Magazine article Management Review

Darwin Smith: The Man Who Bet on Huggies

Magazine article Management Review

Darwin Smith: The Man Who Bet on Huggies

Article excerpt

Darwin E. Smith recently retired as chairman of the board and chief executive officer of the Kimberly-Clark Corporation in Dallas. Smith, 66, had joined the company in 1958 and had run it since 1971. During his 20 years at the helm, Kimberly-Clark was transformed from a quiet paper and forest products company into a highly profitable manufacturer of consumer products--most notably, disposable diapers, facial tissues and feminine care products.

Known for his down-to-earth style, Smith is a walking dichotomy: a plainspoken farmer by birth (known for favoring plaid flannel shirts), but a shrewd Harvard Law-educated master builder. He has a talent for the kind of niche marketing--zeroing in on one segment of a competitor's market and chipping away--that gives Procter & Gamble headaches. Huggies Pull-Ups, Kimberly-Clark's disposable training pants, for example, are approaching $500 million in sales after less than two years on the market and virtually no competition.

During Smith's stewardship, Kimberly-Clark's net income rose an average of 15 percent a year, dividends were increased every year, and the stock price rose an average of 14.2 percent annually.

In an interview a month before he retired, Smith discussed a variety of subjects with Don Nichols, a Dallas-based business writer. Smith talked about his management style, his retirement plans and his strong views on CEO compensation and mandatory retirement.

Q. What is a fair way to measure CEO compensation?

A. If society feels that CEO pay should be regulated, then it ought to do it. But trying to regulate pay by pressuring for changes in the SEC policy concerning stockholders' votes on issues that have no binding legal effect at all, just to get publicity, is the wrong way to go about it.

When I became CEO, I felt the key to our success was substantially to change our compensation policy. I felt we should have a program in which we got a base salary that would put us just about average with the marketplace. Then, if we had outstanding performance, we should have outstanding pay. So, we adopted a management achievement award. My compensation depended on the progress that the company made in achieving its return on equity goals.

In my case, I've invested every penny I've ever made in Kimberly-Clark stock, and it's made me a wealthy man. It's made a lot of stockholders very wealthy, too.

Q. Some critics argue that you were making too much money.

A. It's true I've made more money than I ever dreamed of making as a kid. But I've earned it. If you feel it's too much, you've got a right to say so. If you feel strongly enough to try persuading elected officials to regulate CEO pay, then, fine, go ahead and try, because I'll live by the law. But what gives you the right to judge? What gives you the knowledge and the skill to make a judgment that I earn too much?

Q. How would you describe your management style?

A. Eccentric. I am a loner; I am almost anti-social. I have been called a lone wolf. I'm not interested in trade associations, except if they help our salesmen sell products or if there are technical reasons for attending [an association meeting] to help us with know-how. I don't enjoy a social life in the conventional sense, either. I don't belong to any country clubs.

But I feel I have a good rapport with the common, everyday worker at the company, and I think that may be the exception rather than the rule with CEOs. There is nothing I like more than walking through the mills and chatting with people.

Q. How did your rapport with the rank and file affect your dealings with your top managers?

A. They all knew what was going on, because I was talking to people throughout the company. There wasn't too much class distinction in the workplace. That's just me. I'm not impressed with anyone who is patently shallow or frivolous. …

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