SITUATION: Stagnant shareholder returns despite restructuring efforts
Despite significant portfolio restructuring and repeated cost-reduction initiatives, global packaging company MeadWestvaco (MWV) was still delivering below-average shareholder returns.
Chairman and CEO John Luke decided to adopt a more disciplined approach to managing shareholder value.
APPROACH: Identifying value to unlock portfolio improvement potential
Following our engagement by MWV, we worked with line management of each business to conduct a company-wide assessment of where and why economic profits were being created and consumed across the corporation and the markets they served.
Everywhere and always value is highly concentrated, and helping management understand where and why value is concentrated helps to unlock the latent value improvement potential in the portfolio.
At MWV, only 50% of revenues and 40% of employed capital created > 100% of the company’s shareholder value and MWV only created shareholder value when it participated in economically profitable markets.
We worked with the leadership team to ensure all opportunities had an “apples-to-apples” comparison of the sources and drivers of economic profits, and risk-adjusted valuation of each opportunity.
Our Corporate Strategy and Transformation team provided coaching and support to help line management develop detailed implementation plans for each opportunity.
THE SOLUTION: A corporate value-improvement agenda with shareholder interests at its core
Armed with this financial and strategic assessment, the MWV leadership team was able to define and quantify a clear and concise corporate value-improvement agenda.
Over the next 18 months management implemented a number of portfolio and business model changes, while also institutionalizing a number of management disciplines to better align incentives and decisions with shareholder interests – e.g., shifting investment to economically profitable businesses and business segments (such as Brazil packaging), restructuring the production footprint of the company, focusing on profitable, multi-product customer relationships.
Between Year 1 and Year 3, MWV delivered significant improvements in overall economic profit growth above what was conservatively forecast.
While the competition delivered a 31 percent return to shareholders over that time period, MWV delivered a 60 percent increase in shareholder value, double that of its peers.