation at some point in our lives. The $1.7 billion consumer products company markets such brands as Dial soaps, Armour canned meats, Renuzit air fresheners, and Purex detergents. On April 3, Herbert M. Baum - Chairman, President and CEO of the Dial Corporation - spoke to Wharton Students in Huntsman Hall about the Dial Turnaround Story. A Director of The Dial Corporation, Fleming Companies, Midas, Inc., Action Performance, PepsiAmericas, and Meredith Corporation, Mr. Baum has also served as the Chairman of the Boards of The Advertising Council, the National Food Processing Association, the Association of National Advertisers and the National Hispanic University. Later this year, Mr. Baum plans to release a book about his career and management style titled The Transparent Leader.

Prior to joining Dial, Mr. Baum served as President and COO of Hasbro, Inc. and as Chairman & CEO of Quaker State Corporation. During his tenure at Quaker State, sales more than doubled and operating earnings grew seven-fold. Under his leadership, Quaker State made eight acquisitions and introduced the world's first motor oil in a clear plastic bottle. Mr. Baum also spent 15 years at Campbell Soup, where he spearheaded the introduction of Prego Spaghetti Sauce, the company's first major new product introduction which today is the nation's second most popular pasta sauce brand. The company's famous advertising campaign "Soup is Good Food" was launched when he led Campbell's US soup business. Mr. Baum's leadership and vision have not gone unnoticed. In 1992, Mr. Baum received the American Marketing Association's 1992 Charles Coolidge Parlin Award for outstanding contributions to marketing. He also received the AMA's Edison award and was elected to the Sales and Marketing Executives International Hall of Fame in May 1998.

Herb Baum joined Scottsdale-based Dial Corp. in 2000 when it was known more as a follower than a leader in the consumer products industry. Weighed down by debt due to costly acquisitions, Dial Corp. lost $11 million in 2000, following a 1999 profit of $117 million. Industry insiders and research analysts penned "acquisitive obituaries" for Dial recalculating expected premiums on brand sales to Procter & Gamble and Colgate-Palmolive. According to Baum, Dial's management had pursued well-intentioned growth that came at the expense of profitability. Among the company's acquisitions were a Specialty Purpose Care ("SPC") concern (~$0.29 dilutive to EPS), a German Joint venture with Henkel ($0.25 dilutive to EPS) and Argentinean businesses ($0.06 dilutive to EPS). In addition, the company had embarked on a stock buyback program purchasing $119 mm in stock at $19 a share, well above reported stock lows at the time of around $10. On top of other concerns, the company was being investigated for a trade-loading scheme designed to inflate revenues. Where others saw a company saddled with $660 mm in debt, increasing working capital requirements and falling market share, Baum saw a turnaround story.

Baum immediately got to work at Dial halving the company's debt, dumping unprofitable businesses, spurring sales and targeting market share growth in top brands. How was this accomplished? Certainly Baum's reorganization of the company's operations into a business unit structure to place profit-and-loss responsibility within each operation was one factor. Similarly, reducing capital expenditure within annual depreciation provided much needed cash flow for growth. Most instrumental, however, was an offsite strategy meeting with staff to encourage more openness and better intra-corporate communication. According to Baum, "[Dial] was the most oppressive environment you could ever imagine." The result of the meeting was a new guideline for Dial's culture that stressed integrity, openness and innovation. It was Dial's newfound philosophy of employee empowerment that supported the effective implementation of its SFX01 strategy. SFX01 was an acronym unveiled in a meeting with New York investors in 2001 - "S" meant stabilizing business, "F" fixing problem businesses and "X" exploring opportunities to remain independent to sell the firm.

Baum's focus on teamwork and empowerment was obvious during his speech. In fact, the CEO stated "If you ever hear a guy going around talking about how he turned Dial around . . . he didn't . . . the people of Dial did." As evidence of his own open door policy he described a number of hilarious anecdotes about recent employee emails to him, from a request to fix bathroom problems in the accounting department to a complaint about a dead-bird outside headquarters that needed to be removed! Baum joked, "We went from a company where people just didn't trust management to one where anyone could be contacted directly." The results have been impressive, since August 2000, EPS has grown at a 39.6% CAGR, market share has grown in 3 of 4 brands and gross margins have improved 400 bps. In 2002 alone, Dial's market-capitalization grew $303 mm! "We are also using our core competencies in procurement, sales and marketing and manufacturing even more effectively." There is however, apparently more on the horizon. "We plan to introduce new businesses starting with a new fragrance for Purex this Summer." Baum explained that over 80% of Dial's business will be either new or refreshed over the next 3 years.