A P U B L I C A T I O N O F N Y S E E U R O N E X T
F O U R T H Q U A R T E R 2 0 0 9 $ 4 . 9 5
M A G A Z I N E
POWERING THE EXCHANGING WORLD
WALGREENS EXPANDS ITS REACH
CEO ROUNDTABLE: STRATEGIES
FOR THE RECOVERY
ROSETTA STONE’S CEO SPEAKS OUT
A SOFT TOUCH MILD-MANNERED KIMBERLY-CLARK CEO THOMAS J. FALK
HAS THE STORIED COMPANY FOCUSED ON INNOVATIONIN
SID
E> > > >
GAME CHANGER
> >
Petrobras CEO José Sergio Gabrielli de Azevedo says
massive new oil reserves will transform Brazil’s future
NY9.4_coverPetroBr.F1.indd 1NY9.4_coverPetroBr.F1.indd 1 10/19/09 4:52:59 PM10/19/09 4:52:59 PM
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28
10 “A company can’t survive without good relationships with its employees.”
— José Sergio Gabrielli de Azevedo, CEO, Petrobras
ABLYNX NV (ABLX) 38, 39
ABOVENET INC. (ABVT) 28, 42
AIRCASTLE LTD. (AYR) 28
ALCATEL-LUCENT (ALU) 5
AMERICAN EXPRESS CO. (AXP) 21
AMERICAN WATER WORKS CO., INC. (AWK) 4
AMSTERDAM MOLECULAR THERAPEUTICS HOLDING NV (AMT) 39
ANADARKO PETROLEUM CORP. (APC) 5
ARTIO GLOBAL INVESTORS INC. (ART) 3
BARNES GROUP INC. (B) 28
BANK OF AMERICA CORP. (BAC) 27
BD (BECTON, DICKINSON AND CO.) (BDX) 34
BP PLC (BP) 14
CAPITAL ONE FINANCIAL CORP. (COF) 21
CATERPILLAR INC. (CAT) 21
CELLECTIS SA (ALCLS) 38, 39
CHEVRON CORP. (CVX) 7, 14, 34
CHINA PETROLEUM & CHEMICAL CORP. (SNP) 15
COACH INC. (COH) 5
CONMED HEALTHCARE MANAGEMENT INC. (CONM) 7
CONTINENTAL AIRLINES INC. (CAL) 21
CONTINENTAL RESOURCES INC. (CLR) 4
CORNING INC. (GLW) 7
COVANTA HOLDING CORP. (CVA) 28
CRUCELL NV (CRXL) 38
CVS CAREMARK CORP. (CVS) 26
DEVGEN NV (DEVG) 39
DEVON ENERGY CORP. (DVN) 7
DEVRY INC. (DV) 44
DUKE ENERGY CORP. (DUK) 34
ECOLAB INC. (ECL) 4
ELI LILLY & CO. (LLY) 41
EXONHIT THERAPEUTICS SA (ALEHT) 38, 39
EXXON MOBIL CORP. (XOM) 12, 34
FEDERAL REALTY INVESTMENT TRUST (FRT) 28
FORNIX BIOSCIENCES NV (FORBI) 39
FRISCH’S RESTAURANTS INC. (FRS) 5
GALAPAGOS NV (GLPG) 38, 39
GENERAL ELECTRIC CO. (GE) 20
GENERAL MILLS INC. (GIS) 34
GENFIT SA (ALGFT) 39
GENOWAY SA (ALGEN) 39
GLAXOSMITHKLINE PLC (GSK) 41
GOODYEAR TIRE & RUBBER CO., THE (GT) 21
HIGHWOODS PROPERTIES INC. (HIW) 28
HILL INTERNATIONAL INC. (HIL) 28
H.J. HEINZ CO. (HNZ) 34
HYBRIGENICS SA (ALHYG) 39
IBM CORP. (IBM) 44
IMS HEALTH INC. (RX) 18
INNATE PHARMA SA (IPH) 39
INTERCONTINENTAL HOTELS GROUP PLC (IHG) 6
ION GEOPHYSICAL CORP. (IO) 6
IPSOGEN SA (ALIPS) 39
JOHNSON & JOHNSON (JNJ) 20, 41
KELLOGG CO. (K) 25
KIMBERLY-CLARK CORP. (KMB) 22
KYOCERA CORP. (KYO) 5
MARATHON OIL CORP. (MRO) 5
MARVEL ENTERTAINMENT INC. (MVL) 21
MCKESSON CORP. (MCK) 18
MERCK & CO. INC. (MRK) 41
MOTOROLA INC. (MOT) 5
NOKIA CORP. (NOK) 5
NYSE EURONEXT (NYX) 3, 28, 42
OCTOPLUS NV (OCTO) 39
ONCOMETHYLOME SCIENCES SA (ONCOB) 38, 39
PETRÓLEO BRASILEIRO SA (PBR) 10
PG&E CORP. (PCG) 34
PHARMING GROUP NV (PHARM) 38, 39
PORTUGAL TELECOM SGPS SA (PT) 7
PROCTER & GAMBLE CO., THE (PG) 20
PROGRESSIVE CORP., THE (PGR) 5
RED LION HOTELS CORP. (RLH) 28
RIO TINTO PLC (RTP) 21
ROSETTA STONE INC. (RST) 3, 36
ROYAL DUTCH SHELL PLC (RDS) 14
SARA LEE CORP. (SLE) 20
SELECT MEDICAL HOLDINGS CORP. (SEM) 3
SOLARWINDS INC. (SWI) 3, 6
SPRINT NEXTEL CORP. (S) 21
STARWOOD PROPERTY TRUST INC. (STWD) 3
THOMSON REUTERS CORP. (TRI) 37
THROMBOGENICS NV (THR) 39
TIGENIX NV (TIGN) 38, 39
TRANSGENE SA (TNG) 39, 40
VERIZON COMMUNICATIONS INC. (VZ) 34
VIACOM INC. (VIA) 3
VISA INC. (V) 3
VIVALIS (VLS) 38
WALGREEN CO. (WAG) 16
WAL-MART STORES INC. (WMT) 18
WALT DISNEY CO., THE (DIS) 21
XEROX CORP. (XRX) 34
THE NYSE MAGAZINE INDEX
FEATURESG A M E C H A N G E R
Petrobras’ CEO says that new oil
discoveries beneath the ocean floor off
Brazil have the company poised to be
a global energy leader.
O N A R O L L
New Walgreens CEO Greg Wasson is
diversifying the century-old drugstore
chain’s business model to include all
health needs.
A S O F T T O U C H
Mild-mannered Kimberly-Clark CEO
Thomas J. Falk keeps the tradition of
innovation alive at the storied company.
T H E R O A D T O R E C O V E RY
In a roundtable discussion, nine CEOs
share strategies and ideas for becoming
part of the economic solution.
10
28
3
4
38
44
16
22
36
42
DEPARTMENTS
>>
C O N T E N T SF O U R T H Q U A R T E R 2 0 0 9 V O L U M E 9 I S S U E 4 >>>>>>
M A G A Z I N E
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U P D A T E
From NYSE Euronext CEO
Duncan Niederauer
U P F R O N T
A blanket to reduce infections,
sustainable hotels, water conservation,
dividends in a downturn and more
C E O Q & A
Tom Adams, president and CEO,
Rosetta Stone Inc.
S E C T O R S P O T L I G H T
European biotechnology
I N S I D E N Y S E E U R O N E X T
Twin data centers
F O R S T A K E H O L D E R S
Daniel Hamburger, president and CEO,
DeVry Inc.
NYSE MAGAZINE IS PUBLISHED BY THE NYSE GROUP, INC. IN CONJUNCTION WITH TIME INC. CONTENT SOLUTIONS © 2009 NYSE GROUP, INC. ALL RIGHTS RESERVED
NY9.4_p1_TOC.F4.indd 1NY9.4_p1_TOC.F4.indd 1 10/19/09 4:53:32 PM10/19/09 4:53:32 PM
>>
U . S . S E C R E T A R Y O F S T A T E Hillary Rodham Clinton’s recent visit underscores the
importance of strong capital markets to the global economy. We were honored that Secretary
Clinton and other world leaders chose to visit the NYSE while attending the 64th session of
the U.N. General Assembly in New York this past September. Their presence at the NYSE
reinforced the idea that now is the time for government and corporate leaders to move forward
collectively and constructively toward a sustainable global economic recovery.
At a recent NYSE roundtable, nine CEOs, including myself, discussed how corporate lead-
ers can become part of the economic solution. Excerpts begin on page 28, and more are
posted on nysemagazine.com, where you will also fi nd Web-exclusive CEO commentary on the
importance of corporate responsibility during the economic downturn. Our First Quarter 2010
issue, which will be available in January and at the World Economic Forum in Davos, Switzer-
land, will take an in-depth look at corporate sustainability initiatives worldwide.
Despite a tough climate, we’re making steady progress on the IPO front, including the
listings of Rosetta Stone (see the CEO Q&A on page 36) and SolarWinds (see page 6). Also
among the signs of progress are the listings of Artio Global Investors, the fi rst fi nancial ser-
vices IPO since 2007; Starwood Property Trust, the largest REIT offering of the year; and
Select Medical, arriving more than a year after fi ling the initial documents. Also debuting on
the NYSE are Banco Santander Brasil, Hyatt Hotels, Dole Food and Dollar General.
Meanwhile, our NYSE TechnologiesSM businesses are taking root around the world. We
continue to work with some of the largest fi nancial institutions, global trading venues and
best-of-breed technology partners to implement the most comprehensive set of connec-
tivity, trading and exchange solutions available. Helping to drive effi ciencies for our custom-
ers and our global exchange group are innovations such as our new data centers being
constructed in the New York and London metro areas (learn more on page 42).
In this rapidly changing environment, we continue to be an effective advocate for our listed
companies. For example, we recently formed an independent advisory commission to look at
strengthening U.S. best practices for corporate governance and the proxy process. We have
represented issuer views on short selling, tax policy, travel visas, venture capital investment,
regulatory reform and more with regulators, legislators, the press and the public at large.
Amid these efforts we remain focused on our most valuable resource: our people. We
were excited to welcome Dominique Cerutti as Deputy CEO and Global Head of Technology,
succeeding Jean-François Théodore, who will retire at year’s end. Dominique’s excep-
tional leadership skills in fi nance and technology will be extremely benefi cial to our
company — and our customers — as we continue our evolution in 2010 and beyond.
ON SEPT. 21, U.S. SECRETARY OF STATE HILLARY RODHAM CLINTON MADE HER FIRST VISIT TO THE NEW YORK STOCK EXCHANGE AS THE NATION’S CHIEF DIPLOMAT AND INITIATED THE DAY’S TRADING BY RINGING THE OPENING BELLSM.
“NOW IS THE TIME FOR LEADERS TO MOVE FORWARD COLLECTIVELY TOWARD A SUSTAINABLE RECOVERY.”
CO
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F R O M N Y S E E U R O N E X T C E O D U N C A N N I E D E R A U E R
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain articles about NYSE Euronext in this magazine may contain
forward-looking statements, including forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements include, but are not limited to,
statements concerning NYSE Euronext’s plans, objectives, expectations
and intentions and other statements that are not historical or current
facts. Forward-looking statements are based on NYSE Euronext’s current
expectations and involve risks and uncertainties that could cause ac-
tual results to differ materially from those expressed or implied in such
forward-looking statements. Factors that could cause NYSE Euronext’s
results to differ materially from current expectations include, but are not
limited to: NYSE Euronext’s ability to implement its strategic initiatives,
economic, political and market conditions and fl uctuations; government
and industry regulation; interest-rate risk and U.S. and global competi-
tion; and other factors detailed in NYSE Euronext’s reference document
for 2008 (“document de référence”) fi led with the French Autorité des
Marchés Financiers (Registered on April 28, 2009 under No. R. 09-
031), 2008 Annual Report on Form 10-K and other periodic reports
fi led with the U.S. Securities and Exchange Commission or the French
Autorité des Marchés Financiers. In addition, these statements are
based on a number of assumptions that are subject to change. Accord-
ingly, actual results may be materially higher or lower than those project-
ed. The inclusion of such projections herein should not be regarded as
a representation by NYSE Euronext that the projections will prove to be
correct. Articles in this magazine speak only as of Sept. 25, 2009. NYSE
Euronext disclaims any duty to update the information herein.
DUNCAN ’S TOP F I VE
PEER TO PEER Our listed companies are concerned about legislation reaching too far into the boardroom. In response, we formed an advisory group to examine U.S. governance best practices and the proxy process.
MARKET TREND The IPO market is the strongest we have seen in two years, and the pipeline is robust. So far this year, NYSE IPOs have raised about $7 billion.
NYSE EURONEXT IN I T IAT I VE Partnering with Viacom’s MTV on Movers & Changers, a social entrepreneurship initiative, as well as our efforts on financial literacy with Viacom, the Gates Foundation, Visa and others.
MEMORABLE QUOTE FROM RECENT TRAVELS Investing in a well-educated workforce may be the most important step to helping the U.S. remain a global leader.
UPCOMING TR IP To Hong Kong, Shanghai and Beijing to meet with listed companies and prospects.
U P D A T E
Sincerely,
NY9.4_p3_Update_F2.indd 3NY9.4_p3_Update_F2.indd 3 10/19/09 4:56:40 PM10/19/09 4:56:40 PM
>>U P F R O N T
S O C I A L R E S P O N S I B I L I T Y
THE SOLAIRE'S ROOFTOP GARDEN PROVIDES AN OASIS
FOR CITY DWELLERS.
With Manhattan reaching a population of
1.6 million, AMERICAN WATER WORKS CO. INC.
(AWK) wanted to create sustainable water man-
agement solutions for the city that never sleeps.
As one of its latest green initiatives, the com-
pany designed an innovative wastewater recy-
cling facility for state-of-the-art residential
buildings in New York City.
According to American Water, the Solaire
luxury development was the fi rst of fi ve green
high-rise buildings in Manhattan’s Battery Park
City to use the company’s wastewater recycling
system. “As the [nation’s] fi rst green residential
building, the Solaire demonstrates how envi-
ronmental and sustainable development con-
cepts can be incorporated into future projects,”
says Tim Davies, president and CEO of Ameri-
can Water’s Applied Water Management unit.
Th e recycling system reuses 25,000 gal-
lons of wastewater per day, Davies notes. Th e
advanced fi ltration system separates waste
from water and uses ultraviolet light to kill
bacteria. Water is collected and supplied on a
need-only basis to conserve energy.
Th e facility reuses water throughout, from
fl ushing toilets to fi lling the cooling tower.
With this innovative technology, American
Water says, the Solaire conserves up to 9 mil-
lion gallons of water each year and consumes
35 percent less energy than a traditional
high-rise, and Battery Park City’s residential
systems have saved an average of almost 10
million gallons of potable water per building
per year. — Shama Hussain CO
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An Eco-Friendly High-Rise
Blanketing Infection
Some 1.7 million health-care-associated infec-
tions, or HAIs, occur in U.S. hospitals each year,
according to the Centers for Disease Control
and Prevention. HAIs suppress immunity, pro-
mote other infections and may cause death, the
CDC reports, resulting in nearly $20 billion in
annual excess health-care costs.
A leading cause of HAIs, says St. Paul-based
ECOLAB INC. (ECL), is hypothermia, a common
response to injury-induced shock and to general
anesthesia. Th e company says its ChillBuster
can address this problem. The lightweight,
water-resistant blanket comes with disposable,
infection-impervious covers and a re chargeable
four-hour battery. Lying fl at on the patient, it
quickly heats to 105°F and delivers rapid
response without burn risk to the patient or
bystanders, the company adds.
Paul Chaffin, vice president and general
manager for Ecolab’s North American health-
care division, says Ecolab is supplying the prod-
uct to the U.S. health-care market aft er having
received FDA approval in November 2007.
“ChillBuster is just one of the innovative
products we off er that helps reduce HAIs,” Chaf-
fi n says. “We also support our products with
comprehensive training and education, helping
maximize patient outcomes and reduce costs for
health-care providers.” — Jeff Heilman
TICKER TAKES [ENERGY]
N E W S A N D T R E N D S F R O M T H E G L O B A L B U S I N E S S C O M M U N I T Y
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CONTINENTAL RESOURCES INC. (CLR) CAN DRILL A WELL SO ACCURATELY
IT'S LIKE SHOOTING A DRILL BIT INTO A BASKET FOUR MILES AWAY.
ECOLAB’S CHILLBUSTER IS CUTTING DOWN ON HEALTH-CARE-ASSOCIATED INFECTIONS.
P R O D U C T S & S E R V I C E S
All Ticker Takes facts obtained from respective listed companies.
NY9.4_p4-7_News.F2.indd 4NY9.4_p4-7_News.F2.indd 4 10/19/09 4:58:33 PM10/19/09 4:58:33 PM
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M A R K E T I N G
Going With the Flo
To help demystify the auto insurance shop-
ping experience, PROGRESSIVE CORP.’s (PGR)
TV commercials show an energetic salesper-
son named Flo helping customers at a bright
and open superstore representing “an insur-
ance heaven.” “People often see insurance
shopping as something painful,” says Chris
Owen, Progressive marketing business leader,
“so we wanted to create something familiar,
like grocery shopping.”
As Owen explains, Flo’s quirky personal-
ity refl ects Progressive’s brand image through
her vitality and dynamism. “Progressive isn’t
a boring, traditional auto insurance com-
pany,” he says. “We all have a lot of energy,
and her character refl ects our culture.” Owen
notes that while Progressive’s strong suit is its
competitive rates, customers also receive ser-
vices for which they don’t have to pay extra,
including pet injury coverage and concierge
claims service.
Th e commercials began airing in January
2008. Progressive also runs print and online
ads that include Flo, all of which are part of
the “Superstore” campaign.
Th e company says it has seen an increase
in the number of customers because its con-
sistent advertising strategies have built recog-
nition faster. Adds Owen: “Having a well-known
brand puts you on the top of consumers’ list of
companies when they consider shopping for
car insurance.” — S.H.
Commerce With the Wave of a Phone
Imagine walking by an ad for a sports team and
being able to purchase tickets on the spot.
Touchatag, an Antwerp, Belgium-based unit of
ALCATEL-LUCENT (ALU), is a technology venture
seeking to make that happen. Th e venture aims
to make an open interface for the creation of a
wide range of applications for consumers to
access, says Anthony Belpaire, general
manager of Touchatag.
Wave a smartphone at an
ad, and the mobile browser
automatically loads the Website to purchase
tickets or gets a live representative on the line to
take an order, Belpaire explains. With a built-in
radio-frequency identifi cation (RFID) reader or
a 2-D bar-code reader to scan the Touchatag
marker from 1.6 inches away, users can make
purchases, watch related videos or access more
information on the phone, Belpaire says. Some
phones from NOKIA CORP. (NOK), MOTOROLA
INC. (MOT) and KYOCERA CORP. (KYO) come
with built-in RFID readers, and any phone with
a built-in camera and the installed Touchatag
application can scan 2-D bar codes,
Alcatel-Lucent reports. “With a
phone, you can link to a whole set
of contactless applications,” he says.
Belpaire adds that more than
3 million mobile phones in the
U.S. now have the capability to read Touchatag
bar codes, compared with 60 million phones
in Japan. By 2012, he says, more than 40 per-
cent of U.S. mobile phones will have the tech-
nology. — Brian T. Horowitz
FA
CT
OI
D20THE PERCENTAGE O F U. S. H O U S E H O L D S T H AT W E R E W I R E L E S S - O N LY IN 2008, UP FROM 8.4 PERCENT IN 2005, ACCORDING TO THE W IRELESS ASSOC IAT ION FOR THE WIRELESS TELECOMMUNICAT IONS INDUSTRY
Mid-2009 hardly seemed the optimum time to
begin paying dividends, but not for COACH INC.
(COH). Th e luxury retailer initiated a 30¢-per-
share annual dividend in April. “Th e case for
dividends,” says Chairman and CEO Lew
Frankfort, “included attracting new investors,
providing incentive for existing shareholders to
revisit the stock and increasing the attractive-
ness of Coach stock to balanced-fund manag-
ers given the low bond yield environment.”
Frankfort points out that Coach’s stock rose
15 percent on the day of the announcement.
Whereas many companies cut dividends this
year, others, such as FRISCH’S RESTAURANTS INC.
(FRS), which operates Big Boys and Golden
Corrals primarily in the Midwest, maintained
them. “We’ve paid dividends since the day we
went public in 1960,” says Vice President of
fi nance and CFO Donald Walker. “We’ve been
profi table every year during that period and
considered it our duty to continue paying them
once we started.” — Sharon Kahn
I N V E S T O R S
Dividends in a Downturn
T E C H N O L O G Y
THE QUIRKY CHARACTER FLO HELPS MARKET PROGRESSIVE’S
SERVICES.
A TYPICAL ANADARKO PETROLEUM CORP. (APC) NATURAL GAS
WELL PRODUCES AS MUCH ENERGY AS 46 ACRES OF SOLAR PANELS.
MARATHON OIL CORP.’S (MRO) REFINERY EXPANSION IN GARYVILLE, LA.,
ERECTED 1.5 MILLION LINEAR FEET, OR MORE THAN 300 MILES, OF PIPE.
TOUCHATAG’S RFID READER AND MARKERS
NY9.4_p4-7_News.F2.indd 5NY9.4_p4-7_News.F2.indd 5 10/19/09 4:58:34 PM10/19/09 4:58:34 PM
>>U P F R O N T
TO LOCATE HYDROCARBONS OFFSHORE, ION GEOPHYSICAL CORP. (IO) PROVIDES HIGH-END SEISMIC SERVICE PROVIDERS WITH MORE
THAN 100 KM OF CABLES MORE THAN ONE KM WIDE AND 10 KM LONG — RIVALING THE SIZE OF MANHATTAN — TO TOW BEHIND A VESSEL.
CO
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This company started as a single store in San Francisco in 1969. Its first international store opened in London in 1987.
In 2008 it acquired a women’s activewear company.
In celebration of its 40th anniversary this year, the company’s signature product was permit-ted to be worn on the NYSE trading floor for the first time ever.
A L L C L U E S P R O V I D E D B Y T H E C O M PA N Y. S E E A N S W E R AT N Y S E M A G A Z I N E . C O M / C O R P O R AT E I D .
FA
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Innovation Hotel
Replacing a regular lightbulb with a compact
fl uorescent one will cut half a ton of carbon
dioxide from the atmosphere during that bulb’s
life, says David Jerome, senior vice president of
corporate responsibility for global hotel com-
pany INTERCONTINENTAL HOTELS GROUP PLC
(IHG), which reported 2008 revenues of $1.85
billion from property brands that include Holi-
day Inn and Crowne Plaza. Replacing lightbulbs
in its more than 4,200 hotels is just one of the
eff orts IHG says it is exploring in its drive to be
an environmental leader in the tourism industry.
Th e company plans to capture ideas through
Innovation Hotel, a new interactive Website
that lets users suggest how hotels can get more
green and also provide feedback on others’ ideas.
IHG executives review comments from the site,
Jerome says, and make evaluations based on two
key criteria: ROI and customer acceptance. Th e
best ideas will be released to the company’s hotel
owners and managers through a new soft ware
system called Green Engage, explains Jerome.
IHG reports that trials have shown potential
energy savings of up to 25 percent per hotel. If
fully adopted by all IHG hotels, the savings in
annual operational costs could be as much as
$200 million companywide, explains IHG CEO
Andrew Cosslett. “Th e real impact comes from
doing more than just one or two of those things,
and doing them across 4,200 hotels,” he says.
“Th at’s how we’re going to make a real and sus-
tainable impact.” — Rebecca McReynolds
50THE PERCENTAGE BY WHICH A BUILDING’S D A I LY T E M P E R AT U R E FLUCTUAT ION CAN BE REDUCED THROUGH GREEN FACADES S U C H A S C L I M B I N G P L A N T S , A C C O R D I N G TO I N T E R C O N T I N E N TA L H O T E L S G R O U P
S O C I A L R E S P O N S I B I L I T Y
A Customer Connection Money Can’t Buy
“Goodwill comes back in tangible ways,”
insists Kenny Van Zant, senior vice president
and chief product strategist at SOLARWINDS
INC. (SWI). Recognizing that times are tough,
the Austin-based network-management soft -
waremaker, which was the fi ft h IPO on the
U.S. markets this year, implemented a pro-
gram called SLED, which stands for
“state, local, education,” to give away
10,000 copies of the company’s Standard
Toolset specifi cally for government and
educational agencies. “We saw economic
pressure on the public sector and felt we
could help our customers — engineers at
these organizations,” Van Zant says.
Th e Toolset, a $199 retail value, allows an
individual engineer working at a desktop
computer to monitor the health of a small net-
work. Between March and late summer, Solar-
Winds had given away thousands of copies
aft er alerting would-be users via e-mail, Web-
casts and resellers who passed the word along.
“Th e communication campaign was rela-
tively cheap,” notes Van Zant. “Th e bigger price
was opportunity costs — the value of the soft -
ware that we plan to give away.”
Van Zant says the marketing approach intro-
duces new users to the company and
ties in existing ones, some 85,000 cus-
tomers in more than 170 countries who
rely on the company’s soft ware. Solar-
Winds says it hopes that SLED will pro-
vide a customer connection that money
can’t buy. Numerous engineers have signed on
from various state and local agencies, and Van
Zant says he hopes they will remember Solar-
Winds when they want to upgrade or have a
need for the company’s other products. “When
their budgets are restored,” he says, “we hope
they remember us.” — S.K.
S U S T A I N A B I L I T Y
for
way
ard
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FA
CT
OI
D25MILLION THE NUMBER OF MULTIPLE-DWELLING UNITS IN THE U.S. THAT COULD BENEFIT FROM CLEARCURVE FIBER-OPTIC CABLE, WHICH CAN BEND TO 5 MM AND AVOID THE POWER LOSS OF LESS-BENDABLE CABLE, ACCORDING TO CORNING.
Teamwork in Fiber Optics
In an effort to implement an innova-
tive, aff ordable fi ber-optic cable network
across Portugal to meet growing demand,
PORTUGAL TELECOM SGPS SA (PT) says it
began using CORNING INC.’s (GLW) ClearCurve
fi ber-optic cable in its Next Generation Access
fi ber-optic network. Th e deal, made directly
between Portugal Telecom CEO Zeinal Bava
and Corning CEO Wendell P. Weeks, goes
beyond a typical buyer-supplier relationship
because Corning will help with the auditing and
testing of the networks, says Clark Kinlin, presi-
dent and CEO of Corning Cable Systems.
Introduced in 2008, ClearCurve optical fi ber
is hundreds of times more bendable than stan-
dard single-mode fi ber, explains Kinlin. He says
ClearCurve allows Portugal Telecom to install
the cable in tough environments, such as apart-
ment buildings. “You can bend it and staple it in
a forgiving manner, unlike traditional fi ber,” says
Kinlin. Th is, he adds, will help PT reach its goal
of providing fi ber-optic cable to up to 1 million
households in Portugal by the end of the year.
“Portugal Telecom is future-oriented and
can see the value in innovation,” Kinlin says,
adding that ClearCurve will enable delivery of
higher speeds of broadband Internet and higher-
quality HDTV to its subscribers. “Our main
goal is to off er high-quality, cost-competitive
services based on innovative and reliable fi ber-
based solutions,” says Bava. — B.T.H.CO
UR
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When CONMED HEALTHCARE MANAGEMENT INC.
(CONM), a provider of correctional health-
care-management services, listed on NYSE
Amex this summer, the event proved to be a
great milestone in the company’s history,
says Conmed Chairman and CEO Richard
Turner, PhD. Listing on the NYSE family of
exchanges increased the company’s visibil-
ity and the value to its shareholders, he adds,
noting that investors who previously would
not invest in OTC bulletin-board compa-
nies have taken an interest.
Turner believes that having a dedicated
market maker is one reason sophisticated
investors have taken the company more seri-
ously since the transfer. “It was an affi rmation
that the company had migrated from a
startup operation into a larger organization,”
he says, “instilling tremendous pride in all of
our employees.”
Th e transition from the OTC market to
NYSE Amex was smooth, and steps were taken
in an orderly process as Conmed conformed
to the standards of listing on NYSE Amex.
“We got a lot of support from the Exchange
in terms of encouraging us to move through
the process,” says Turner. In celebration of its
transfer, Conmed employees rang Th e Open-
ing BellSM in July.
Conmed is among the fi rst companies to
list on an NYSE exchange under a four-letter
trading symbol. From 1867, companies listed
on the NYSE and NYSE Euronext markets
traded only under one-, two- or three-letter
ticker symbols. — S.H.
CONMED EXECUTIVES RING THE OPENING BELLSM TO CELEBRATE THE COMPANY’S LISTING ON NYSE AMEX.
CHEVRON CORP. (CVX) HAS INSTALLED 125,000 SOLAR PANELS IN
CALIFORNIA, EQUIVALENT TO TAKING 4,500 CARS OFF THE ROAD.
IN 2008 DEVON ENERGY CORP. (DVN) PRODUCED
940 BILLION CUBIC FEET OF NATURAL GAS.
A Smooth Transition
FR
OM
T
HE
T
RA
DI
NG
P
OS
T F I N D I N G L I Q U I D I T Y
Approved NYSE floor brokers better
serve their customers under a rule
provision that allows them to search
for liquidity in additional market-
places. For example, when one of
Armstrong’s customers wanted to
sell a stock that had been delisted
from NYSE, he was able to seam-
lessly represent his customer in
alternative trading venues.
T H E C H A N G E Allows approved NYSE firms to operate full-service trading desks across multiple venues and asset classes, including options, OTC and foreign securities, directly from the NYSE floor
T H E R E A S O N To provide greater customer choice
T H E I M P A C T Nearly 50 percent of NYSE member firms operate in this manner, enriching the execution experience for their customers.
OPEN FLOOR
I CAN ROUTE AND ACCESS LIQUIDITY IN VARIOUS MARKETPLACES WHILE MAINTAINING AN ACTIVE POINT-OF-SALE PRESENCE AT THE NYSE.”
“
PATRICK ARMSTRONGMANAGING DIRECTOR, PRIME EXECUTIONS INC.
C O L L A B O R A T I O N
G O V E R N A N C E
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GAME CHANGER
P E T R O B R A S C E O J O S É S E R G I O G A B R I E L L I D E
A Z E V E D O S A Y S T H E O I L T R A P P E D U N D E R M I L E S O F W A T E R ,
R O C K A N D S A L T O F F T H E C O A S T O F B R A Z I L I S A B O U T T O
T R A N S F O R M T H E C O M P A N Y — A N D T H E C O U N T R Y — I N T O A
W O R L D - C L A S S E N E R G Y L E A D E R .
» B Y S U S A N C A M I N I T I
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» P H O T O G R A P H B Y P A U L O F R I D M A N
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O S É S E R G I O G A B R I E L L I D E
Azevedo, CEO of the state-controlled
Brazilian oil company Petrobras —
PETRÓLEO BRASILEIRO SA (PBR) — is
a deep thinker. He’s obsessed with the
billions of gallons of oil that exist
beneath miles of water, rock and salt
about 180 miles off the coast of Brazil
and how reaching it can change the world.
In New York City to receive an award from
the Brazilian-American Chamber of Commerce,
he devotes his day largely to meetings, inter-
views and a press conference. Each event is
designed to explain the company’s technolog-
ical, fi nancial and political plans for managing
the largest oil discoveries in the Western Hemi-
sphere in more than 25 years.
Before heading off for dinner, Gabrielli, 60, a
tall, strapping fi gure with a closely cropped gray-
ing beard and stylish glasses, talks about leading
Petrobras at a pivotal time in its 56-year history.
“It’s exciting to be CEO at a moment when we’re
about to make a big jump to a new model and
scale worldwide,” he says confi dently. Sure, but
does it make him a bit nervous? His answer
comes without hesitation: “Yes, yes it does.”
Th ese are heady times for Petrobras. Th e pre-
salt oil drilling (so named because the reserves
are trapped beneath thousands of feet of ocean
water and another 16,000 feet of rock and salt)
that the Rio de Janeiro-based company is now
undertaking defi nes the new frontier of ultra-
deepwater exploration, according to Gabrielli.
He adds that it is risky, technologically challeng-
ing and incredibly expensive, but potentially —
and explosively — lucrative. Tupi, which in 2006
became the company’s fi rst pre-salt oil fi eld dis-
covery, contains 5 billion to 8 billion barrels of
oil, Petrobras estimates. Nearby fi elds may con-
tain billions of barrels more. Oil-rich Venezuela,
by comparison, has proven reserves of nearly
100 billion barrels, industry analysts say.
Today, Petrobras — the world’s third largest
oil company by market cap — produces 2.5
million barrels of oil a day, making Brazil self-
sufficient. Petrobras says it operates in 29
countries, including Angola, Argentina,
Bolivia, Colombia, Nigeria and the U.S., where
it has a refi nery in Pasadena, Texas. In addition
to its headline-grabbing pre-salt discoveries,
Petrobras is exploring nearly 260 oil and gas
blocks off the American coast in the Gulf of
Mexico. With more than 100 production plat-
forms and 16 refi neries worldwide, and more
than 6,000 gas stations throughout Brazil,
Petrobras has been “a major player even before
the pre-salt discoveries were made,” says Eric
Smith, a 35-year veteran of the oil and gas
industry and associate director of the Tulane
Energy Institute in New Orleans.
With such a backdrop, Gabrielli believes the
company’s pre-salt fi nds will put Petrobras in a
new league. Th e CEO estimates that by 2020, the
pre-salt discoveries could boost the company’s
production to up to more than 5 million barrels
a day, putting Petrobras on par with EXXON
MOBIL CORP. (XOM), the world’s largest inde-
pendent oil company, and enabling Brazil to
become a major oil exporter. Says Judson
Jacobs, director of upstream technology for
IHS Cambridge Energy Research Associates:
“Th e volume of reserves Petrobras has cited
would have a signifi cant impact on the global oil
capacity.” Adds Smith: “Th ere’s no question.
Petrobras’ pre-salt discovery is a game changer.”
Dialing up the pressure is the fact that the
Brazilian government owns about 40 percent
of Petrobras stock (including shares owned by
the Brazilian Development Bank), accord-
ing to the company, and is currently draft ing
new exploration and production legislation
that could give it a distinct advantage over
competitors for future drilling rights in the
pre-salt region. If the government has its way,
Petrobras will be the lead operator for the more
than 60 percent of the new deepwater blocks
that haven’t been bid out yet. While that might
seem to put the company in an enviable posi-
tion, experts say, such a move does not come
without a price.
“Petrobras is a well-run company that bene-
fi ts from competition and stirs innovation and
effi ciencies,” says Christopher Garman, director
of Latin America for the Eurasia Group, a global
political risk research and consulting fi rm. “Th e
risk is that if Petrobras gets favorable treatment
in acquiring new reserves in the pre-salt region,
it may be susceptible to growing political pres-
sure over its investment decisions and become
increasingly overstretched in a manner that
could make it susceptible to cost overruns and
thus less able to invest heavily abroad.” During
the next fi ve years, Petrobras offi cials say, just
$16 billion — a fraction of its $174 billion capital
expenditure budget — is earmarked for expand-
ing its operations outside Brazil.
A TRICKLE OF OILo fully appreciate the position Petrobras
fi nds itself in today, one must look back
at its humble beginnings. When the
company was formed in 1953, “we
didn’t really have any oil,” explains Gabrielli,
who joined Petrobras in 2003 and was named
CEO two years later. “You have to remember,
most state oil companies are created because
the country already has oil that needs to be
developed. In the beginning, we produced CO
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T H E C E O E S T I M A T E S T H A T
B Y 2 0 2 0 P E T R O B R A S C O U L D
B O O S T I T S P R O D U C T I O N T O
U P T O M O R E T H A N 5 M I L L I O N
B A R R E L S A D A Y , P U T T I N G
I T O N P A R W I T H E X X O N M O B I L .
PETROBRAS OPERATES IN 29 COUNTRIES.
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maybe 2,000 barrels per day, a fraction of the
country’s needs.”
Still, the CEO says, the company’s mandate in
those early years was clear: Provide oil to Brazil.
“So we developed our capacity,” Gabrielli says.
Th e challenge for Petrobras, however, was that
unlike countries such as Mexico, where much of
the oil was in shallow water, Brazil had oil pri-
marily in deep water way off shore. “We didn’t
have much of a choice,” Gabrielli explains. “We
had to develop our own engineers and get the
best equipment and information, because drill-
ing in deep water is not easy.”
To gain access to the technological know-
how and talent it needed, Petrobras started
Cenpes, a research-and-development center,
which, according to the company, is now the
largest technology R&D facility in South Amer-
ica. Cenpes is home to more than 200 PhDs,
many of whom have decades of experience drill-
ing in deep water. According to the company, the
center also has joint-venture contracts and
research agreements with more than 100 Bra-
zilian universities and research centers and more
than 70 international institutions. In the late
1970s, Gabrielli says, Petrobras discovered its
fi rst deepwater oil reserves off the coast of Brazil
in water just over 400 feet deep. “Deep then,” he
says with a laugh, “but not compared with now.”
Th is sort of organic learning has become the
Petrobras way, explains CFO Almir Barbassa,
who joined the company in 1974. “We’re always
adding new knowledge about deep-water explo-
ration. Deep water is the place where the largest
oil fi elds are, and we have the expertise to deal
with this kind of environment.”
Finding oil in such depths is just one piece of
the puzzle. Getting it up to the surface is another,
explains José Jorge de Moraes Jr., executive man-
ager of exploration and production. (See “Making
a Splash,” right.) “We have to fi gure out how the
oil will react,” he says. “What deposits are there?
What will happen when the oil has to face the
lower temperatures at the bottom of the ocean?
We have to acquire a lot of information before
we can produce on a large scale.” Th ose chal-
lenges notwithstanding, Smith of the Tulane
Energy Institute says that if any oil company can CO
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FROM A DISTANCE, the drilling platforms that
sit 180 miles off the coast of Brazil look almost
like a kid’s Erector set. But at a price of $1.5
billion to build — and with the need for about
40 of them — these rigs aren’t child’s play.
To get to the oil that’s buried deep beneath
the earth’s crust, Petrobras Exploration and
Production Executive Manager José Jorge de
Moraes Jr. explains that a drill shoots straight
down from the rig through more then a mile
of water. Once it hits the ocean floor, it drills
through another 3 miles of rock and salt. “Salt
is not stable rock,” he observes. “We do a lot
of testing to figure out the right speed and
weight of the drills to use.” Still, Moraes says,
the real challenge is the sea. “Oil is always
connected to salt, so this part isn’t new,” he
notes. “The challenge is how to drill through
2,000 meters of water and the pressure on
the equipment at that depth.”
Petrobras is getting the hang of it. Moraes
says it took the company 170 days to drill
the first pre-salt well. These days it takes
anywhere from 60 to 70 days to drill. “Our
goal,” he explains, “is to drill a well in 50 days
for $50 million.”
MAKING A SPLASHH O W D O Y O U E X T R A C T O I L F R O M
M I L E S B E L O W T H E O C E A N F L O O R ?
V E R Y C A R E F U L L Y .
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overcome these hurdles, it’s Petrobras: “It has
been a pioneer in deepwater exploration, and it’s
world-class in its technology.”
NEW COMPETITION
razilian lawmakers ended the monopoly
Petrobras had on drilling and allowed
outside companies to bid and develop
leases off its coast in 1997. “We have to
compete with other companies now,”
Gabrielli says plainly. ExxonMobil, ROYAL
DUTCH SHELL PLC (RDS), CHEVRON CORP. (CVX)
and BG Group PLC are all drilling off the
coast of Brazil, sometimes on their own but
often in partnership with Petrobras. “These
companies are very happy with Brazil,” says
Smith, “because the government has been wise
enough to recognize the important role that the
oil and gas industry plays in the development of
the economy and to acknowledge the benefi ts of
bringing in new ideas and technologies from
other oil companies. Brazil hasn᾿t made it diffi -
cult for outsiders to do business there.” New laws
being considered, to increase the government’s
“take” from the pre-salt region, could change
that, of course, Smith says. Also, the push by the
government to get the deepwater oil developed
quickly so that Brazil can benefit from this
potential royalty bonanza puts additional pres-
sure on Petrobras, he says. At the same time,
adds Eurasia Group’s Garman, “government
offi cials recognize that private investments will
play a key role” in developing the pre-salt region.
Indeed, analysts estimate that it will take nearly
$600 billion to develop those fi elds.
Brazil loosened its ownership ties to Petrobras
in 2000 when the company began trading on the
New York Stock Exchange. To expand the com-
pany’s reach, explains Gabrielli, the government
realized it needed to end its national monopoly
and enable outside investors and competitors to
play a role. With new stakeholders, a new empha-
sis on profi ts and growth, and competitive pres-
sure for the fi rst time, the CEO says, Petrobras
has been able to double oil production and
increase its reserves by more than 75 percent.
To be sure, Petrobras’ $118 billion 2008
sales are still dwarfed by industry giants Royal
Dutch Shell ($458 billion), ExxonMobil ($443
billion) and BP PLC (BP) ($367 billion), but with
the government still owning 40 percent of the
company — and controlling 56 percent of the
voting rights — Smith nevertheless calls Petro-
bras “a user-friendly national oil company
[NOC] to outsiders.” Adds Smith: “It’s just easier
to do business with Petrobras than with other
NOCs, such as those in Venezuela, Mexico,
Russia or even Saudi Arabia.”
A TURNING POINT
hile Gabrielli leads Petrobras through
these remarkable times, he’s no doubt
reminded of another turbulent period
in the company’s past. In 2000, Petrobras had
two giant oil spills in Brazil — nearly 1.5 mil-
lion gallons in total — and paid $150 million in
fi nes for the resulting environmental damage.
A year later, a huge explosion on one of its off -
shore oil rigs killed 11 employees and caused
the $350 million platform, along with the
company’s reputation, to sink. Gabrielli has
described the events as “environmentally dev-
astating, alarming to investors, harmful to the
bottom line, bad for the company’s image and
demoralizing for employees and all Brazilians.”
Restoring the company’s reputation required
some big thinking and quick action. Th en-CEO
Philippe Reichstul created a director-level posi-
tion for health, safety and the environment. In
addition, Petrobras started the Program for
Excellence in Environmental and Operational
Safety Management (PEGASO) and dedicated
$4 billion to more than 4,000 internal programs
and projects designed to prevent accidents.
By the time Gabrielli joined the company in
2003 as director of fi nance and investor rela-
tions, the changes had begun paying dividends.
Today Petrobras is a member of both the World
Business Council for Sustainable Development
and the United Nations Global Compact, a
social and environmental policy program. Th e
company has been listed on the Dow Jones
Sustainability Index for the past four years.
And in 2008, Petrobras was ranked No. 1
among the world’s oil and gas companies for
sustainability by the research and rating fi rm
Management & Excellence SA.
Gabrielli acknowledges that Petrobras’ new
sustainability ethos mirrors many of his own
beliefs. During his teenage years in Brazil, the
country was under a military dictatorship.
Gabrielli describes himself as “militant” in his
opposition and says he became such an activist
in the 1960s that he was arrested by the army
and spent six months in jail for his protests.
Following his release, Gabrielli says, he took
up with local academics and Luiz Inácio Lula
da Silva, then a union leader and now Brazil’s
president. In 1980, Gabrielli and Silva helped
start the Workers’ Party, the controlling
political party of the current Brazilian gov-
ernment. Not long aft erward, Gabrielli began
teaching macroeconomics at the Federal
University of Bahia. In 1987 he earned his
PhD in economics from Boston University.
Upon returning to Brazil, he taught again at
W
B
PRE-SALT AREA
T H E C O M P A N Y R E C E N T L Y
A N N O U N C E D A $ 1 74 B I L L I O N
C A P I T A L E X P E N D I T U R E P L A N ,
$ 3 0 B I L L I O N O F W H I C H W I L L
G O T O W A R D F I N A N C I N G
T H E P R E - S A L T D I S C O V E R I E S .
CO
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Bahia and was named director of its eco-
nomics sciences school in 1996.
Gabrielli says it was his research and teach-
ing that led him to believe that business has the
responsibility and the power to drive social
improvement. “A company can’t survive with-
out good relationships with its employees, its
supply chain, the community in which it does
business and its shareholders,” he says. “Some-
times keeping everyone happy is a balancing
act, but it can be done, and businesses have a
responsibility to achieve this.”
Th e chief also feels that Petrobras, as Brazil’s
largest company (with a market cap of $190 bil-
lion), has a responsibility to raise the bar with its
suppliers. In 2008 approximately 70 percent of
the $50 billion Petrobras spent on goods and
services went to about 4,000 Brazilian suppliers,
according to the company. Beyond meeting
basic fi nancial, legal and technical requirements,
suppliers are scored on how well they do on
environmental, health and safety measures. Th e
higher a supplier’s score, the more business it
will get from Petrobras, explains Gabrielli.
THE FUTURE
iven the amounts that Petrobras will
be spending over the next fi ve years,
suppliers would be wise to pay
attention. The company recently
announced a massive $174 billion
capital expenditure plan that will
include $104 billion in exploration and pro-
duction activities, $30 billion of which will
go toward fi nancing the pre-salt discoveries.
CFO Barbassa estimates that the company’s
net cash fl ow between 2009 and 2013 will be
around $150 billion based on oil at $37 to $66
a barrel, near its lowest level in late 2008. If
the price goes up by just $1 (at press time, oil
was trading at about $69 a barrel), Petrobras
stands to gain $500 million more in revenue,
Bar bassa explains. An added financial cush-
ion is a $10 billion loan signed earlier this
year with the Chinese Development Bank,
according to the company. In addition,
Gabrielli says Petrobras signed a separate
export agreement with CHINA PETROLEUM &
CHEMICAL CORP. (SNP), or Sinopec Corp., to
supply China with 200,000 barrels of oil a
day for the next 10 years.
During the next fi ve years, Petrobras is also
earmarking nearly $3 billion for biofuels.
Gabrielli says he is keenly aware that while
eliminating accidents and minimizing the
environmental impact of the company’s opera-
tions are admirable goals, they don’t eliminate
the amount of carbon its products release into
the atmosphere. Among the projects being
developed at the Cenpes research center are
second-generation biofuels, including ethanol,
that can be produced from agribusiness waste.
Th e pre-salt discoveries have the potential
to change the trajectory of Petrobras — and
Brazil — for decades to come. But while the
upside opportunities are tremendous, the risks
are equally large, observers say. To start with,
not every well in the pre-salt region will pro-
duce oil, despite the company’s technological
expertise. Recently, Gabrielli issued statements
saying that it is impossible to have a 100 per-
cent success rate in its pre-salt drilling.
How the potential fi nancial windfall might
be used by Brazil is another area of concern.
Eurasia’s Garman says the government “has
shown a good level of maturity” in considering a
“social responsibility” fund for the proceeds
from the pre-salt discoveries. According to
Eurasia Group, Brazil’s president has repeatedly
stated that the country should save the pre-salt
oil revenues and use them to address its social
issues, particularly health care and education,
rather than fund current expenses. “[Brazil has]
wisely recognized the perils of depending too
heavily today on the revenue that comes from its
natural resources, from its oil,” says Garman.
Despite the risks — and even in the face of
a still tenuous global fi nancial recovery —
Gabrielli remains upbeat. “Th is company right
now has a very bright future ahead of it,” the
chief says. “And in the coming years, we are
going to be one of the top fi ve energy compa-
nies in the world.” But fi rst, there’s today.
Read how Petrobras has increased its shareholders by
40 percent at nysemagazine.com/petrobras.
JUST THE FACTSF O UN D ED As a state-owned oil company in 1953
HEADQUARTERS Rio de Janeiro
2008 SALES $118.3 billion
2008 NET INCOME $18.9 billion
EM P L OY EE S 74,240
O P ER AT I O NS More than 100 production
platforms and 16 refi neries worldwide, and more
than 6,000 gas stations in Brazil
HEAD OF THE CL ASS President and CEO José
Sergio Gabrielli de Azevedo is a professor on leave
from Brazil’s Federal University of Bahia.
G
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N A R O L L
N E W C E O G R E G W A S S O N I S
R E - E N G I N E E R I N G C E N T U R Y - O L D W A L G R E E N S A S A
O
» PHOTOGRAPHS
BY KEVIN
J. MIYA Z AKI
»
ANNE SMITH’S EIGHT-YEAR-OLD SON has had a sore throat, headache and
sporadic fever for several days. She thinks he should go to the doctor,
but the cost, combined with her inability to take time off work to bring
him, forces her to keep him home. Instead, after work, Smith takes him to Wal-
greens — not just for pain medicine, orange juice and throat lozenges but also for a
visit to the in-store Take Care Clinic.
She signs in at an electronic kiosk, the kind airlines use for letting you get your own
boarding pass. She types in her son’s name and date of birth and checks off his symp-
toms. A menu of prices for a medical consultation appears before she presses “con-
tinue,” so the bill yields no surprises. Ten minutes later, a nurse practitioner does a
screening, and within 15 minutes, the boy is diagnosed with a sinus infection. A record
of the visit is stored and a prescription is sent electronically to the patient’s choice of
pharmacy — typically the one just steps away inside Walgreens. The Smiths pay $59 for
the exam, $12 for a generic antibiotic, and they’re on the way home in under an hour.
These clinics may be the most conve-
nient way to get medical care since the
house call — only more affordable and
available to anyone, with or without insur-
ance, with or without a primary-care physi-
cian, says Greg Wasson, WALGREEN CO.
(WAG) president and CEO. He says thou-
sands of scenarios like this have taken
place every day since Walgreens rolled out
its Take Care Clinics across the U.S. in
2007, when it acquired Take Care Health
Sys tems, a company launched in 2004
by Hal Rosenbluth, now president of
Wal greens’ Health and Wellness division.
» B Y J U L I E
M O L I N E
R E S O U R C E F O R A L L H E A L T H N E E D S .
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AFTER 12 YEARS AS A MANAGER, CEO GREG WASSON IS AT HOME IN THE AISLES OF A RETAIL STORE.
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Walgreens, which now has more than 340 Take Care Clinics
around the country, in 35 markets and 19 states, sees them not
only as profi t drivers, says Wasson, but also as a way to off er a
complete package of health and wellness — plus pharmacy —
services directly to its customers.
With 6,996 retail centers in all 50 states, Washington, D.C.
and Puerto Rico — as well as an online store, mail-in pre-
scription and specialty pharmacy services, home-health-care
and health-care-plan administration — Walgreens generated
$63.3 billion in fi scal 2009 sales, according to the company.
Branching into health and wellness services is a marked
shift in strategy for the drugstore chain that Charles R.
Walgreen founded in 1901, in Chicago. Historically the
company has been recognized for its intense focus on
growing earnings through the expansion of its network of
18
brick-and-mortar stores. Th is helped Walgreens
achieve 34 consecutive years of record sales and
earnings, a feat accomplished by only one other
major U.S. corporation: WAL-MART STORES INC.
(WMT). From 2006 to 2008, Walgreens opened
more than 500 new stores per year — or, as Wasson puts it, “A new Walgreens
opened every 17 hours.”
Th e in-store clinics are top of mind for Wasson, especially now that health
care is dominating social and political discussions. Wasson comes by his passion
for pharmacies naturally: Two of his uncles owned small-town drugstores. Th e
CEO, who interned at Walgreens while still in pharmacy school, managed stores
for 12 years aft er he got out of school. His experience on the front lines of the
retail chain informed his support for the Take Care Clinics as a way to make
Walgreens a major player in the development of a “more comprehensive, less
fragmented health-care system.”
Because hospitals by law can’t turn away patients, many uninsured citizens use
emergency rooms as de facto doctors’ offi ces, putting a massive fi nancial strain
on hospitals and the municipalities and taxpayers that fund them, Wasson
explains. “Health care costs too much and doesn’t reach enough people,” he says.
“Private-sector clinics like ours go a long way toward solving these complex
health-care issues, even without a major change in government policy.” Wasson,
who at 50 seems younger, thanks in part to a love of outdoor sports, sums it up
in sportsmen’s terms: “Take Care Clinics hit the trifecta. Th ey benefi t the patient,
they benefi t the community, and they benefi t Walgreens.”
18
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N UF E DSIOST PRESCRIPTION DRUGS ARE TAKEN ORALLY OR THROUGH A
transdermal patch. But many drugs that treat chronic diseases such as
multiple sclerosis, rheumatoid arthritis and some cancers must be injected
or infused. That specialty is the industry’s fastest-growing segment, making up 20 per-
cent to 25 percent of the pharmacy market, says Stanley Blaylock, president of Walgreens
Health Services. And the trend is growing: 80 percent of products awaiting FDA approval
in 2008 were specialty drugs, according to research fi rm IMS HEALTH INC. (RX).
Walgreens is aggressively seizing the opportunity, building market share through the
acquisition of MedMark in 2003, OptionCare in 2007 and MCKESSON CORP. (MCK) in
2008. Blaylock says the McKesson deal expanded Walgreens’ national reach and access
to managed-care payers, turning it into the largest specialty pharmacy independent of
the major pharmacy benefi t managers (PBMs). The company can now deliver patient
care and services through its fulfi llment centers and the 7,000 electronically linked
pharmacies. The pharmacies can then fi ll prescriptions for infused or injected drugs,
coordinate insurance benefi ts or even provide individualized therapy management and
clinical support. “[We deliver] services around delivering the drug, wherever that may
take place — at a person’s home, a physician’s
offi ce, an ambulatory treatment center or a clinic,”
Blaylock says. “If a drug can be self-administered,
Walgreens can train patients on how to do it ... We
have nearly 1,000 nurses, usually RNs with spe-
cialty IV training, on staff to provide that care.
“This is what I call a hard business. Still,
what’s attractive to us is that this segment is
growing fast and is very complementary to our
core retail pharmacies.”
It’s easy for the managed-care industry to see
the benefi ts of Walgreens’ program. “Our patient
compliance rate is in the low to mid 90s,” Blaylock
says, “which is extraordinarily high. That’s good
for patients, and it’s good for the health-care
system overall.”
W A L G R E E N S O P E N E D M O R E T H A N 5 0 0
S T O R E S P E R Y E A R — O R , A S W A S S O N P U T S I T , “ A N E W
W A L G R E E N S O P E N E D E V E R Y 17 H O U R S . ”
W I T HP O S S I B I L I T Y
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All of which is why the company, under Wasson, has launched what it calls
the most crucial and dramatic strategic re-engineering in its history. His top
three objectives: “control expenses, sharpen store operations and diversify the
business model.”
To achieve those goals, Wasson has quietly assembled a leadership team that
has new hires in key positions in fi nance, sales and marketing. Th e company’s fi rst-
ever chief marketing offi cer, Kim Feil, and Bryan Pugh, vice president of merchan-
dising, came from outside the company. Rosenbluth and Stanley Blaylock, senior
vice president of Walgreens and president of WHS — Walgreens Health Services,
the company’s managed-care division — are from acquired companies. Both of
them bring what Wasson characterizes as an “entrepreneurial and oft en iconoclas-
tic” approach to the table.
Expense control has resulted in slimming down at the top, including the shed-
ding of nearly 1,000 jobs through a combination of voluntary buyouts and layoff s.
Th ose and other productivity moves are expected to save $1 billion a year starting
in fi scal 2011, according to the company.
Additional savings come from focusing more on growing revenue and getting
more from existing store locations. Last October the company dropped its bid for
Longs Drug Stores, the 521-location chain. Annual new store growth during the
next two years is expected to drop from 9 percent to between 2.5 percent and 3 percent.
Investment has been redirected toward improving effi ciencies, says Wasson, par-
ticularly through “better sourcing and productivity.”
Th e order of benefi ciaries is telling. Although Wasson is
intent on increasing shareholder value, his colleagues say
that he still has the heart of a health-care professional who
puts patient care at the top of his priorities. He’s known as a
quiet, eff ective leader, a fi erce proponent of promoting from
within and a tireless advocate of community service.
(Besides serving on the board of directors for the National
Association of Chain Drug Stores and the Retail Industry
Leaders Association, he is co-chair of 2009 Chicago fund-
raisers for the American Heart Association and the American
Cancer Society.)
Wasson joined the company in 1980 as a pharmacy intern
while a student at Purdue University; he managed several
Houston drugstores before moving up the ranks in opera-
tions, becoming a regional vice president of store operations
in 1999. He then held several executive positions at Walgreens
Health Services, the company’s managed-care subsidiary that
includes a pharmacy benefi t manager (PBM), before being
named executive vice president in 2005, then president in
2007. He took over as CEO in February 2009.
NEW CATALYSTS, NEW DIRECTION
f “location, location, location” is the man-
tra of the real estate trade, Walgreens is in
retail nirvana. According to Wasson, nearly
three-quarters of the U.S. population lives
within fi ve miles of a Walgreens, the com-
pany has more 24-hour stores than all of its competitors
combined, and one out of every fi ve prescriptions written in
the U.S. is fi lled at a Walgreens.
Even so, the market penetration that the company’s break-
neck growth engendered was bound to slow at some point,
and Walgreens hit the brakes as the economy plunged last
year. “As a company, we are very, very good at expansion,”
Wasson says, “but in an economic downturn, we knew we
couldn’t rely on new store openings to propel growth.”
Sales growth rose at the slowest pace in 18 years, accord-
ing to analysts. But, Wasson adds, other pressures were evi-
dent even before the downturn. Industry consolidation
tightened competition. Th e growth of mail-order prescrip-
tion fulfi llment is up signifi cantly, now totaling about 15 per-
cent of all prescriptions, driven heavily by PBMs, he says.
PBMs pose a complex challenge because they are sometimes
competitors of Walgreens and sometimes clients, he points
out. In any case, when a patient fi lls a prescription by mail, he
or she is skipping a visit to a store, where sundries, groceries
and various impulse buys can be picked up as well. Walgreens,
Wasson says, needs to stay relevant by “giving consumers a
compelling reason to visit our stores.”
KIM FEIL, THE COMPANY’S FIRST-EVER CMO, AIMS TO MAKE IT A TRUSTED RESOURCE FOR WELLNESS.
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One productivity-based initiative is to transform the way
community pharmacy is practiced, Wasson explains. Part of the
eff ort involves a new pharmacy model, which transfers most
administrative work to a central location. As well, roughly a third
of each pharmacy’s refi ll prescription orders are fi lled at the cen-
tral facility, Wasson says. (Th e call center is staff ed with pharma-
cists, who can also answer patient questions.) Wasson says the
benefi ts to increased effi ciency aren’t just better margins but also
“more time for the pharmacist to interact with the patient.” Th e
new model was rolled out in phases earlier this year, and all 800
Florida stores are online, according to the company. Th e model
is currently being implemented in Arizona.
REVAMPED STORES
he company expects to save money through
energy management, Wasson says. He adds
that green building techniques at Walgreens
now involve roughly 100 diff erent environ-
mental projects running concurrently, some
in conjunction with GENERAL ELECTRIC CO. (GE). Th at partner-
ship, which began with developing energy-effi cient lighting
for stores, dates back to 1968, according to both companies.
Fluorescent ceiling lights alone save $5.7 million a year in
energy costs, Walgreens says. Solar energy now provides 20
percent of the electricity needs in 52 Walgreens stores and two
distribution centers, and LEDs illuminate store refrigerators. In
May the fi rst Walgreens with a green roof — one planted with
heat- and water-absorbing plants, reducing both heating costs
and water runoff — opened in Chicago. Meanwhile, other
environmentally friendly policies — reduced water consump-
tion, more recycling of construction waste, designated parking
for energy-effi cient cars, and bike racks for customers and
workers — all contributed to Walgreens’ selection to partici-
pate in a pilot program run by the U.S. Green Building Council
to help develop environmental standards for retail construc-
tion, the company says. Walgreens is the only drugstore chain
among 70 retailers in the program, according to the Council. (See nysemagazine
.com/walgreens for more on the program.)
As these new corporate initiatives are put in place, one element of the busi-
ness remains paramount: the customer experience. CMO Feil, a former marketing
chief for SARA LEE CORP.’s (SLE) North American division, joined Walgreens in
2008. Her primary focus: “I want to see us elevate the Walgreens brand to not just
become an absolutely trusted corner store but to be consumers’ fi rst choice for
health and personal wellness.” And Vice President of Merchandising Pugh, who
spearheaded Wal-Mart’s global strategy before helping bring Tesco’s Fresh & Easy
initiative into North America, is helping to sharpen Walgreens’ competitiveness in
grocery retailing. He joined the company in January.
Adding new and diff erent food items to its inventory is important to Walgreens.
According to Pugh, the goal is to make Walgreens a trusted source for the items you
need between big-grocery-store runs. It’s all part of a more universal eff ort to “better
match merchandise to consumer preferences,” as Feil puts it. Pugh is leading the com-
pany’s consumer-centric retailing project, which will determine the right merchandise
mix and improve the customer experience.
Cross-category teams, whose members come from marketing, operations and
sales, spent more than 1 million hours revamping product off erings, reducing by
15 percent to 20 percent the average number of SKUs, or units per store, down from
a high of about 25,000. Th e resulting stock, with fewer redundant or slow-moving
items, will “better refl ect local tastes and create more of an exciting shopper expe-
rience,” Pugh says. Th e goal is to boost the average number of items in shopping
baskets from the current average of 3.1, he says. To bolster its commitment to the
health of consumers, he notes, the company is trying to provide healthier options,
even adding items like sugar-free Glucerna, aimed at people with diabetes.
Th e physical attributes of the stores are also being improved, Pugh says. “Shelves
are lower, signage and fl ow are better, and merchandise is being presented by
theme rather than category.” All baby items, for instance, are now in a consolidated
baby-care section; all tooth-whitening products, whether toothpaste, mouthwash
or whitening strips, are shelved together. Some items are now clustered according
to purchase frequency rather than type. New this year is the “aff ordable essentials”
section, a display of 12 of the most frequently purchased items — for example,
laundry detergent, facial tissue, shampoo and over-the-counter painkillers. One
product per category is off ered, from a supplier such as PROCTER & GAMBLE CO.
(PG) or JOHNSON & JOHNSON (JNJ), or Walgreens’ store brand, at a competitive price.
“It’s an important program,” Feil says, “because we traditionally relied on somewhat
complicated value messages and tools, and we recognize that the consumers want us
to be more immediate. So there’s no coupon clipping, no rebates, no having to look
in the Sunday circular.” Th e results? Feil says 41 percent of customers shopping this
section have added an item to their basket.
Th e company is courting value-conscious customers another way: through the
Prescription Savings Club Card. Launched in 2007, it off ers deep discounts on
roughly 5,000 brand-name prescription drugs and 400 generics, competing eff ec-
tively with discount drug programs off ered by Wal-Mart and Target. In the two years
since the Prescription Savings Club Card was introduced, it has drawn nearly 2 mil-
lion members, according to WHS President Blaylock, who adds that the ranks con-
tinue to grow, as virtually everyone needs a prescription at one time or another and
is looking for a price break nowadays. “Th e market potential is huge, given that there
T
J U S T T H E FAC T S
F O UN D ED In 1901 by Charles R. Walgreen, in Chicago
HE A D Q UA R T ERS Deerfi eld, Ill.
2008 SALES $59 billion
2008 NET INCOME $2.2 billion
EM P L OY EE S 237,000
RE TA IL S T O RE S 6,996 (1,591 are drive-throughs)
M O S T P O P UL AT ED S TAT E Florida, with 800 Walgreens
I ’ LL D RIN K T O TH AT The company claims to have invented
the malted milk shake, in 1922.
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ment with CATERPILLAR INC. (CAT) to provide proprietary,
transparent pricing for prescriptions fi lled by employees un-
der the company’s drug benefi t plan.
The corporate on-site clinics and pharmacies are a natu-
ral fit for Walgreens, says Rosenbluth, who sold his travel-
management fi rm Rosenbluth International for an undisclosed
sum to AMERICAN EXPRESS CO. (AXP) in 2003. A self-described
“policy wonk” and a passionate supporter of corporate social
responsibility, Rosenbluth says that “the chance to build out
this part of Walgreens was too intriguing to pass up.”
What’s more, he adds, “it’s a winning scenario. Running the
clinics is a profi table, steady source of revenue for us; corpora-
tions are turning to them to lower their costs of health care, off er
employees a perk and give them the chance to help direct their
own health maintenance. Th ese things have been proven time
and again to increase effi ciency, boost morale and lower absen-
teeism. But it’s also a way to channel consumers to other areas of
the company — front-end sales both at the retail store and from
the sale of prescriptions.”
GREG WASSONPresident and CEOWALGREEN CO.
IN MYOWN WORDS >> Worst job ever It’s a tie. One was having to cut
fi rewood with a buzz saw for days on end. And I don’t think anyone has worked until they’ve baled hay.
>> The work story I fi nd myself telling most often at cocktail parties When I opened the fi rst Walgreens in Las Vegas in 1996. I’d been a district manager for 12 years, so management knew I was bringing some experience, and they gave me enough rein to open Las Vegas. That became our No. 1 new market ever. It was one of the most enjoyable parts of my career because I was empow-ered by a VP who believed in me. I tell the story not to brag about my accomplishment but to encourage managers to match the right people to
the right opportunity — to not constrict or restrict what stars in the making do.
>> Favorite hobby Water sports — waterskiing and
boating in particular.
>> Scariest moment When my daughters were young, I thought we’d have a Gilligan’s Island experience on Lake Mead. While living in Las Vegas, I had bought a deck boat, and one weekend we camped out on an island. But in the middle of the night, a monster storm came up, with high winds and eight-foot waves. I threw the kids and the dog on the boat and got out of there. I was very glad I’d taken a Coast Guard safety class — the walls of water were like cliffs.
are 47 million uninsured people in this country,” he says, “and that’s not counting
the millions of underinsured with big out-of-pocket expenses.” About a third of new
club members have never fi lled a prescription at Walgreens before, he adds, “so the
card has been a nice marketing vehicle. If we can
capture them as pharmacy patients, they’re more
likely to come into the store for other things.”
As customer-relationship initiatives continue,
Walgreens is working on ways to forge stronger ties
with vendors as well, Feil says. New retail marketing
teams have been created to work with supplier merchandise managers to develop all
sorts of marketing and merchandising programs, national and otherwise. In spring
2010, a partnership with MARVEL ENTERTAINMENT INC. (MVL) will bring a direct-to-
retail merchandise program involving classic characters (Spider-Man, Iron Man, the
Hulk) on toys, pet products, furniture and novelty candy, all exclusively for Walgreens.
For smaller vendors, such as NutraBella, which produces nutritional food and drink
products for pregnant women, the partnership is more modest: Customers buying
prenatal vitamins are given coupons for NutraBella products, according to Feil.
BRINGING THE PHARMACY TO THE PATIENT
algreens’ re-engineering isn’t just about products; it’s also
about services, whether they’re delivered at an in-store clinic,
a medical building, a customer’s home or the workplace. Th e
company says its Health and Wellness division is the largest
operator of worksite health centers and pharmacies in the
country. Walgreens reports that it operated 370 clinics on or near employer cam-
puses by the end of fi scal 2009, including those of CAPITAL ONE FINANCIAL CORP.
(COF), CONTINENTAL AIRLINES INC. (CAL), GOODYEAR TIRE & RUBBER CO. (GT), RIO
TINTO PLC (RTP), SPRINT NEXTEL CORP. (S) and WALT DISNEY CO. (DIS). On off er is a
list of services that includes primary care, acute care, wellness programs, disease
management and on-site pharmacies, according to Rosenbluth.
Th e on-site clinics are built according to a client’s specifi cations, says Rosen-
bluth. Th ey are linked electronically to the rest of the Walgreens network, so all
employees, no matter where they work, plus their dependents can be treated at a
Walgreens Take Care Clinic. In addition, Walgreens is working directly with em-
ployers to control prescription drug costs. Walgreens recently signed an agree-
W
A S C U S T O M E R - R E L AT I O N S H I P I N I T I AT I V E S
C O N T I N U E , W A L G R E E N S I S W O R K I N G O N W A Y S T O F O R G E
S T R O N G E R T I E S W I T H V E N D O R S .
To read about Walgreens’ work with the U.S. Green Building Council, visit
nysemagazine.com/walgreens.
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SCREEN SHOT: THOMAS J. FALK AT KIMBERLY-CLARK’S INNOVATION DESIGN STUDIO IN NEENAH, WIS.
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23
IMBERLY-CLARK CORP. (KMB) is a study in contrasts.
While it is recognized around the world as a leading
innovator in the consumer-products sector, some of
its top brands, including Scott, Kleenex and Kotex,
date back to the early 1900s. A global company that
operates in 35 countries, Kimberly-Clark has a manage-
ment philosophy of putting consumers and employees fi rst
that never strays too far from its hometown roots in Neenah,
Wis. And with 53,000 employees working in four major
business groups, the company’s future depends on main-
taining and cultivating the entrepreneurial spirit that has
driven its growth for the past 137 years.
Th e challenge of balancing that dichotomy — keeping a
fi rm grasp of Kimberly-Clark’s traditions while constantly
looking for new opportunities in a fast-changing global
economy — rests on the shoulders of Chairman and CEO
Th omas J. Falk. A 26-year Kimberly-Clark veteran and only
the eighth CEO in the company’s history, Falk is the archi-
tect of the company’s Global Business Plan, although the
soft -spoken Midwesterner clarifi es, “I’m one of the builders,
but a lot of us are holding hammers.”
Th e company says its four major business lines are: Personal
Care; Consumer Tissue; K-C Professional and Other, which
produces a broad portfolio of hygiene and safety products for
» P H O T O G R A P H B Y E R I N P A T R I C E O ’ B R I E N
»
Mild-mannered Kimberly-Clark CEO Th omas J. Falk
has the storied paper-products company focused on innovation.
» B Y R E B E C C A M C R E Y N O L D S
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CO
UR
TE
SY
KIM
BE
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Y-C
LA
RK
the away-from-home marketplace; and Health Care, which focuses on
products that can help protect health-care workers and patients in an
acute-care environment. Personal-Care and Consumer Tissue prod-
ucts still accounted for about three-quarters of the company’s nearly $20
bil lion in 2008 revenue, says Falk. But he adds
that the K-C Profes sional and Health Care
segments present opportunities for growth.
BUILDING ON STRENGTHS
very good architect understands
that a design is only as strong as
its foundation, and when Falk
took the helm in 2002, he knew
he had solid footings in place.
When the company’s four founders came
together in 1872 to create a new type of paper
company, they agreed on four basic tenets:
to manufacture the best possible products;
to serve customers well and deal fairly to
gain their confi dence and good will; to deal
fairly with employees; and to expand capac-
ity as demand for product justifi ed, fi nanc-
ing that expansion out of earnings.
Although none of these seems particu-
larly groundbreaking today, each was a dra-
matic departure from business as usual in
the 19th century. For example, whereas other
paper mills were churning out products as
cheaply as possible, Kimberly, Clark & Co.,
as the company was then known, built the
fi rst mill in Wisconsin to make a new, higher-
quality newsprint made entirely out of linen and cotton rags. Th e
founders were betting that customers would pay a premium for better
quality. Today, with top brands such as Kleenex, Scott, Huggies, Pull-
Ups, Kotex and Depend, Kimberly-Clark holds the No. 1 or No. 2 mar-
ket share position in more than 80 countries, says Falk.
Using cash fl ow instead of debt to fi nance expansion has helped the
company weather every economic downturn of the past century, notes
the CEO, including the Great Depression and the current recession.
Despite the latest downturn, Kimberly-Clark’s strong cash flow
allowed the company to repurchase $625 million worth of stock in
2008 to return cash generated in the business to its shareholders, the
CEO confi rms, and the company implemented a 3.4 percent divi-
dend increase in 2009, the 37th consecutive
annual increase. “More important,” Falk says,
“when you are a strong company with healthy
cash fl ow, you may get some opportunities
during a recession that you wouldn’t get at
another time.”
He points to the company’s April 2009
acquisition of Jackson Products Inc., a lead-
ing provider of welding safety products, per-
sonal protective equipment and work-zone
safety products. Th e purchase, he explains,
meshed tightly with the company’s strategy
to accelerate growth of high-margin work-
place solutions under the K-C Professional
business line. “Because of the economic down-
turn, we were able to buy it at a more attrac-
tive price,” Falk says.
PLAYING TO WIN
alk’s challenge was to harness the
company’s strengths and channel
them into a leaner, more efficient,
growth-oriented organi zation that
could leverage its size without lim-
iting its fl exibility to compete in a
new global economy. In 2003 he
pulled together the company’s top 100 man-
agers and the board of directors to focus on a new strategic plan for
the company, from the way it manufactures, distributes, promotes and
sells its products to how products are developed. Five key areas of
growth were determined (see box above).
“Th e plan was about deciding where we were going to play, where we
were going to invest and where we were going to win,” Falk says. “As the
retail environment became more competitive, we had to make sure that
we had the right ideas, the right products and the right skill set to drive
1872 Kimberly, Clark & Co. builds the Globe Mill, the fi rst mill in Wisconsin to create newsprint entirely from linen and cotton rags.
1865 Thomas Seymour Scott and Otis H. Ballou start a wholesale paper business in Philadelphia called Ballou & Scott, a forerunner of Scott Paper Co.
1872 Wisconsin businessmen John A. Kimberly, Havilah Babcock, Charles B. Clark and Frank C. Shattuk partner together to begin their new endeavor, Kimberly, Clark & Co.
1874 Scott Paper Co. is founded in Philadelphia by brothers Thomas, Irvin and Clarence Scott and their cousins Thomas Seymour and Zerah Hoyt.
A C E N T U R Y A N D A H A L F OF
I N NOVATION
Strengthening the company’s leader-
ship position in baby/child care, adult
care and family care
Accelerating growth in developing
and emerging markets with a focus on
BRICIT countries (Brazil, Russia,
India, China, Indonesia and Turkey)
Building on the company’s positions
of regional strength in feminine care
Extending Kimberly-Clark Professional
division into higher-margin segments
Expanding Kimberly-Clark Health
Care division globally and adding
higher-margin products
1
2
345
Kimberly-Clark’s Key Growth Areas
NY9.4_p22-27_KC.F2.indd 24NY9.4_p22-27_KC.F2.indd 24 10/19/09 5:04:34 PM10/19/09 5:04:34 PM
CO
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KIM
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our business to meet the needs of our key customers around the world.”
Once the broader initiatives were agreed upon, the team set specifi c
objectives to measure the company’s progress. Falk says those targets
included annual top-line growth of 3 percent to 5 percent and earnings-
per-share growth in the mid-to-high single
digits every year, along with better returns
on capital. Nonfi nancial goals included beef-
ing up the company’s marketing and innova-
tion eff orts.
To track the eff ectiveness of its marketing,
the company set specifi c brand-equity mea-
sures for each major product line, explains
Falk. And to ensure that product innovation
remained at the forefront, Kimberly-Clark
based its revenue targets on a percentage of
sales from new products. The team even
designed a matrix to measure employee
engagement at every level. “Once the team was
aligned on what we were going to do, we had to
identify the areas in which we had to get better,”
Falk says. “We knew we had to get better at
marketing, and we had to be even more eff ec-
tive in reaching out to our customers.”
INNOVATION = NEWS =
MARKETING
o meet the dual goals of increasing
innovation and ramping up market-
ing, Falk pulled the two seemingly
diff erent tasks into one department,
then hired Anthony J. Palmer to run
it. Palmer, senior vice president and chief marketing offi cer,
had spent most of his career working with some of the world’s top
consumer-packaged-goods companies, including a stint as manag-
ing director in the U.K. for KELLOGG CO. (K), before joining Kimberly-
Clark in 2006. His charge was to build up the company’s marketing
capability and break down barriers between product development
and marketing to ensure that every new idea was grounded in a spe-
cifi c consumer need.
“A brand is a promise, and a product is a delivery of that promise,”
Palmer says. “Companies drive profi tability when they deliver that
promise better than their competition.” With that as the underlying
philosophy, Palmer divides the broader concept of innovation into
three areas. “You can innovate the promise
you are making, you can innovate the prod-
ucts you deliver, or you can innovate with
different communication channels in how
and where you have dialogue with your cus-
tomers around that product,” he says.
He cites Pull-Ups training pants as a case in
point. Anyone who has ever changed a diaper
intuitively understands that once babies start
walking, it is exponentially more diffi cult to get
them to lie down to get their diapers changed.
A more natural way is to change the diaper
with the baby standing up, the same way you
would change a child’s pants. “Th is was a big
opportunity for us to make a slight change to
the basic product [the disposable diaper] and
give our moms another option to care for their
babies,” he says. “Th at’s much more powerful
than just changing the product.”
Another major growth opportunity is the
inevitable aging of the world’s population.
During the next 40 years, 50 percent of the
world’s population growth will come in the
60-and-over demographic, Palmer says. Today,
he says, Kimberly-Clark’s Poise and Depend
brands are clear leaders in the North American
market for bladder-leakage products in terms
of product sales, but the incontinence cate-
gory is only about 30 percent penetrated. Aft er gender-specifi c Depend
brand products were introduced in early 2009, volume jumped 7 per-
cent in the fi rst quarter, says Palmer. “If it fi ts better and works better,
consumers see the value and will pay more for it,” he adds.
Rethinking how consumers use products is only half of the innova-
tion equation, though. Th e other half is in rethinking how Kimberly-
Clark interacts with its consumers, says Falk. Moving away from the
traditional 30-second television ad, the company says it is investing
1913 Scott beginsto manufacture ScotTissue bathroom tissue.
1878 Kimberly, Clark and other investors form the Atlas Paper Co., the fi rst mill in Wisconsin to produce paper largely from ground pulp. Its fi rst product: wrapping paper.
1907 Scott Paper invents Sani-Towels, the fi rst disposable paper towel in America, for use in Philadelphia classrooms to help prevent the spread of the common cold.
1915 Scott Paper shares are fi rst traded on the New York Stock Exchange.
SOURCE: K IMBERLY- CL ARK
»
“Under our open-innovation
program, we work with
outside consultants
to identify new products
and technologies.”
» J O A N N E B A U E R , P R E S I D E N T ,
K I M B E R L Y - C L A R K H E A L T H C A R E
NY9.4_p22-27_KC.F2.indd 25NY9.4_p22-27_KC.F2.indd 25 10/19/09 5:04:34 PM10/19/09 5:04:34 PM
heavily in nontraditional marketing, such as partnering with CVS
CAREMARK CORP. (CVS) and its ExtraCare Card. Women buying neona-
tal vitamins or baby-care products at CVS pharmacies receive coupons
for Huggies or other Kimberly-Clark products, explains Falk.
Th e company is also building information-
driven Websites for its products. Th e Huggies
site, happyhealthypregnancy.com, off ers week-
by-week pregnancy advice from recognized
experts in the fi eld, along with tips for mix-
ing play with learning, ideas for decorating
a nursery and lots of downloadable cou-
pons. In many parts of Asia, cell phones are
the major method of communication, Falk
says, so Kimberly-Clark consumers there
can sign up to receive a text message when
favorite products go on sale at a particular
store. “We want to give consumers the infor-
mation they want, when and how they want
it,” the CEO explains.
BREAKING BARRIERS
THROUGH OPEN INNOVATION
entral to Falk’s corporate re -
struc turing plan was identify-
ing those areas in which the
company excels and focusing
corporate resources there. Th at
meant breaking through Kimberly-Clark’s
deeply ingrained corporate culture that said
that new products had to be invented in-
house. Th at is particularly important in the
health-care industry, where most of the pure research is being done in
smaller organizations and around the world, Falk says.
In 2008 most of the $1.2 billion in revenue of Kimberly-Clark’s Health
Care division — out of the company’s total $19.4 billion in revenue —
came from its supplies business, including surgical masks, gowns and
gloves, says Joanne Bauer, president of Kimberly-Clark Health Care. It’s a
highly competitive business, explains Bauer, and future growth will focus
on medical devices, where the company has introduced diff erentiated
products that enhance patient care. “Under our open-innovation pro-
gram, we work with outside consultants to identify new products and
technologies that fi t into our strategic plan,” Bauer says. Kimberly-Clark
then buys either the exclusive distribution rights for specifi c products or
the company that makes those products.
The division’s primary growth strategy
centers on health-care-associated infections,
or HAIs — infections acquired by patients in
hospitals or other health-care settings, Bauer
says. Reports of HAIs are on the rise, aff ect-
ing 1.8 million to 3.6 million patients around
the world with an annual total cost impact of
up to $30 billion, she adds. Through open
innovation, Bauer says, her team found a
small, privately held company in Germany
with a patented technology that could help
reduce the incidence of ventilator-associated
pneumonia, one of the most acute HAIs.
Kimberly-Clark acquired Microcuff GmbH
in 2007 and now owns that technology.
Another of the division’s key infection-fi ght-
ing products, Integu Seal, is made in partner-
ship with Advanced Medical Solutions Group
PLC in the U.K., according to Bauer.
GOING GLOBAL
any of the company’s
top-line growth objec-
tives are dependent on
expanding its reach
into the global market,
particularly in developing and emerging countries, says Erin Swanson,
an equity analyst with Morning star Inc. While Kimberly-Clark’s con-
solidated revenue increased by more than 6 percent annually during
the past fi ve years, growth from developing and emerging markets
averaged around 15 percent per year, she says, and these economies
now account for nearly 30 percent of the company’s total sales, up
from about 20 percent in 2003. “We believe Kimberly’s lack of pene-
tration in many nondiscretionary categories, such as diapers, pro-
A C
EN
TU
RY
A
ND
A H
AL
F O
F
IN
NO
VA
TIO
N 1929 Kimberly-Clark lists on the New York Stock Exchange.
1921 K-C introduces Kotex sanitary napkins, which, because of social taboos at the time, were sold in plainly wrapped boxes.
1924 K-C introduces Kleenex Facial Tissue as a disposable, economical solution for makeup removal.
1949 Kleenex debuts one of the largest advertising signs ever above Times Square.
1932 Kleenex introduces its Pocket Pack Tissues.
1931 Scott expands its paper-towel business to the home market with rolled ScotTowels, which become the country’s best-selling paper towel.
“A brand is a promise.
Companies drive
profi tability when they
deliver that promise better
than their competition.”
» A N T H O N Y J . P A L M E R ,
S V P A N D C H I E F M A R K E T I N G O F F I C E R
CO
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KIM
BE
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-CL
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6);
CO
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NY
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(E
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NY9.4_p22-27_KC.F2.indd 26NY9.4_p22-27_KC.F2.indd 26 10/19/09 5:04:37 PM10/19/09 5:04:37 PM
vides it with an opportunity to continue driving solid top-line growth
in these markets,” Swanson says.
Sustaining that growth requires an in-depth understanding of the
local culture and extensive education of both consumers and local
employees, explains Robert W. Black, group
president of Developing & Emerging Markets.
For example, in Malaysia, because of religious
issues, there is very little open discussion
about women’s health and hygiene. To coun-
ter that, the local management team goes to
the schools to teach the young women. “We
help them to understand their own bodies
and then teach them how to use feminine-
hygiene products to care for themselves,”
Black says.
Because local customs can be a big factor
in demand for personal-care products,
Kimberly-Clark tailors each rollout strategy
to a country’s needs. In Saudi Arabia, for
instance, he says there is a large market for
facial tissue but little demand for bath tissue.
Taiwan is just the opposite, he says, with a big
bath-tissue market. In Latin America, a major seller is a reusable
kitchen towel, explains Black. “We are also working hard to increase
the penetration or use of products through diff erent kinds of packag-
ing,” he adds, “to make them more aff ordable.”
MANAGING THROUGH TOUGH TIMES
he one challenge that Falk says he didn’t foresee was the
severity of the global recession that hit in 2008, driving
down demand as consumer spending dried up around the
world. Th e economic slowdown hasn’t dampened the com-
pany’s ambitious plans, though. In 2008 Kimberly-Clark
raised prices across the board to partly recover the rise in
commodity prices. So far those price increases have held, according
to Christopher Ferrara, a research analyst with Bank of America
Merrill Lynch, a division of BANK OF AMERICA CORP. (BAC). In a
research report published July 23, 2009, he said that Kimberly-Clark
seems to have found the “sweet spot” between favorable pricing and
a drop in commodities prices during the past year, and he expects
earnings per share, excluding restructuring charges, to climb 6.8
percent in 2009.
While Kimberly-Clark can’t completely ignore the reality of the
current market — the company trimmed its
global salaried workforce by 1,600 in June,
the CEO confi rms — it also can’t aff ord to
pull back on its long-term growth initiatives,
Falk says. “In a tough economy, it’s even
more important to invest in innovation and
marketing,” he explains. “Otherwise you
make it easy to be caught by the more value-
oriented players in the market.”
Th is year the company introduced the Scott
Naturals line of paper products, made from
between 40 percent and 80 percent recycled
materials, as part of its ongoing commitment
to sustainability. Its new Huggies Pure and
Natural diaper line has no fragrances or dyes
and uses recycled polymers in its packaging,
explains Falk. Th ey cost more than tradi-
tional products, but some consumers are
willing to pay more. “Most moms are not looking for a perfect environ-
mental solution,” he says, “but they do want to feel better about the
products they are buying.”
Th e company also recently announced tighter fi ber-sourcing stan-
dards that may boost global forest conservation but could potentially
increase its own operating costs. Kimberly-Clark has set an ultimate
goal of obtaining 100 percent of its wood fi ber from environmentally
responsible sources, using fi ber products certifi ed by the Forest
Stewardship Council or recycled materials in all of its paper-based
products. Kimberly-Clark’s goal is for 40 percent of its North
American tissue fi ber — representing an estimated 600,000 tons — to
be either recycled or FSC-certifi ed by the end of 2011, an increase of
more than 70 percent from 2007 levels. “Sustainability is a trend, not
a fad,” Falk says. In the long run, he adds, “being a good steward of
the environment is also good for business.”
To read about Thomas J. Falk’s “complexifi cation” blog and how it yields 7,000 hits a
month, visit nysemagazine.com/kimberly-clark.
SOURCE: K IMBERLY- CL ARK
1989 K-C invents disposable training pants: Pull-Ups are launched without test marketing and become an instant success.
1978 K-C introduces Huggies disposable diapers.
1995 K-C announces a $9.4 billion merger with Scott Paper.
1997 K-C introduces Huggies Little Swimmers, a line of disposable swim diapers.
2000 K-C acquires Safeskin Corp., a leading maker of high-quality disposable gloves.
2009 The Dow Jones Sustainability World Indexes select K-C as the sustainability leader in the Personal Products category for the fi fth consecutive year.
Just the Facts
F O UN D ED 1872 in Neenah, Wis.
W O RL D HE A D Q UA R T ERS Dallas
2008 SALES $19.4 billion
2008 NET INCOME $1.7 billion
EM P L OY EE S 53,000
G L O BA L RE ACH Products sold in 150 countries;
administrative, manufacturing and operating
facilities in 35 countries
PA P ER INN OVAT O R The company says it was
the fi rst to put toilet paper on a roll and that it
invented paper towels and facial tissue.
CO
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NY9.4_p22-27_KC.F2.indd 27NY9.4_p22-27_KC.F2.indd 27 10/19/09 5:04:39 PM10/19/09 5:04:39 PM
ED FRITSCH
PRESIDENT AND CEOHIGHWOODS PROPERTIES INC. (HIW)
An equity REIT in the business of acquisition, development and operation of rental real estate properties
ANUPAM NARAYAN
PRESIDENT AND CEORED LION HOTELS CORP. (RLH)
A Western U.S. hospitality and leisure company primarily engaged in the ownership, management, development and franchising of upper midscale, full-service hotels
DUNCAN NIEDERAUER
CEONYSE EURONEXT (NYX)
The world’s largest and most diverse exchange group, home to more than 4,600 listed issuers
CHRISTINE ROMANS
MODERATOR
Host of the weekend business roundtable program Your $$$$$ and a featured correspondent for American Morning, CNN
DON WOOD
PRESIDENT AND CEOFEDERAL REALTY INVESTMENT TRUST (FRT)
An equity REIT specializing in the ownership, manage-ment and redevelopment of retail and mixed-use properties
From left:
Nine CEOs gather to share management strategies and ideas for becoming part of the economic solution.
the road to rS C E N E R Y I L L U S T R A T I O N
B Y J O H N P I R M A N
NY9.4_p28-34_Roundtable.F1.indd 28NY9.4_p28-34_Roundtable.F1.indd 28 10/19/09 5:05:54 PM10/19/09 5:05:54 PM
recovery
BILL LAPERCH
PRESIDENT AND CEOABOVENET INC. (ABVT)
A provider of high-bandwidth connectivity solutions, primarily to corporate enterprise clients and communi ca -tions carriers
RON WAINSHAL
CEOAIRCASTLE LTD. (AYR)
A global company that acquires high-utility jet aircraft and leases and sells them to airlines worldwide
IRV RICHTER
CHAIRMAN AND CEOHILL INTERNATIONAL INC. (HIL)
A project management, construction management and construction claims fi rm with 2,300 professionals in 80 offices worldwide
GREG MILZCIK
PRESIDENT AND CEOBARNES GROUP INC. (B)
A diversified global manufacturer and logistical services company that provides component manufacturing and operating service support and solutions
ANTHONY J. ORLANDO
PRESIDENT AND CEOCOVANTA HOLDING CORP. (CVA)
A global developer, owner and operator of infrastructure for the generation of energy from waste
P H O T O G R A P H S B Y
A N D R E W F R E N C H
NY9.4_p28-34_Roundtable.F1.indd 29NY9.4_p28-34_Roundtable.F1.indd 29 10/19/09 5:06:03 PM10/19/09 5:06:03 PM
Has the dust settled? Can we see a day when we’re talking recovery, or are we still playing defense?
IRV RICHTER I don’t think the dust has set-
tled at all. I think that most of the talk you
hear about the end of the recession is wishful
thinking. We’re still being adversely aff ected,
we have nearly 10 percent unemployment,
and we have capital markets that are still not
lending money. Anybody here who’s in the
REIT business or the development business
can’t get capital. And that doesn’t sound to me
like the end of a recession. I think we’re at
least a year away from a real recovery.
ANTHONY J. ORLANDO We’re expecting the
unexpected. Whatever the predictions are, don’t
take anything for granted. We went to market a
few months ago to raise some capital — we’ve
already found good ways to deploy it. Th ere’s
still so much distress in the market, so many
people who don’t have capital, that when we
see the opportunity to raise it at a reasonable
cost, we take it. Th ere’s also a lot of uncertainty
about what the market will hold six months,
12 months out, even in our business.
GREG MILZCIK Most of the markets that we
serve have started to show some level of sta-
bility. But you really have to look at the new
normal. When you look at the demographics
of Western countries and Japan, and at the
personal balance sheets of individuals, there’s
been a fundamental shift . With the fi scal mon-
etary policies in the U.S., you’re inevitably
going to run into infl ation, either of commod-
ities or other costs. We expect to see more of
our growth prospects overseas and in dol-
lar-denominated situations because of the
potential devaluation of the dollar.
ANUPAM NARAYAN Th e new norm for the
consumer is austerity. People are being more
careful about spending, so we have to provide
more value and make sure we’re delivering the
services they expect. And my expectation is
that this will continue. To some extent I believe
we got into this recession because everybody
was saying we’re in a recession and the head-
lines kept talking about recession, recession,
recession. So I welcome people actually saying
we’re at the end of the recession, because I hope
we’ll talk our way out of it just as easily. And
though in our business — hotels — we’re not
seeing a lot of change yet, we’ve seen some
glimmers of hope. We’ve seen some bookings
fi rm up, businesses fi rm up, travel fi rm up.
RON WAINSHAL We’ve seen a lot of unbeliev-
able volatility in our business. Fuel prices, for
example, are a big input cost for our custom-
ers. Exchange rates have been extremely vol-
atile too. So I think the recovery will be slow
and uneven. One of the trends we’ve seen is
that the airlines that are suff ering the most
are the ones that cater to the long-haul inter-
national type of high-end traveler. Econ omy
travel is down as well, but it’s hanging in
there a lot better. People still want to take
their vacations; they just may not go in the
same style or travel to the same places. I
think it will continue to be a growth busi-
ness, just in a different way.
“You can do things to tighten the belt, and as long as you communicate it very directly, your employees will understand.”
DUNCAN N IEDERAUER NYSE Euronext
CEO FAST FACT “More than half of NYSE Euronext’s revenues and earnings come from outside the U.S.”
E C E N T N E W S R E P O R T S
suggest that many economists think
the recession is behind us. But in a
roundtable discussion, excerpts of
which appear on these pages (with more at
nysemagazine.com/roundtable), nine chief
executives from various industries beg to dif-
fer. In a spirited discussion, they also reveal
strategies that have worked during these try-
ing times, benefi ts their companies have
experienced from the crisis, and the keys to
— and challenges of — being a corporate
leader under today’s intense scrutiny.
R
NY9.4_p28-34_Roundtable.F1.indd 30NY9.4_p28-34_Roundtable.F1.indd 30 10/19/09 5:06:04 PM10/19/09 5:06:04 PM
BILL LAPERCH Even though the economy
has been in chaos, bandwidth keeps grow-
ing. Every business you look at just needs
more and more. But the way we keep our
finger on the pulse of the economy is the
way customers are buying. Three or four
years ago, customers were buying to sup-
port new applications, new business ven-
tures or new locations. Today customers
have us in and say, “Take a look at this leg-
acy network. It costs too much. It doesn’t
provide enough capacity. What can you do
about it?” And so CFOs are now the decision-
makers, instead of CIOs and CTOs. They
want to know, “How do you affect the bot-
tom line, given that we’re not growing as
fast as we used to? Perhaps we can both save
on expenses and upgrade our technology.”
What one change during the past year has been success-ful in helping you navigate the market turmoil?
DON WOOD Finding good people was hard
for a long time. Competition was high, and
you were paying a lot for those folks. We
wound up bulking up a little too much. By
rationalizing the business and making those
painful cuts, we accomplished two things:
More senior executives are doing more of the
decision-making, such as renegotiating con-
tracts, and we traded up in terms of fi lling in
some spots with individuals who weren’t
available during the past fi ve years.
DUNCAN NIEDERAUER We’ve had a simi-
lar experience. With what happened in
financial services, people were walking
through our doors offering to work here for
numbers that they wouldn’t have accepted
two or three years ago. At a company of our
size, with just a few thousand employees, if
you can get 50 to 100 of those people, you
can change how the entire company thinks
and operates, and we absolutely took advan-
tage of that.
ED FRITSCH We’ve been successfully navi-
gating through this economic turmoil by
sticking to the key tenets of our long-term
strategic plan, which includes customer diver-
sifi cation, liquidity, quality real estate, team
building and constructive internal debates. By
nature, real estate is a cyclical business, so our
plan, unveiled in January 2005, was dual
designed so as to protect our company on the
downside and take advantage of the upside,
and it has worked. I don’t believe a company
can be successful over the long term if it con-
tinually fl ip-fl ops on strategies or structures
itself solely to chase the upside. We are also
presently benefi ting from customers seeking
landlords who have strong balance sheets and
from accessing a higher-quality talent pool
from which we are drawing prospective
employee candidates.
d
”
“More senior executives are doing more of the decision-making, such as renegotiating contracts.”
DON WOOD Federal Realty Investment Trust
“The laws and regulations that are going to be put in place will shift the ground we work on.”
ANTHONY J . ORLANDO Covanta Holding Corp.
CEO FAST FACT “Federal Realty has increased its dividend to its shareholders every year since 1967.”
CEO FAST FACT “Covanta services 20 million people with 44 facilities that convert waste to clean energy.”
NY9.4_p28-34_Roundtable.F1.indd 31NY9.4_p28-34_Roundtable.F1.indd 31 10/19/09 5:06:07 PM10/19/09 5:06:07 PM
RICHTER I don’t know how you execute a
strategic plan through this economy that
was written before this economy collapsed.
While we do expect to continue growing
our business through this recession, we
have focused on realigning our costs to the
reality of much slower growth and being
much more conservative in how we spend
our money.
MILZCIK Don’t waste a good crisis. We sig-
nificantly increased our resources around
sales activities. We found technicians, engi-
neers and division managers, put them through
a three-level training process on sales man-
agement, assigned them to customers and
started pegging away. It’s not the most effi-
cient process in the world, but we’re seeing
results. In automotive, for example, we believe
every dollar we pick up now is worth two
dollars in the future, because North Ameri-
can auto production may go from 8 million
vehicles to a new normal of 14 million. With
a leaner organization, fixed costs taken out,
those two dollars are going to pay back
amply later on.
NARAYAN It’s not easy for any of us right
now, with layoffs and cutbacks and the tak-
ing away of different benefits. So you have
to communicate as much as you can. That’s
what we’re trying to do with our people,
telling them what things are like, what’s
going to make a difference in the future and
why we need that. We’ve also successfully
made certain changes in the organization,
and the recession gives us an opportunity to
reorganize in the most efficient manner,
which perhaps we could not have done when
things were good.
NIEDERAUER We’re communicating with
our customers more than we ever have, and
we’re communicating with our employees
much more than we ever did. You can do
things to tighten the belt, and as long as you
communicate it very directly with your employ-
ees, I think they understand.
How do you lead through all the mistrust of the American economy, the pitchfork popu-lism that has taken hold against wealth creators and corporate leaders, and the uncertainty coming out of Washington?
WOOD You have to start with track record.
In our case, we’ve increased our dividend
every year for the past 42 years, a record
you can’t accomplish without great raw
materials and a solid reputation. If you
didn’t have a great reputation in ’05, ’06 and
’07 but people had to do business with you,
they don’t need you today. It’s very, very
hard without a solid reputation to be able to
say, “Well, now I’m different. Stick with me
a little bit longer and we’ll get through.”
“Some things must be allowed to fail. If the government continues providing safety nets, the word risk becomes extinct.”
ED FR ITSCH Highwoods Properties Inc.
“Make sure we have a well-educated workforce so we can continue to compete on a global basis.”
B I LL LAPERCH AboveNet Inc.
CEO FAST FACT “Highwoods operates offi ce, industrial, retail and residential properties, mostly in the Southeast.”
CEO FAST FACT “AboveNet is providing the fi ber for the two new NYSE Euronext data centers.”
NY9.4_p28-34_Roundtable.F1.indd 32NY9.4_p28-34_Roundtable.F1.indd 32 10/19/09 5:06:09 PM10/19/09 5:06:09 PM
ORLANDO You focus on your employees, your
customers, your business partners, and you
establish trust there. And that goes back to
communication, especially face-to-face. It is
also crucial that we engage policymakers in
Washington: For Covanta the focus is energy
policy. But I’d expect virtually every business
to be aff ected one way or another — the laws
and regulations that are going to be put in
place will shift the ground we work on.
MILZCIK It is difficult to make a decision
on, for example, where to invest or where to
put a plant if you think that government
regulation will have an adverse financial
impact on growth. In fact, with more than a
trillion dollars’ worth of deficits for the
foreseeable future and the U.S. corporate
tax rate globally uncompetitive, business
leaders are looking outside the U.S. for
opportunities and growth. One of the big-
gest impediments to improving the position
of U.S. manufacturing is the high corporate
tax rate assessed on domestic companies.
NIEDERAUER I’m not an economist, but I
don’t know how they’re able to make such
firm predictions when the administration
has yet to give us clarity on three or four
decisions that could change that outcome
entirely, not incrementally. I just don’t think
anyone has enough information.
You have 30 seconds in the elevator with Timothy Geithner, Ben Bernanke and Barack Obama. What do you say?
NIEDERAUER I recently had the opportu-
nity to speak with two of the three. My first
point was that we all understand the recov-
ery has to be funded, but let’s do so without
impairing the ability of U.S. companies to
compete globally. Some of the proposals could
make it very diffi cult for U.S.-headquartered
multinationals to compete effectively. My
second point was that we have an unneces-
sarily complicated regulatory framework in
the U.S., and we recently learned that the
transparent markets were the only ones that
worked and stayed open for business through-
out the worst crisis most of us will probably
see in our working lives. So how about if we
insist that all these complex and well-developed
OTC markets get under the spotlight a little
bit? What comes along with being in those
businesses has to be put in the sunshine. My
third point was a reminder that entrepre-
neurs and their innovative spirit have been
the American engine since before any of us
in the room were born, and that’s going to
be the case forever. As someone said to me
the other day, “When did corporate profi t-
ability start to be viewed as a zero-sum
game?” So the last point I left our leaders in
Washington with was that you can’t love jobs
and hate the people who create them. I want
them to look at every policy they think about
through that lens.
WAINSHAL I would say the government
should be wary of unintended consequences.
As a fi nancial company, we saw all sorts of
radical shift s happening last fall. For example,
in the wake of the current crisis, the govern-
ment of Ireland decided to guarantee deposits
and, as a result, a great deal of money went out
of the U.K. and into Irish banks. So my gen-
eral guidance would be to stay out of the way
as much as you can.
“The administration is trying to reach a consensus. But right now they should lay out a plan and stick with it.”
ANUPAM NARAYAN Red Lion Hotels Corp.
“My general guidance [to Washington] would be to stay out of the way as much as you can.”
RON WAINSHAL Aircastle Ltd.
CEO FAST FACT “Red Lion Hotels can be found in the western U.S. from Seattle to Disneyland to Denver.”
CEO FAST FACT “Aircastle owns 131 aircraft and has lessees located in 35 countries.”
NY9.4_p28-34_Roundtable.F1.indd 33NY9.4_p28-34_Roundtable.F1.indd 33 10/19/09 5:06:11 PM10/19/09 5:06:11 PM
NARAYAN I have a slightly different per-
spective. I believe the government should
approach this just as all of us are approach-
ing this at our companies. The reason we’re
having a lot of debate is that what the gov-
ernment wants to do is not being clearly
spelled out. The fact is, we are in a mess.
There’s no easy solution. It’s not going to
come quickly. And it’s going to be painful
for a period. It’s going to hurt some more
than others. And of course, everybody stands
up and says it’s going to hurt me more. The
administration is trying to reach a consen-
sus, and I think that’s great, but right now
they should lay out a plan and stick with it.
You change your tactics, move stuff around
and adjust for the realities of the world, but
at the end of the day you stick with it. So my
counsel of 30 seconds is: Be specific, lay it
out, and don’t sugarcoat it.
LAPERCH I would say to shift your focus
from looking over our shoulders to making
sure we have an adequate, well-educated
workforce so that we can continue to com-
pete on a global basis.
FRITSCH Government can’t and shouldn’t
regulate everything or try to be all things to
all people. Some companies and people must
be allowed to fail. If the government contin-
ues providing expensive safety nets, the word
risk becomes extinct. Taking risks is a key
component of capitalism and a driver of our
country’s economic growth.
ORLANDO I’d say do the right thing and don’t
worry about the next election. And I would ask:
What do you plan to do on climate change?
Because this is the issue that will have the most
lasting impact on our grandchildren. It will not
be fi nancial regulation, taxes or even health
care. Looking back 50 years from now, it will be:
Were we able to shift the way we manage
energy? Th e entire economy runs off energy,
and if the scientifi c predictions are even close to
being accurate, we have a big challenge.
“With the U.S. corporate tax rate globally uncompetitive, leaders are looking outside the U.S. for growth.”
GREG MILZC IK Barnes Group Inc.
“We’ve focused on realigning our costs and being more conservative in how we spend.”
I RV R ICHTER Hill International Inc.
Read the CEOs’ views on sustainability spending at
nysemagazine.com/roundtable.
CEO FAST FACT “Barnes Group has been in existence since 1857 and has more than 60 plants worldwide.”
CEO FAST FACT “Hill clients include government agencies, big companies and real estate developers.”
CEO FORUM: How important is social responsibility in a downturn?
>> URSULA M. BURNS, Xerox Corp. (XRX) >> PETER A. DARBEE, PG&E Corp. (PCG) >> WILLIAM JOHNSON, H.J. Heinz Co. (HNZ) >> EDWARD LUDWIG, Becton, Dickinson and Co. (BDX) >> DAVID O’REILLY, Chevron Corp. (CVX) >> KEN POWELL, General Mills Inc. (GIS) >> JAMES ROGERS, Duke Energy Corp. (DUK) >> IVAN SEIDENBERG, Verizon Communications Inc. (VZ) >> REX TILLERSON, Exxon Mobil Corp. (XOM) Read their answers at nysemagazine.com/ceoforum.URSULA M. BURNS
ON THE
WEB
NY9.4_p28-34_Roundtable.F1.indd 34NY9.4_p28-34_Roundtable.F1.indd 34 10/19/09 5:06:13 PM10/19/09 5:06:13 PM
O SE T TA STONE PRESIDENT AND
CEO Tom Adams knows the value
of speaking like a local. Born to
Swe dish parents, Adams learned
French while living in France as a child.
When he moved with his family to England
at age 10, he picked up English. Adams,
now 37, speaks four languages fl uently and
a few others well enough to get by when
he’s traveling. “I love languages,” the CEO
says. “If you learn them successfully and
you’re able to connect with people, your
life experiences are so much deeper.”
Language immersion, Adams says, is
what differentiates Rosetta Stone from other
self-study aids. In its library of more than 30
software products (sold via CD-ROM or the
Internet), nothing is translated. Students
learn by completing a series of interactive
exercises that build on previous lessons. The
programs replicate the way children learn
their native languages, Adams says,
and are quicker and more effective
than translation-based methods.
A graduate of France’s INSEAD
and a former commodities trader,
Adams says he joined Rosetta Stone
as CEO after a close high school
friend introduced him to Allen Stoltzfus,
who founded the company in 1992. Stoltz-
fus called his product Rosetta Stone after
the artifact that unlocked the secrets of
Egyptian hieroglyphics for linguists. Since
Adams became CEO in 2003, revenues
have grown to a reported $209 million last
year, from $25 million in 2004. Adams still
makes time for new languages. Recently
he’s been learning Russian — and, as a
new father, baby talk from his daughter.
R
DA
VID
DE
AL
BIO FACTS
AGE 37
CEO S INCE 2003
EDUCATION BA from Bristol University, Britain; MBA from INSEAD, France
PREV IOUS AFF I L IAT ION Commodities trader, Trafigura
FAMILY Married with a daughter
C E O Q & A >> T O M A D A M S , P R E S I D E N T A N D C E O , R O S E T T A S T O N E I N C . ( R S T )
NY9.4_p36-37_Q&A.F1.indd 36NY9.4_p36-37_Q&A.F1.indd 36 10/19/09 5:08:13 PM10/19/09 5:08:13 PM
Why are your products so engaging?
People have a defi ned idea of what learning a
language is like. Th ey sit through years of lan-
guage instruction or buy tapes. But our off ering
is very diff erent. Th e key is to have someone try
a language they’re not familiar with. It’s eff ec-
tive if you know a little of the language already,
but it’s best to demonstrate it in a completely
unknown language so you get the full eff ect.
Within fi ve minutes, they’ve already learned —
eff ortlessly. It’s an aha! moment.
What else accounts for the success?
First, we invested in the right technologies,
such as speech recognition. Second, we fi g-
ured out how to get people to try our product.
Rather than putting it on store shelves or in
catalogues, we off er demos online and at kiosks
so people can see how it works. Right now we
have about 160 kiosks in airports and shopping
malls across the country. We are able to open
kiosks quickly in high-traffi c areas when space
becomes available and take down ones that are
not performing. We also developed print and
online advertising to drive people to a demo,
which has increased sales.
How has the company changed since
you became CEO?
We’ve grown to 1,500 employees from about
100. We managed to transform the company
organizationally while making the culture an
even greater asset. We’re very entrepreneurial.
We test a gazillion ideas throughout the com-
pany — in marketing, product development,
Web development and our call centers. We also
make sure that any idea is scalable, structured
and process-oriented. Everyone is aligned for
the mission: to deliver the best technology-
based solutions for learning languages.
How has the recession affected Rosetta?
We’ve suff ered from lower foot traffi c in air-
ports, reduced leisure and business travel, and
a weaker sense of urgency about globalization.
Still, we’ve grown dramatically in the past two
years. People are investing in themselves like
never before. Language, and the ability to com-
municate with people from other cultures, is
increasingly important. People are more on
their toes about remaining competitive and
having the right skills for tomorrow.
Who are your customers?
Consumers account for 80 percent of reported
sales, with institutions such as schools, govern-
ment agencies and corporations making up the
rest. Corporations off er high potential for us.
Th is economic environment has made com-
panies stop and evaluate whether they have
the right, most cost-eff ective learning strategy
for employees. A good example is THOMSON
REUTERS CORP. (TRI). A language-training audit
a few years ago revealed that the company was
spending a lot more than it had thought on
ad hoc employee immersion classes with pri-
vate tutors. Th omson Reuters did a trial with
us, and now it’s a top customer.
What’s your international strategy?
While only 5 percent of our sales come from out-
side the U.S., our customers span more than 150
countries. Still, we need to fi nd the local inter-
pretation of a universally sound business model.
Kiosks work very well in the U.S., but they’re not
a common sight in the rest of the world. We have
offi ces in London and Tokyo, and we will open
offi ces this year in South Korea and Germany.
We haven’t entered China yet because of piracy
issues. International growth is our biggest chal-
lenge and our biggest opportunity.
What are your latest innovations?
This summer we released a new Web-based
service, Rosetta Stone TOTALe, that lets users
practice with native speakers in real time. If
you’re learning French, for example, you’ll be
able to connect with someone who’s French
and who wants to practice English. We’re also
focused on mobile technology.
What keeps you up at night?
Th e prospect of competition. Right now no
one else is really passionate about technology-
enabled language learning. But we’re not com-
placent. This is a capitalist society, and it’s
possible to have a good idea, develop it and
build a successful business very rapidly.
BREAKING THE LANGUAGE BARRIERRosetta Stone’s Tom Adams is exploring new technologies and new markets to keep the company growing.
B Y J E N N I F E R G I L L
“THIS ECONOMIC ENVIRON-MENT HAS MADE COMPANIES STOP AND EVALUATE THEIR LANGUAGE-LEARNING STRATEGY FOR EMPLOYEES.”
DA
VID
DE
AL
NY9.4_p36-37_Q&A.F1.indd 37NY9.4_p36-37_Q&A.F1.indd 37 10/19/09 5:08:23 PM10/19/09 5:08:23 PM
Still others, such as France’s VIVALIS (VLS), have
developed stem-cell solutions for manufactur-
ing vaccines and antibodies, while fi rms such as
the Nether lands’ PHARMING GROUP NV (PHARM)
are working to address genetic disorders and
diseases associated with aging. Th e largest inde-
pendent vaccine company, with a market cap
of $1.54 billion (€1.05 billion) as of Sept. 24, is
Netherlands-based CRUCELL NV (CRXL).
The number of biotech products from
European fi rms has risen rapidly in just the
past few years. According to a 2009 report
from Ernst & Young, in 2006 about 400 bio-
tech drugs from EU companies in the pipe-
line had made it to Phase II clinical trials.
(Typically, Phase I trials are used to judge a
drug’s safety using a small group of patients;
in Phase II, drugs are assessed for their effi -
cacy, especially compared with existing treat-
ments.) By 2008 the number had jumped 50
percent, to about 600 products.
Venture funding and investment also fol-
lowed the industry across borders. Despite the
global economic crisis, in 2008 $1.4 billion went
to biotech venture funding in Europe. “In gen-
eral, biotech funding in the U.S. has always been
better,” confi rms Onno van de Stolpe, CEO of
Galapagos. “EU investors are a bit more risk-
averse and look at revenue/earnings potential
rather than future potential value.” Th is attitude
has helped keep European companies focused
on results. Revenues of public European biotech
fi rms in 2008 were up 17 percent from a year
earlier, while R&D costs increased by only 3 per-
cent. By comparison, U.S. biotech revenues were
up only 8.4 percent for the same period.
“Any company based on robust science that
invests in its science in order to keep its leader-
ship and competitive advantage will generate
innovative products and sustainable growth and
attract funds and strategic partners, whether the
companies are in the U.S. or in Europe,” asserts
André Choulika, founder and CEO of French
biotech fi rm CELLECTIS SA (ALCLS).
To help investors better track the industry,
last year NYSE Euronext launched Next Bio-
tech, the first Eurozone biotech index (see
chart, opposite page). Composed solely of
biotech companies listed on NYSE Euronext’s
European markets, the index boasts 20 com-
ponents with a combined market cap of more
than $4.8 billion (€3.3 billion). From Sept. 10,
2008 to Sept. 10, 2009, the index has gained
27.1 percent, compared with losses in the S&P
500 (down 15.3 percent) and the S&P Europe
350 (down 9.5 percent) in the same time period
(see chart, page 40).
SCIENTIFIC ADVANCES
Th e industry’s rapid European expansion is
largely due to the promise of biotechnology
in medicine. Biotechnology off ers the possi-
bility of understanding how our genetic
makeup aff ects and interacts with diseases,
explains Choulika. By gaining knowledge of
those DNA traits related to ailments, research-
ers can develop gene-based treatments that
have the potential to directly address medical
conditions, rather than simply alleviate the
symptoms of those diseases. With biotech-
nology, for example, it is now possible to
develop genetic tools to regenerate damaged
cells and tissue, an approach that is already
proving to be an eff ective way to treat heart
disease and some forms of cancer, he adds. In
the future, says Choulika, “a disease will not
EUROPE’S BIOTECH BOOMWith new technologies and government support, the number of biotech fi rms and new products on the Continent is rising fast.
B Y J O H N R . Q U A I N C H A R T S B Y T O M M Y M C C A L L
I O T E C H N O L O G Y C O M P A N I E S S T E R E O T Y P I C A L L Y have hatched in sun-soaked
California with researchers and scientists unlocking new treatments for obscure dis-
eases. But the past decade’s advances in genetic knowledge have broadened bio-
technology’s scope to include more widespread diseases and have expanded R&D
to many corners of the world, particularly Europe, where governments are working to encour-
age growth in the health-care industry. Nine NYSE Euronext IPOs of Europe-based biotechnol-
ogy companies have listed in the past three years, bringing the total number listed to more
than 20. While fi rms such as ABLYNX NV (ABLX), TIGENIX NV (TIGN) and GALAPAGOS NV (GLPG) in
Belgium are addressing common ailments such as osteoporosis and joint damage, other fi rms,
such as France’s EXONHIT THERAPEUTICS SA (ALEHT) and Belgium’s ONCOMETHYLOME SCIENCES SA
(ONCOB), are developing genetic tools for detecting cancer early and personalizing treatments.
B
38
S E C T O RS P O T L I G H T >> O N T H E E U R O P E A N B I O T E C H I N D U S T R Y
TO HELP INVESTORS TRACK THE INDUSTRY, NYSE EURONEXT LAUNCHED THE NEXT BIOTECH INDEX.
NY9.4_p38-41_Sector.F1.indd 38NY9.4_p38-41_Sector.F1.indd 38 10/19/09 5:09:23 PM10/19/09 5:09:23 PM
Ablynx NV (ABLX)
$418.3 (€284.8)
Amsterdam Molecular
Therapeutics Holding NV (AMT)
$67.7 (€46.1)
Cellectis SA (ALCLS)
$187.8
(€127.9)
Crucell NV (CRXL)
$1,544.5 (€1,051.5)
Devgen NV (DEVG)
$220.2 (€149.9)
Fornix BioSciences NV (FORBI)
$95.7 (€65.2)
Genfit SA (ALGFT)
$135.5 (€92.3)
genOway SA (ALGEN)
$27.9 (€19.0)
Hybrigenics SA (ALHYG)
$54.2 (€36.9)
Innate Pharma SA (IPH)
$108.8 (€74.1)
Ipsogen SA (ALIPS)
$58.1 (€39.6)
OctoPlus NV (OCTO)
$77.2 (€52.6)
OncoMethylome Sciences SA (ONCOB)
$118.3 (€80.6)
Pharming Group
NV (PHARM)
$89.7 (€61.1)
ThromboGenics NV (THR)
$568.5 (€387.3)
TiGenix NV (TIGN)
$164.8 (€112.2)
Transgene SA (TNG)
$595.3 (€405.6)
Vivalis (VLS)
$224.5 (€153.0)
20
08
TO
TA
L R
EVE
NU
E (
mil.)
YEAR FOUNDED
’75 ’80 ’85 ’90 ’95 ’00
COMPANY LOCATION
MARKET CAP
Belgium (6)
France (9 companies)
indicated by size of bubble
Netherlands (5)
$1
$10
$100
$0.5
$5
$50
$0.2
$0.1
$2
$20
$200
$500
Galapagos NV (GLPG)
$251.2 (€171.1)
Company (TICKER)
MARKET CAP (in millions)
$1,500
$500
$100
ExonHit Therapeutics SA (ALEHT)
$223.9 (€152.5)
Ablynx NV Focuses on discovering and developing antibody-derived proteins
Amsterdam Molecular Therapeutics Holding NV Treats orphan diseases using gene-therapy technologies
Cellectis SA Develops meganucleases for use in genome surgery
Crucell NV Develops, produces and markets vaccines and antibodies that prevent or treat infectious diseases
Devgen NV Specializes in biotech solutions designed to protect agricultural crops
ExonHit Therapeutics SA Uses propri-etary gene-profiling technology to identify gene variants that produce abnormal proteins
Fornix BioSciences NV Focuses on allergy treatments and diagnostics
Galapagos NV Focuses on drug dis-covery and works with various part-ners on treatments for bone and joint diseases
Genfit SA Develops drugs for the pre-vention and treatment of cardiometa-bolic and neurodegenerative disorders, such as prediabetes/diabetes, athero-sclerosis, dyslipidemia, obesity and Alzheimer’s
genOway SA Develops genetically modified and high-value-added bio-logical models to improve the accuracy of treatment targets and drug screening
Hybrigenics SA Conducts pharma R&D against cancer and performs protein interaction studies for life scientists
Innate Pharma SA Focuses on immu-notherapies to treat various cancers
Ipsogen SA Develops molecular diag-nostic tests designed to personalize cancer treatment
OctoPlus NV Offers drug-delivery technologies for the controlled release of biotech therapeutics
OncoMethylome Sciences SA Develops genetic diagnostic tests for the early onset of cancer
Pharming Group NV Develops products for treatment of genetic disorders, aging diseases and nutrition
ThromboGenics NV Discovers and develops treatments for eye and vascular diseases and cancer
TiGenix NV Specializes in the use of stem-cell technology to develop cellular repair treatments for such ailments as cartilage damage
Transgene SA Develops gene-based vaccines and immunotherapy prod-ucts for the treatment of cancer and infectious diseases
Vivalis Focuses on the development of stem-cell solutions for manufactur-ing vaccines and antibodies
NEXT BIOTECH: WHAT THEY DO THE WORLD
OF EUROPEANBIOTECHThe 20 fi rms that make up NYSE Euro next’s Next Biotech index vary in age and size and come from three countries.
All data as of Sept. 24, 2009
SOURCES: RESPECTIVE COMPANIES
NY9.4_p38-41_Sector.F1.indd 39NY9.4_p38-41_Sector.F1.indd 39 10/19/09 5:09:23 PM10/19/09 5:09:23 PM
be seen as symptoms to be healed but as a
DNA-based malfunctioning that can be fi xed
with less fatality.”
UNITED GOVERNMENT SUPPORT
To bolster biotechnology, the EU has played an
increasing role in developing a consistent set of
rules, regulations and incentives among mem-
ber nations. Last year the EU Commission
invested $118 million in biotech research. But
perhaps more important was the passage of
three proposals that make up the so-called
pharmaceutical package in December 2008.
Th e long-awaited rules provide a uniform
framework for regulating new drugs, in the
hope of easing the expense to companies that
have had to deal with multiple regulations and
approval processes in diff erent countries.
The issue of multiple patent filings and
approvals across the European continent is
also improving, say biotech fi rms. “Th e posi-
tive is that more and more countries are get-
ting involved with the Patent Cooperation
Treaty,” says Choulika. Simplifying European
patent legislation has helped, but the industry
still faces patent problems because of the com-
plexity of some novel therapies, which require
tremendous biotechnology knowledge on the
part of patent examiners. Expanding that
knowledge base should help in the future, as
should avoiding the tendency to overregulate,
say biotech fi rms.
“Europe, particularly France, has a world-
leading position in orphan diseases,” adds
Choulika, referring to uncommon diseases that
require specialized medicine. This is partly
attributed to the so-called orphan regulation
passed by the EU in 1999 and 2000. Th e legis-
lation adopted international criteria for
orphan designation and provided incentives,
such as 10-year market exclusivity and a
streamlined approval process, to encourage
the development of drugs aimed at smaller
markets. According to EuropaBio, the Euro-
pean Assoc iation for Bioindustries created in
1996 to provide a voice for the biotech indus-
try, the EU regulation has spurred innovation.
By 2005 it had covered more than 450 applica-
tions for orphan designation, of which 22 were
later approved for market.
European biotech chief executives say they
are encouraged by government eff orts, both
the EU’s and individual countries’, to support
their industry. “Th ere has certainly been more
support for R&D from the French govern-
ment,” says Philippe Archinard, CEO of France’s
TRANSGENE SA (TNG), pointing to its research
tax credit program, which refunds up to 50
percent of every euro spent on research and
development. For Transgene that amounted
to €6 million ($8.8 million) in 2008, “certainly
an incentive to grow our business.”
NOT GOING IT ALONE
In Europe, biotech fi rms do not take the lone-
wolf approach favored by many companies in
the industry’s early speculative days. Today the
focus is on working with larger pharmaceutical
companies in reciprocal arrangements, a trend
that is expected to continue. “I have a hard time
believing that an independent research-oriented
company can become a fully integrated business
model company without strategic alliances with
big pharma companies,” says Choulika, who
recently was appointed chairman of France
Biotech, the French association for life-science
entrepreneurs. “On the one hand, the research
and discovery focus must be concentrated into
biotechs; on the other hand, therapeutic devel-
opment has to be partnered with big pharma.” In
other words, biotechs in Europe tend to focus on
discovering novel drugs while letting experi-
enced pharma partners help ferry new drugs
through arduous and expensive clinical trials to
get them to market.
Galapagos’ Van de Stolpe agrees: “Pharma is
in urgent need of novelty and looks externally to
biotechs like Galapagos to fi ll their pipelines. So
there’s been a general increase in outsourcing of
early drug discovery in order to reduce fi xed
costs.” Van de Stolpe says his company has risk- GE
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NEXT BIOTECH
600
700
800
900
1000
SAJJMAMFJD
’08 ’09
NOS
“THERE HAS CERTAINLY BEEN MORE SUPPORT FOR R&D FROM THE FRENCH GOVERNMENT.”
WHAT GLOBAL RECESSION?NYSE Euronext’s Next Biotech index was up 27 percent from Sept. ’08 to Sept. ’09.
SOURCE: NYSE EURONE X T
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sharing alliances with several top pharma com-
panies, including MERCK & CO. INC. (MRK);
Janssen Pharma ceutica, a JOHNSON & JOHNSON
(JNJ) company; GLAXO SMITH KLINE PLC (GSK);
and ELI LILLY & CO. (LLY). It’s an approach taken
by many EU biotech companies, including
Transgene, whose strategy is to initially develop
its products in-house and then seek partner-
ships with big pharma companies for Phase III
trials and beyond.
FIGHTING DISEASES
It’s this sort of symbiotic relationship that is
helping to extend the range of treatments
from medicine aimed at orphan diseases —
which the EU defi nes as serious diseases that
aff ect fewer than fi ve in 10,000 people, such
as muscular dystrophy, cystic fi brosis and
glioma. It is doing likewise with respect to
treatment of more common ailments aff ect-
ing tens of millions of patients — for exam-
ple, infectious diseases, which are the second
leading cause of death worldwide (behind
cerebrovascular disease), taking one in fi ve
lives each year, according to World Health
Organization data. “Europe is positioned to
treat widespread ailments,” says Choulika.
Crucell’s Quinvaxem®, for example, com-
bines protection against five potentially
deadly childhood diseases — diphtheria, tet-
anus, whooping cough, hepatitis B and H.
infl uenzae type b — in a single dose, accord-
ing to CEO Ronald Brus (see box, right).
“While others focus on treating illness, Crucell
focuses on prevention,” says Brus. “In 2008
alone, Crucell’s vaccines prevented more than
3 million cases of infectious diseases and more
than 700,000 deaths.”
Cellectis, whose technology is designed to
do genetic editing to disable viruses, is also
looking at major diseases. “Our three most
promising products are for clipping the
genomic DNA of the herpes virus, HIV or
hepatitis B,” says Choulika. He points out that
such treatments don’t simply stop the spread
of a virus; they also destroy the virus within
cells. “Th is is the fi rst class of drugs that can
cure a cell of a viral infection,” says Choulika.
And the market is huge, he adds, with an esti-
mated 350 million people carrying a persis-
tent version of hepatitis B that cannot currently
be treated.
Another common illness biotech firms
have set their sights on is rheumatoid arthritis
(RA). Th e market for RA drugs this year is
expected to top $15 billion, according to Van
de Stolpe, who adds that Galapagos is focused
on a new potential blockbuster oral medica-
tion, GLPG0259, for RA that has demonstrated
safety in a Phase I trial (see box, right).
ON THE HORIZON
Executives and researchers say the cost of
gene sequencing to uncover new genetic
markers and mechanisms has dropped tre-
mendously in the past few years, further
encouraging new research. “Malaria, for
example, is one of the most prevalent infec-
tions in tropical and subtropical regions,”
Brus points out, “causing severe illness in
300 million to 500 million people a year and
death in 1 million to 3 million people a year.”
So far no licensed vaccine is available to fi ght
this disease, but Crucell is hopeful that a col-
laboration with the U.S.’s National Institute
of Allergy and Infectious Diseases on a malaria
vaccine will bear fruit in time. “Biotech is a
slow industry,” and the market has oft en
overanticipated the research, says Choulika.
But he believes that given enough support
and time to allow the technology and the
knowledge to develop, companies like his
can address many of today’s most challeng-
ing illnesses. Th e result won’t just be a “next
wave” of biotechnology, says Chou lika. “It
will be a tsunami.”
THE RESULT WON’T JUST BE A “NEXT WAVE” OF BIOTECH, SAYS CHOULIKA. “IT WILL BE A TSUNAMI.”
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QUINVAXEM®, developed by
Netherlands-based Crucell, combines
antigens for five potentially deadly child-
hood diseases — diphtheria, tetanus,
whooping cough, hepatitis B and H.
influenzae type b — in a single liquid
dose. This August, Crucell secured $300
million in new contracts for the pediatric
vaccine, bringing the total to $800 mil-
lion since the launch of the drug in
2006. More than 100 million doses of
Quinvaxem, which may help reduce juve-
nile mortality rates in developing nations,
have already been distributed in more
than 50 countries since the World Health
Organization prequalified the vaccine.
MICROPLASMIN, which may help fore-
stall age-related blindness, is in its third
stage of clinical trials, with studies cur-
rently under way in Europe and the U.S.
Microplasmin is a recombinant enzyme
that helps detach the vitreous humor from
the retina — a feat once achieved only
with major eye surgery — to treat eye dis-
eases such as macular degeneration and
diabetic retinopathy. Belgium-based pro-
prietor ThromboGenics expects Phase III
results starting in 2010.
GLPG0259, a once-daily orally available
candidate drug for the treatment of rheu-
matoid arthritis (RA), successfully com-
pleted its first human trial this summer.
Researchers found the compound safe to
administer in multiple doses, with no car-
diovascular side effects. The drug works by
blocking a novel target believed to be
involved with inflammation and the break-
down of human cartilage, key symptoms
of RA. Galapagos, based in Belgium, is
developing GLPG0259 and plans to begin
Phase II efficacy trials next year.
BIOTECH BREAKTHROUGHSThree promising new drugs from
European biotech fi rms:
SOURCES: RESPECTIVE COMPANIES
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I N S I D EN Y S E E U R O N E X T
“Operating our own data centers is an
indication of the way we view our role as the
secure, stable operator of the world’s most liq-
uid, most scalable, most transparent and most
orderly markets,” adds Ken Barnes, vice presi-
dent of NYSE Technologies. “And it allows us
to have control over the entire technology
value chain and the end proposition for our
clients. Our goal is to make the complete life
cycle of a trade as cutting edge as possible.”
Th e new data centers, which are expected
to be fully operational in 2010, are planned
to support several billion daily transactions
and quotes. NYSE Euronext plans to use 20
percent of the compute space for its own sys-
tems and to commercialize up to 80 percent
for market participants.
The new buildings will also consolidate
the Exchange’s data centers. NYSE Euronext’s
U.S. data center in Mahwah, N.J., will pro-
vide access to the NYSE Classic, NYSE Arca,
NYSE Amex, NYSE Arca Options and NYSE
Amex Options markets all under one roof.
It offers 100,000 square feet of compute
space in a 398,000-square-foot building on
a 28-acre site 34 miles from Wall Street.
NYSE Euronext’s European data center in
Basildon, England, will provide access to
the NYSE Euronext cash equities market, as
well as to NYSE LIFFE, NYSE Arca Europe
and Smartpool. It will also provide 70,000
square feet of compute space in a 315,000-square-
foot building on a 16-acre site 33 miles from
central London.
Th e $500 million investment in the two
data centers includes a commitment to energy
effi ciency and sustainability. NYSE Euronext
instituted a number of green initiatives in con-
structing the centers that would also ensure that
the facilities are attractive to potential custom-
ers. “A lot of thought went into the greenness of
the centers,” says Young. “For example, the
Basildon center is purchasing only green power,
buying electricity strictly from renewable
sources.” (Visit nysemagazine.com/inside for
more on the facilities’ green designs, including
generators powered by low-sulfur fuels to reduce
sulfur oxides and chilling systems that optimize
free cooling air from outside whenever possible.)
IN PURSUIT OF ZERO LATENCY
Connecting the data centers to the outside
world will be an ultralow-latency trading and
market-data network. Its industry-leading speed
and capacity will facilitate the processing of
communications across the trade life cycle —
from quotes, signals and indications of interest
to trades, affi rmations and advertisements. In
fact, the new facilities will use the 10-gigabit
Ethernet network technology recently pio-
neered in the deployment of its current data
centers to support an internal latency of less
than 40 microseconds each way. “We view the
networks we deploy in and around our data
centers as a diff erentiator — the applications
they off er are unique, and the performance
refl ects the investments we’ve made in cutting-
edge switching platforms,” says Young.
Providing the underpinning fiber-optic
connections is ABOVENET INC. (ABVT), a lead-
ing provider of high-bandwidth connectivity
solutions. “We have worked collaboratively with
the NYSE to design the platform that allows
this vital fi nancial exchange to off er leading-
THE FUTURE OF TRADINGNew state-of-the-art data centers in greater New York and London are expected to drive market innovation at breakneck speeds.
B Y J E A N N E C O T R O N E O D A R R O W
V E R Y B O D Y K N O W S T H E FA C A D E O F T H E N Y S E B U I L D I N G at the corner of Wall
and Broad streets. But two new structures are about to become equally important to
the future of NYSE EURONEXT (NYX). Twin data centers now being built in the greater New
York and London metropolitan areas will offer customers the industry’s premier one-stop
access to liquidity with the highest levels of resilience and the lowest available latency (the time
gap between trade placement and execution) to NYSE Euronext markets. These data centers will
be next-generation trading environments where infrastructure, software and markets all meet
using the fastest and most reliable technology available. “To run world-class markets you need
world-class technology,” says Stanley Young, CEO of NYSE Technologies and co-global CIO of
NYSE Euronext. “In the electronic world of trading, bringing buyers and sellers together in an
ultralow-latency environment is crucial to our future as a market.”
E
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T H E G L O B A L M A R K E T P L A C E U P C L O S E>>
“WE VIEW THE NETWORKS WE DEPLOY IN AND AROUND OUR DATA CENTERS AS A DIFFERENTIATOR.”
— STANLEY YOUNG, CEO OF NYSE TECHNOLOGIES
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edge capability to all of its constituents,” says
William LaPerch, AboveNet’s president and
CEO. “We are proud to be part of this eff ort.”
Other vendors helping NYSE Euronext build
its next-generation trading platforms and con-
solidate its global data centers are Juniper
Networks Inc. and Ciena Corp.
STIMULATE AND INNOVATE
One of the most promising features of the new
data centers is the potential they offer for
industry innovation. “We believe that one-
stop access to our market engines — equities,
options, ETFs — and the near elimination of
the latency and unpredictability of executing
across multiple engines will stimulate the
trading community not only to trade more
but to innovate when it comes to multi-asset-
class, multi-leg strategies,” says Young.
Th is applies to global trading as well. When
the centers are up and running, “fi rms execut-
ing business in North America will execute
business in Europe the same way,” he explains.
“Th ere may be diff erent order types and mar-
ket practices, but the technology and the
experience will be exactly the same. It’s part
of the globalization of our business.”
Ultimately, those standing to benefi t from
the facilities are issuers and investors. Says
Young: “Th e technology revolution in the
way we think about running our global mar-
kets is a great thing for listed companies —
and their investors. Investors’ ability to trade
fairly and openly, easily and simply where
there are deep, liquid, effi cient markets with
great price discovery contributes to a vibrant
capital market.”
ST
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CONNECTING THE DATA CENTERS TO THE OUTSIDE WORLD WILL BE AN ULTRALOW-LATENCY TRADING AND MARKET-DATA NETWORK.
MEANWHILE, BACK AT THE NYSE…
This article includes information that may constitute
“forward-looking statements,” as it is based on current
expectations and assumptions that are subject to risks
and uncertainties. Please refer to the complete text of
the Cautionary Note on page 3 for further information on
factors that could cause actual results to differ materially
from forward-looking statements.
The significant investment in the New York
and London data centers has not prevented
NYSE Euronext from investing in its existing
facilities. In fact, it recently launched a major
renovation of the NYSE trading floor.
During the next 18 months, mainly on week-
ends and after hours to avoid any business dis-
ruption, the aging, tightly quartered broker booths
and workstations housed within the Exchange’s
trading floor will be eliminated and replaced with
large, modern trading desks offering state-of-
the-art technology. The goal, explains Bob Airo,
senior vice president, NYSE market operations, is
to attract brokers with existing floor operations to
move some or all of their upstairs trading opera-
tions to the NYSE trading floor. More business
conducted on the NYSE floor should translate
into more volume for the Exchange, he says, and
firms should be able to lower costs and gain effi-
ciencies by consolidating their trading activities
and getting closer to the point of sale.
In addition to 15 new trading areas that
will accommodate up to 40 traders each, plans
include renovations to update and open up
designated market maker trading posts, network
upgrades, new wallboards and screens, and a
broadcast center for a major news organization.
Neil Catania, CEO of independent brokerage
MND Partners, has been representing customer
orders on the NYSE trading floor for 27 years. He
says his firm considered opening an upstairs desk
but chose to work with the Exchange instead.
“We looked at real estate recently, but this is the
best alternative,” he says. Given the increased
demands for speed and low latency, “being at the
point of sale really works for us.”
To read about the many “green” elements of the new
data centers, visit nysemagazine.com/inside.
NY9.4_p42-43_InsideNYSE.F2.indd 43NY9.4_p42-43_InsideNYSE.F2.indd 43 10/19/09 5:10:17 PM10/19/09 5:10:17 PM
F O RS T A K E H O L D E R S
ot too long ago, I came across a
distressing statistic reported by
the Or gan ization for Economic
Co-operation and Development:
Th e U.S. ranks 10th in the world in percentage
of adults between the ages of 25 and 34 who
hold a postsecondary-education credential.
Higher education is essential to our country’s
economic recovery and long-term growth. It is
a catalyst for industrial innovation, and it
strengthens the ability of American workers to
compete globally.
We need a system that is robust and nimble.
Without further burdening strained public
budgets, we must develop additional educa-
tional access. Private investment capital is an
important source of funding that, together with
public and philanthropic sources, will help pay
for our growing education and workforce needs.
Market-funded schools, like those in the
DeVry family, respond to this need for
increased access with education innovations
such as online learning and class schedules
that accommodate those who must work
while attending college. We serve students
who have been historically underrepresented
at traditional colleges and universities: work-
ing adults, minority and immigrant families,
and those who are the fi rst generation of their
family to attend college.
Market-funded institutions today help to
educate 2.25 million students, or 9 percent of
total U.S. postsecondary enrollment, expand-
ing educational access, opportunity and
career success. For example, the U.S. has an
acute shortage of nursing-school capacity.
Our Chamberlain College of Nursing has
added four new campuses in the past three
years. We have increased the number with-
out a public bond issue, a fund-raising cam-
paign or higher taxes, because our growth is
funded through private investment. Likewise,
our Ross University School of Medicine helps
close the gap between the 26,000 hospital
residency positions that open up each year
and the 16,500 physicians graduating annu-
ally from U.S.-based medical schools. In fact,
Ross provides the U.S. residency system with
more physicians than any other medical school
in the world.
Proprietary institutions such as those oper-
ated by DeVry are goal-oriented: Only by pre-
paring graduates to meet the growing shortage
of skilled health-care and technology workers
are we able to stay in business. Our results
speak for themselves: Since 1975, 90 percent of
DeVry University graduates systemwide in the
active job market were employed in their fi eld
within six months of graduation.
We have also been innovators in public-
private education partnerships like the DeVry
University Advantage Academy, where high
school students earn both a high school diploma
and an associate degree at no extra cost. Th is
program has been extremely successful in help-
ing urban students obtain a college degree: Th e
Chicago Advantage Academy graduation rate is
89 percent, compared with 54 percent for the
Chicago public schools. In Columbus, Ohio, the
program has a 100 percent graduation rate.
Th e success of our graduates is also achieved
through educational partnerships with corpo-
rations. Earlier this year, for example, we began
partnering with IBM CORP. (IBM) on a new
Enterprise Computing track within the DeVry
University Computer Information Systems
bachelor’s degree program. The new track
provides students with critical computing skills
designed to meet the increased demands of
IBM clients and business partners.
Market-funded higher education is respon-
sive to the workforce and to the innovation
requirements of business. It is a vital compo-
nent of a system of higher education that serves
the nation’s long-term economic interests.
V I E W S F R O M D A N I E L H A M B U R G E R , P R E S I D E N T A N D C E O , D E V R Y I N C. ( D V )
INVESTING IN EDUCATION
DE
NN
IS B
AL
OG
H
N
“MARKET-FUNDED SCHOOLS SERVE STUDENTS WHO HAVE BEEN UNDERREPRESENTED AT TRADITIONAL COLLEGES AND UNIVERSITIES.”
DeVry Inc., a new member of the S&P 500, is a
global provider of education services. It is the
parent organization of DeVry University and
seven other secondary, postsecondary and pro-
fessional education institutions.
>>
Private capital is key to expanding access to higher education in America.
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