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Issue 1, Volume 1 - January 3, 2007
Article by Peter Galuszka
Relocation of its corporate headquarters to the Greater Richmond region is a keystone of MeadWestvaco's strategy to drive down costs and build a global, technology-driven packaging giant.
MeadWestvaco has deep roots in Virginia. In Chesterfield County some 200 of its employees have performed back-office functions such as accounting and human resources, and for years, a plant in south-side Richmond supplied cigarette cartons to Philip Morris USA. Elsewhere in the Old Dominion, ties date back even further – at least to 1899 when a predecessor firm opened a major paper mill in Covington. For years, the front gates of the plant served as launching pad for statewide political campaigns.
Now the $6.8-billion packaging and specialty chemicals giant has taken things a step further by moving its corporate headquarters from Connecticut to the Richmond area. Relocating headquarters operations from high-cost locations in the Northeast and Midwest to Richmond is integral to the company’s crusade to strip $200 million in expenses out of operations, promote innovation, expand the business globally and focus attention on businesses with higher profit margins.
Says Linda V. Schreiner, senior vice president of the company: "The move to Richmond is very symbolic. It’s a capstone move, a launching place."
The genesis of MeadWestvaco’s transformation dates back four years to when paper and packaging makers Mead Corporation of Dayton, Ohio, and Westvaco, then of New York, joined hands in a $3 billion stock swap. Under the guidance of the new CEO, John Luke Jr., the new corporation shed 2,000 jobs and unloaded a $2.3 billion business unit that made paper for labels, magazines and books and accounted for one third of the company's sales.
Luke's vision was to position MeadWestvaco as "the global leader in packaging and packaging solutions." To succeed, he has said, "We must establish the right business model and the right structure." He has reshaped the firm by dumping low margin commodity products like paper, where prices are subject to violent and unpredictable swings that can punish earnings and stock prices. And he has focused on higher-end products such as packaging and specialty chemicals where growth opportunities are steadier and larger.
At the organizational level, the company is merging six divisions of its packaging segment into two: a Packaging Resources Group including bleached paperboard mills in Covington, Va., and Evadale, Tex; a coated natural kraft mill in Cottonton, Ala; and an unbleached paper mill in North Charleston, S.C., plus operations in Brazil. A new Consumer Solutions Group combines packaging and consumer packaging groups.
At a deeper level, MeadWestvaco aims to build a corporate culture of innovation. By moving corporate employees and the two packaging groups into the headquarters together – in a location to be announced later this summer – the company hopes to create opportunities to work together more creatively. Says Donna O. Cox, vice president of communications: "We’ll be able to collaborate more easily and build a culture where we are unified, both in location and mindset, toward achieving our goal of global leadership."
No longer competing head-on with traditional pulp and paper businesses like Weyerhaeuser and International Paper, MeadWestvaco will move upstream into products such as paper and plastic wrappings for DVDs, CDs and other consumer products. Already, says Stephen R. Scherger, vice president for corporate strategy, the company makes packages for cosmetics firms such as Clinique and Chanel, and for drug makers that want highly specialized "compliance" packages that let patients know when to take their medicine.
Meanwhile, the company is leveraging its paperboard know-how into new packaging for beverages and is branching into new packaging involving plastics. The idea, according to the trade magazine "Package Design," is to become a "one-stop shop that can quickly take a completely new package design from ideation, to structural design, to graphic design, to prototyping, to testing, to production, to filling, to introduction."
With the goal of "participating in the higher-value space," Schreiner says, the company has just paid $710 million to acquire Calmar, a maker of plastic dispensing and spraying device, from France’s Compaigne de Saint-Gobain.
MeadWestvaco, operating in 29 countries, sees big opportunities abroad, especially in Asia. Says Schreiner: "India, from a packaging perspective, is a fantastic growth market." To support its overseas operations, the company will establish a new unit, Global Shared Business Services, in the headquarters operation. The unit will offer back-office help such as human resources, accounting and information technology across the global enterprise.
Some industry analysts like what they have seen so far of Luke’s restructuring and repositioning, although they do have reservations. On the downside, wrote the ratings firm Morningstar in a June report, MeadWestvaco remains in an industry sector known for lackluster returns, and the firm has failed to earn its cost of capital each of the past five years. The company also is a defendant in 700 lawsuits involving asbestos claims, although the firm has never made products containing asbestos.
Even so, the company remains one of Morningstar’s favorite packaging firms, largely because of its branded, proprietary products. “The firm markets a handsome portfolio of higher-margin branded products targeted towards the beverage, pharmaceutical, tobacco and office-product sectors,” continued the report. "Shying away from low-value commodity products, MeadWestvaco has developed a core competency for design, innovation and customizable solutions."
MeadWestvaco’s relocation to Richmond isn’t good for just MeadWestvaco, it’s an economic development coup for the Greater Richmond region. Between new hires and employees transferred from a half-dozen locations, the move could bring 400 employees to the area. MeadWestvaco, the 322rd largest company in the United States last year, also will burnish the region’s reputation as a corporate-headquarters center, adding a seventh member to the roster of Fortune 500 companies that make Richmond their home.
“Only a handful of Fortune 500 companies move their headquarters each year. MeadWestvaco’s decision to come here validates Richmond as a preferred location for corporate headquarters,” says Gene Winter, senior vice president with the Greater Richmond Partnership. “Of course, Richmond has lower costs than larger cities, but that’s only part of the story. Look at the leading industries here – law firms, finance, insurance, marketing and advertising. Their employees have the skills in demand by corporate headquarters operations.”
The search for a new headquarters site began in earnest in the summer of 2004 when MeadWestvaco executives contacted state and regional officials to see how Richmond might fit into the company’s strategic plans, which include shedding about $200 million in costs. Part of the cost-shaving initiative entails getting rid of leases on scattered properties in several states that are no longer considered vital to the enterprise.
Schreiner says that officials in Virginia and the Richmond area, including the Virginia Economic Development Partnership, the Warner and Kaine Administrations and the Greater Richmond Partnership along with city and county officials, made a very strong pitch. What really sealed the deal, however, was the supportive role played by Richmond area corporate leaders, including some from recently relocated companies such as Philip Morris USA and Wachovia Securities. They provided advice and shared information about their recent relocations. (See sidebar).
Other cities offered stiff competition. “We looked at Raleigh very seriously,” says Schreiner. In the end, the top brass decided to split the difference: Richmond would get the headquarters but Raleigh would host a new Packaging Innovation Center for R&D at North Carolina State University’s Centennial Campus. North Carolina reportedly granted the company $5.19 million in tax breaks to snare the $14 million project, which will become MeadWestvaco’s showplace R&D facility. Older R&D facilities in Ohio and Maryland are being closed and some of their people are shifting to Raleigh, where 200 employees will create new technologies for packaging and design.
What Richmond offered, says Schreiner, was a community of major corporate headquarters, including six other Fortune 500 companies.
Also helping Richmond was a location accessible to many of the company’s facilities, including the Covington mill and a facility at Low Moor, both in Virginia, along with operations in Charleston, S.C., Atlanta, North Carolina, a good part of the company’s 1.25 million acres of timberland – and the new R&D center in Raleigh. “We actually got out pins and threads on a map and measured the distances,” says Scherger.
Air transportation, long an Achilles heels in Richmond’s economic development, is improving, says Schreiner. The pattern of high fares and few flights is history now that discount carriers AirTran and JetBlue have begun operating out of Richmond International Airport. Meanwhile, the airport itself is nearing the end of a big makeover.
As for international travel, Dulles, which provides many overseas connections, is two hours away, while Atlanta, a gateway to Latin America, is an easy hop from Richmond International. Schreiner notes that it took as much time for executives in Stamford to get to Kennedy International Airport for global flights as it does to get to Dulles from Richmond. Scherger, who has moved to the Richmond area from Atlanta, notes that getting to Hartsfield airport is no picnic considering Atlanta’s crammed roadways.
Richmond’s quality of life was instrumental in persuading about 50 percent of MeadWestvaco’s employees to relocate. Of the new arrivals over the next two years, about 100 are coming from Dayton and 50 from Stamford, with more from Atlanta and Charleston. MeadWestvaco also is hiring locally. About 90 job offerings have been on its website for positions in accounting, information technology, market analysis and others. All in all, the relocation should create 400 new jobs, Luke has said.
Already some 100 workers have moved into the company’s new, 210,000 square-foot temporary headquarters and another 200 are expected from the company’s Chesterfield offices. Among the newcomers is Luke, who brings a bit of executive celebrity to Richmond as chairman of the influential National Manufacturers Association in Washington and an outspoken champion of a manufacturing sector beset by competitive challenges. Moving to the area is pivotal to his ongoing efforts to transform MeadWestvaco. If he succeeds, his firm, Richmond will thrive – and may even point the way for others.
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