Ecolab employees are being spared the financial carnage of layoffs, large-scale furloughs and pay cuts that have rolled across many American companies, which CEO Doug Baker contends is the right response to the Covid-19 pandemic.
The St. Paul-based corporation, which employs 24,000 in the United States, makes an array of disinfecting and cleaning products that are in high demand among its global customers. It also has a long history of serving schools, restaurants and hotels, many of which are closed.
“The way we are thinking about the company is we want to manage through this in a way that basically enables us to come through healthy,” Baker says.
“I need my team intact,” Baker says, referring to his global workforce of 50,200 that includes 3,200 based in Minnesota. Baker, who became CEO in 2004, says the company did not immediately start slashing employee jobs to save money in response to the spread of the coronavirus.
At Ecolab, Baker has told employees: “We are living through history, and we want to look back and be proud of how we did it.”
In a wide-ranging interview with Twin Cities Business on Wednesday, Baker acknowledged that he needed to quickly address the economic and health-related fears of his employees.
Consequently, Ecolab’s management crafted a strategy to keep workers on the payroll to serve customers in the short-term, but also to be well-positioned to take advantage of market opportunities after a vaccine is developed.
Because Ecolab is providing job security, Baker says employees can focus on their work that includes aiding customers on the front lines of the pandemic. “We’ve basically said, ‘We are not going to cast you off adrift in this mess,’ ‘’ Baker explains.
Nearly all of Ecolab’s office-based employees are working from home and Ecolab is providing masks and other equipment to increase the safety of employees in its manufacturing plants. The company operates 130 plants globally, including 32 in the United States.
Baker says the company has extended sick pay and expanded health care benefits for employees, so they will not be harmed by health care costs if they contract Covid-19.
While Ecolab may be best-known for its cleaning products, it’s a huge corporation that reached $14.9 billion in sales in 2019. It offers water, hygiene and energy products and services, and has a large number of sales employees.
Ecolab has traditionally compensated its sales staff through salaries and commissions, including those whose customers include hotels, cruise lines and restaurants. “Their commissions are going to be terrible,” Baker says. In response, Ecolab changed its compensation approach under its “pay protection” policy. “We basically said, ‘We will give you your average pay for the last 12 months pre-Covid, or whatever you earn, whichever is highest,” Baker says. “They can be comfortable that they can continue to pay their bills. [Their customer sales declines] are not their fault.”
Ecolab has stopped making new hires, and Baker says leaders should not expect to be paid bonuses. “Our goal is really to minimize team damage,” he says, which means preserving jobs and pay checks.
To prevent plant employees from contracting the virus, Ecolab has separated production lines to reduce contact among workers and also regulates when they can use common areas, such as lunchrooms and break areas.
In its manufacturing plants, Baker says, “We mask everybody. If everybody is masked, everybody is more protected.”
Baker, in a call with Wall Street analysts in late March, characterized the destruction caused by Covid-19 as the biggest global event since World War II.
To calculate the potential damage to Ecolab’s business, the company ran models for several scenarios—including a base model, one that’s severe and one that’s catastrophic.
The company then moved to safeguard the business by increasing its cash reserves by $1.25 billion. Ecolab raised $750 million by issuing bonds and another $500 million through a bank facility, which has not been drawn upon.
“You need to understand where your business cash flow break points are,” Baker says in the interview. He also wanted to be able to withstand the catastrophic scenario. “We secured more than enough cash to cover that [catastrophic] eventuality,” he says, which he argues has less than a 1 percent probability of occurring.
Citing the economics metaphor about companies “burning the furniture” to stay alive when they run out of cash, Baker says Ecolab is following a path in 2020 that it took during the Great Recession. “We went and made sure we had plenty of cash,” he says. “We were able to manage 2009 more for the long-term than having to do a bunch of disruptive things if we didn’t have a cushion.”
In good times, Baker says, Ecolab often has met the short-term expectations of Wall Street investors as well as made strategic expenditures to support the business for the long haul. 2020 will not be a good year. That’s clear when scanning a chart of Ecolab’s customer markets, which shows that 41 percent of its sales markets are expected to experience declines in demand.
Food and beverage, which comprises 20 percent of Ecolab sales, is a bright spot. Ecolab provides products for food businesses ranging from dairy farms to soft drink bottlers to breweries. “There is a huge demand shift going on everywhere, but it’s particularly acute in the United States from food service to food retailers,” Baker says. “They are also upping hygiene standards with the facilities.” Since the coronavirus pandemic emerged, demand for Ecolab’s hand care and hand sanitizer products has increased by five to 15 times normal sales.
On the “depressed” end of Ecolab’s business, full-service restaurants, lodging, textile care, and cruise lines are among the companies hardest hit by Covid-19 fallout. Full-service restaurants and lodging provide 22 percent of Ecolab sales in a regular year.
In 2020, Baker says, “Our sales, as a consequence of Covid, will net be lower than they would have been otherwise.” But it’s difficult to estimate how much sales will drop. “I’ve told [Wall] Street, I don’t care about my Q2 or Q3 results,” Baker says. “We are going to manage for the long term on this.”
In addition to leading Ecolab during the Covid-19 crisis, Baker has been working with Minnesota Gov. Tim Walz and the Minnesota Business Partnership on joint efforts to battle the virus and its effects.
The Minnesota Business Partnership, which consists of top executives from the state’s largest employers, has been holding twice weekly conference calls to facilitate communication among its members. One of the weekly calls also involves dialogue among the business leaders and members of the Walz administration.
Charlie Weaver, Partnership executive director, enlisted Baker’s help to secure personal protective equipment (PPE) for health care workers and other key employees. Baker said he was drafted by Weaver after the governor’s staff contacted Weaver. “Literally the next day, I met with people on the governor’s staff to hear what the challenges were,” Baker recalls.
He asked Jill Wyant, Ecolab’s executive vice president and president of global regions, to help the administration source PPE. He also wrote a letter to other Partnership companies and asked for their assistance. Baker notes that Mayo Clinic, Donaldson, C.H. Robinson, 3M and Toro are among the Partnership members working with the state of Minnesota on securing personal protective equipment.
Wyant, one of Ecolab’s top five executives, is leveraging her overseas experience in sourcing PPE, which is led at the state level by Administration Commissioner Alice Roberts-Davis.
“The governor has reached out for assistance where they want it and they think the business sector can help,” Baker says. He anticipates another Ecolab employee will soon join a state committee on office social distancing and related issues.
“This isn’t what deals can we do for the business community,” Baker says. “There has been zero of that. It’s basically, how can we help?”
Gov. Walz and other governors have come under increasing criticism from people who want more segments of the economy to be reopened for commerce.
“This is a very fair debate,” Baker says. “You do need ultimately to open it.” He’s concluded that it makes sense to allow more activity in phases.
“If you are going to make a mistake, you’d rather open up days late than days early,” Baker notes. “Gov. Walz is science based and he understands. He is struggling with the decisions because they are hard. If he wasn’t struggling, I would be nervous.”
Baker is pragmatic and candid in how he views the balancing act between public health and economic activity. “I don’t think you are going to see a return to normal behavior until, at a minimum, people are confident they’re not going to die, and better yet there’s a vaccine so they’re not going to get sick at all,” he says.
Lacking a major decline in the infection rate and the availability of widespread testing, right now Baker says many states simply have “this big blunt instrument called everybody go home to prevent a spread.”
Within Ecolab, a team of employees is working on criteria for when and how to open some of Ecolab’s offices. “We’ve done hygiene protocol standards and social distancing standards,” he says.
One of the big considerations for Ecolab employees is when and whether schools will be closed during the duration of the pandemic. “If schools continue to be closed, then I don’t think you have any choice but making it optional” to work from home instead of an office, he says.
The damage from Covid-19 “is going to be more severe economically” than the Great Recession, Baker says. “This is not going to be a snap back V-shaped recovery.”
Fear of the virus will persist, so Baker says economic sectors that rely on discretionary consumer spending will continue to see challenges.
In some ways, he says, the economic risks are easier to diagnose with Covid-19. During the Great Recession of 2008-2009, Baker was CEO of Ecolab and served on the U.S. Bank board.
“If the financial system imploded, you don’t know how to put Humpty Dumpty back together again,” he recalls. “So I would say the unknowns were even larger then. And then as ’09 went on, the ground shaking slowed and stopped.”
In the current crisis, Baker says, it’s hard to gauge how long the recession will last. He’s focused on what he can control, and he acknowledges that Ecolab is in a much better position than other companies that were forced to close for several weeks.
Based on the coronavirus experience, Baker says, “We are going to have to reshape the business like everybody else, in one way or another. I don’t have enough information about how to reshape it intelligently right now.”
But he’s launched an Ecolab planning approach with four steps—respond, rethink, retool, reignite. The response stage consisted of retaining employees and securing a cash cushion.
Before he gets to the execution or reignite phase, Baker says he will want to narrow the exploration of what questions the company needs to answer and what possible outcomes it should address. He calls his employees his “intellectual idea generators,” and will look to them for conceiving of future strategies.
However, he won’t send the Ecolab employees off to simply think big. “You’ve got to be clear on what you are trying to achieve,” Baker says. “Get a way of communicating to your audience or your team on how to think about it.”
Liz Fedor is the Trending editor of Twin Cities Business.