Dial's chief of cleanup: Herb Baum has the soap maker looking shiny and new. Now he needs to find a buyer - Turnaround - Statistical Data Included

Chief Executive, The, April, 2002 by C.J. Prince

As a Dial Corp. board member, Herb Baum was not surprised to learn in August 2000 that the board was planing to oust CEO Malcolm Jozoff. Jozoff made numerous acquisitions that saddled the company with nearly $660 million in debt, not exactly pocket change for a company with $1.6 billion in revenues. Those acquisitions combied with a stock buyback program--in which the company purchased $190 million of its own shares at an average price of $19, while the stock had dwindled to $11--put Dial's debt-to-cap ratio at a whopping 67 percent. Jozoff had also started up cash-burning businesses in Latin America and Mexico that never really fit in with the company's overall strategy. Worse, in an effort to make its sales numbers look better, Dial had been "stuffing the channel," or using promotions to encourage retailers to stock up on Dial products, which led to an earnings shortfall in 2000.

By the time Dial announced it would miss earnings expectations for a third consecutive quarter, the board had had it. But when they asked Baum to save the foundering consumer products company, they caught him a bit off guard. He was in the middle of a three-year contract as president and COO of Pawtucket, R.I.-based Hasbro, helping its CEO Alan Hassenfeld cope with the toy company's troubles, and hadn't planned to change jobs so soon.

But Baum was a natural fit. He boasted lengthy consumer goods experience during his 15 years at Campbell Soup. And he had proven his turnaround talents as CEO of Quaker, where sales more than doubled and operating earnings grew seven-fold before he sold the company to Penzoil for a tidy profit to shareholders.

Having been a director at Dial for the previous three years, Baum knew he'd have to untangle a financial mess and somehow restore investor confidence, which Dial's former management had depleted along with its cash reserves. The company's stock price had plummeted 64 percent over the previous year, as had employee morale.

But like other turnaround adventure-seekers, Baum saw opportunity where more conventional CEOs might have seen a prescription for failure. He also saw a chance to leave the unpredictable world of toy marketing--and a position as Hassenfeld's No. 2 -- and return to his first love, consumer packaged goods, this time as CEO.

Hasbro was not as eager to release Baum from his three-year contract. "There was a big fight," recalls the soft-spoken CEO, which his lawyers finally won. Baum and his wife Karen -- who had coincidentally just sold their Scottsdale vacation home located just a few blocks from Dial's headquarters -- found an apartment nearby and Baum moved into Dial's corner office.

The plan for rebuilding

His two-part mission: To spruce up the 52-year-old soap maker enough to make it attractive to potential buyers -- and to help it survive as an independent company in the event that no suitors emerge. He introduced a four-part plan, known by the acronym SFX01, to make that happen. It called for stabilizing Dial's core businesses--soap, laundry detergent, air freshener and canned meat divisions -- fixing marginal businesses or jettisoning them, exploring all options, and completing an evaluation for shareholders and analysts in 2001. to ensure the company was on track.

He recruited trusted advisors, including his former CFO at Quaker, Rad Conrad. They did not need to look far to find Dial's top three underperformers: the specialty/personal care product business, which it has since sold, and its operations in Mexico--part of a joint venture with German company Henkel--and in Argentina. All three combined to lose 40 cents a share in the first six months of 2000. Baum was able to dissolve the Henkel partnership, but the climate in Argentina has kept buyers away, forcing the company to consolidate operations there instead.

Jozoff's plan to expand into new territories to offset slowing growth in the U.S. market was not inherently flawed, Baum says, but in general, U.S. companies without experience in international markets tend to have too myopic a perspective when it comes to local economies, cultures and consumer buying habits. Baum learned that lesson as an executive with Campbell, which tried to market its canned condensed soup lines in countries that were unlikely to warm to them. "I remember the year they had an annual report that showed Campbell's soup being served on a street in China," says Baum. "There's no way the Chinese were going to eat our canned soup."

So when Jozoff suggested starting up business in Argentina, Baum, then a director, was the lone dissenting "voice in the wilderness," he says. "It's a difficult country to do business in because it's kind of a Latin dance--you take one step forward and two steps back," says Baum. "I said, 'everything you make you'll lose back'--and that's exactly what happened."

Shedding the unprofitable businesses has helped address the issue of Dial's massive debt, which has been whittled down to $445 million since Baum moved into the corner office. And cash flow from operations was up 26 percent in 2001 over the previous year.