Clorox Co.: Succession Planning Comes Into Play

March 15, 2006
CEO's heart attack leaves company in the hands of an interim chief. The company's strong foundation and financials should help it sustain.

In the event of an emergency, many companies have plans in place to seamlessly transition from hardship to business as usual. Clorox Co. -- one of IndustryWeek's IW 50 Best Manufacturing Companies in 2005 -- is one such company.

On March 1, 2006, Clorox's CEO, Gerald (Jerry) Johnston, suffered a heart attack. Six days later an interim CEO was named.

According to a company statement, as part of its succession planning, the company maintains a contingency plan in the event the CEO is temporarily incapacitated. In accordance with that plan, Robert W. Matschullat, presiding director of the company's board of directors, will serve as Clorox's interim chairman and CEO while Johnston is recovering.

Clorox Co.
At A Glance

Clorox Co.
Oakland, Calif.
Primary Industry: Chemicals
Number of employees: 7,600
2004 In Review
Revenue: $4.3 billion
Profit Margin: 12.7%
Sales Turnover: 1.1
Inventory Turnover: 8.4
Revenue Growth: 4.3%
Return On Assets: 15.0%
Return On Equity: 45.2%
"We continue to send our best wishes and strong support to Jerry and his family," said Matschullat in a March 7 press release. "The board of directors has tremendous confidence in Clorox's management team and the executive committee's ability to effectively run the business with the board's support during this interim period. The company is executing against a set of well-established strategies and operating plans. Everyone at Clorox remains committed to continue driving the business in Jerry's absence."

Prior to Johnston's heart attack, Clorox released lower financials for its second quarter, which ended Dec. 31, 2005. However, its earnings beat Wall Street estimates due to the company's decision to raise prices.

"I'm very pleased with our second-quarter performance," said Johnston in a Feb. 2 press release. "Each of our business segments delivered 6% sales growth on top of company sales growth of 9% in the year-ago quarter."

Indeed, the company's Household Group, which markets disinfecting wipes, bathroom cleaner and the Clorox BathWand, reported 6% sales growth, 4% volume growth and 5% growth in pretax earnings.

However, the company's Specialty Group, which sells Glad trash bags, GladWare food containers and Kingsford charcoal products, didn't fare as well.

The group reported 6% sales growth, flat volume and an 11% decline in pretax earnings -- due primarily to higher raw material costs, product mix and transition costs related to an improvement to the Kingsford charcoal brand, according to the company's press release.

For the third quarter, the company anticipates sales growth of 4% to 7%. It also expects margins to improve in the second half of fiscal 2006, helped by higher prices, moderating commodity costs and its own cost-cutting efforts, according to a Feb. 24 press release.

If Clorox's colorful history is any indication, the company will surely weather its latest crisis just fine.

Seemingly, the 93-year-old Oakland, Calif.-based company was founded by a motley group of entrepreneurs -- a banker, a purveyor of wood and coal, a bookkeeper, a lawyer and a miner.

Putting their heads together, they decided it would be a good idea to convert the brine available from the nearby salt ponds of San Francisco Bay into sodium hypochlorite bleach via electrolysis. The first iteration of the company name: Electro-Alkaline Co. The name later changed to Clorox -- a combination of chlorine and sodium hydroxide.

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