Doug Baker

Doug Baker

Best Book I’ve Read This Year:
The River of Doubt: Theodore Roosevelt’s Darkest Journey by Candice Millard

Red, White, or Beer?
Red

Favorite Vacation Destination:
Any ski resort

WSJ or NYT?
WSJ

Baker became president and CEO in 2004, and chairman in 2006. Since 2011, he has led the company’s merger with Nalco and later, Champion Technologies—transactions that doubled the company’s size to $12 billion in sales and 44,000 employees. We spoke with him about the challenges of integrating Ecolab’s recent acquisitions.

How are you doing with managing all of the growth through the recent acquisitions?

Growth always brings a new set of challenges. But there is a balancing [effect] here where in certain parts of our operation, the size has made life, frankly, less volatile, easier to manage, easier to attract talent—particularly in smaller countries where we’ve doubled our size.

With 44,000 employees, how do you still get a sense for what’s going on on the front line?

In terms of keeping close, we’ve reorganized. The danger in all companies as they get bigger is that management likes to take decisions with them—you add layers and start taking the decision-making too far away from where an understanding of what’s happening remains. [At Ecolab], we’re being quite thoughtful about that and making sure that we maintain our business-unit integrity so that the decisions are still made at the business-unit level.

Tell us a little about Europe and what some of your challenges have been there.

Well, Europe for us—and this is true for many companies—is our lowest-margin region. In January of 2011 we announced a restructuring [with a focus on moving] from roughly 3 percent margin—like three cents on every dollar to more like 13 cents. We had a business that was really a culmination of 33 individual entities: 33 back offices, ERP systems, payables . . . and we weren’t getting any of the scale to run some parts of this on a pan-European basis. So we’ve invested in the systems and we announced that it involved some [job losses]. We’re on the path. In the first three years, we’re up from roughly 3 percent to 6 percent.

But isn’t this below what you were hoping to do within that period?

Yes, but it’s not significantly below. We thought that we would see a faster uptake in the first two years. But we also didn’t predict the European [financial] crisis. Almost everybody else is upside down—they’re making less money in Europe today, not more. We feel pretty good about what we’ve done there.

What are your greatest challenges as you look into 2014, and how are you taking that on?

I would say it is knitting together a new company. We never expected it to only be a two-year journey. So we’re partway through. So far, so good. So it’s making sure you don’t get bored with the journey and you take your eye off before it’s complete. The part that takes the longest in completing mergers is knitting together the culture.

And then there’s fighting the natural tendency that integrations create, which is to become inwardly focused. Our conversations or celebrations are really externally focused celebrations. Did we sell a new customer? Are we rolling out new innovations? Are we succeeding in reaching our share goals and the other targets that we have externally? It’s continuing to push external focus and get the reward systems right.

What is in Ecolab’s long-term plan?

Well, I have a great business here. We’re in businesses we like. We’re in geographies we like. We have great R&D capabilities driving innovation. There are great avenues for organic growth across the business platform and there’s great opportunity in terms of doing more traditional-sized acquisitions—call it 50 [million] to 500 million bucks. So a lot of it is operating the business to its full potential. And it’s all happening today. It’s just somewhat masked, if you will. Everybody likes to talk about the sexy integration work and the synergies. It’s understandable. And it’s the stuff that could derail you. But underneath, this is the stuff that drives the company.

When you talk about knitting the new company together, what have been some of your accomplishments that have been outward facing?

We’ve had a bunch. Initially one of our targets was $500 million of synergy sales as a result of putting the Nalco water programs and our historic food-safety programs together. We’re on path to meet or beat that simply because customers understand the natural synergy between the water systems and the cleaning systems.

From an innovation standpoint, we created three big programs. It’s now blossomed into four. We’re leveraging technology from one business across into another. We’re already commercializing three of these within two years of merging. So those are the things that get people excited. And they see the power of why you bring this together. It’s not to be bigger. It’s to be better. Because ultimately, the only way you’re going to get bigger from here is to be better at serving customers.

What was the greatest surprise along the way with the recent acquisitions?

You work hard to have only a few issues where you really [can’t] ascertain what the facts are. Then you assume bad news. So if that’s your starting position, most of the surprises are going to positive.

The big surprises? The technology is more transferable than we originally thought: there are more applications for cross-use across the businesses. And our cultures are more alike than dissimilar. That’s the single biggest thing that can derail you. On the negative side, I just don’t have a big, long list.

How do you plan to grow even more in the food arena when it already represents 34 percent of your business?

Food safety is, from a strategic focus area, still the largest space that we compete in. It comprises most of our sales. And we like that business. We’re world leaders there. We’ve got the best technology in many applications. We’ve got the best share position and the ability to meet customer needs in 150-plus countries. So what we’re doing is enhancing our capabilities.

In terms of helping manage [ingredient] water quality to help people produce safe food more efficiently, we’re in better shape than we were just three or four years ago. But it’s a continued focus on understanding the root cause of food safety issues. We always want to tackle the challenges as far up the food chain as we can, because they start as a pyramid. You want to hit it there before it’s widely distributed across any kind of retail environment. And so our focus is always as early in the chain as possible.

And then it’s leveraging our advantage to our customers’ advantage. How do we help them across the planet? How do we take the learnings in one part of the world and apply it somewhere else? Nature really does not have cultural boundaries. And, you know, bacteria—salmonella, listeria—die everywhere in the world the same way. We want to make sure we help customers identify the problems and get after them early.

What is Ecolab’s greatest potential market by geography?

Well, the single biggest market, if you look at it as one market, is Europe. It always has been. The U.S. is the world’s biggest economy as a single country. But, I mean, if you take Western and Eastern Europe together, you have more people and a bigger economy. So Europe, while we believe it will experience slow growth for the next, say, five years, still remains a very large and important economy. And it will be for all the rest of our lifetimes.

I thought it might be China.

China’s a big growth market, but it’s not yet either a European-market or a North American-market size. However, it’s a faster growth trajectory. There’s a lot of debate about how fast that trajectory’s going to be. Ultimately, we see three mega-markets: It’ll be North America, Europe, and Greater China. And we play in Greater China like it will be a mega-market—i.e., make sure that you have the right infrastructure, you have the right talent, you’re making the right investments to play on a big scale— because we believe it will ultimately get there. We also believe it will have some major hiccups between today and whatever the future state becomes.

What about South America? It seems like businesses are increasingly looking at Brazil and other countries there differently today than they were five years ago.

We’ve been growing in South America [in] double digits for a long, long time. We don’t believe that’s going to be interrupted. Brazil’s going to remain a real force in terms of food production and energy production for a long time. And those are the two areas that we focus on in Brazil. Agriculturally, it’s a powerhouse. And it’s only going to get stronger there.
 

Tell us about the chemical composition of your products. While they’re good for the environment because they help to reduce the use of water, what’s in them?

We buy all kinds of substrates and mix them to create our products. It’s a wide variety. We use phosphates in some products. We don’t use phosphates in many others. So how do you make these decisions? Typically, we work hard to take a total-impact view. There are very few things without some tradeoff. So I’ll give you an example. Even in phosphates—which we’ve gotten out of in many applications, frankly, because it’s not worth the argument anymore—but we are now able to replace them with things that work close enough, as effectively, where you do not have a major impact on the environment because of that ingredient. But [then] suddenly you can find yourself saying “I have to use a lot more water and a lot more energy. I have the benefit of less whatever your ingredient-du-jour is that you don’t like.” But what is the total impact environmentally? That’s the right conversation to have and to understand.

There was somebody marketing, not long ago, a laundry detergent which they called completely green—green chemistry, green everything else. It would take eight times as much product as ours to get the same level of clean. So is it eight times greener, No. 1? But you also have to ship eight times more product across the country, which takes a lot of fuel and produces more carbon emissions. You have eight times the plastic you have to dispose of because of the pail. You’re going to use eight times the water. You have to use a lot more energy to heat that water. So when you look at a total-impact statement, what have you really accomplished by using, quote unquote, the green chemistry? Their words, not ours. And we believe we had a much greener solution than they did to begin with.

Because we are almost always in a pretty big industrial environment where you have big impacts; when you can reduce water consumption by 20 percent, that’s a lot of water. We have customers at a site that can use over a billion gallons a year. So you want to be very thoughtful about those impacts as you go through.

And too much of this stuff is—frankly, nobody’s really doing much of the homework. They latch onto something; they don’t really want to understand the factual discussion because it’s complicated. And then they push for some alternatives. They’re well-meaning, but they push for alternatives which, frankly, are going to have huge negative impacts on the environment.

We will always move to the greener chemistry, when we can do it with a total impact that’s going to be better than the impact we have today. Ultimately, the environment is going to react to facts and to what, actually, we do to it, not to political posturing.

What about chemicals Ecolab uses in its products for the fracking industry?

Our stuff’s on the greener side.

Can you explain how much greener and what that means?

I don’t know whether you need to. Forget the chemicals for a minute.

We have all this natural gas in the country. Natural gas is 30 percent of the CO2 of oil and 50 percent less than coal. It’s principally displacing coal in the power plant area. And it’ll replace oil, likely diesel, in transportation fuel, ultimately. Environmentally, replacing those with natural gas is a huge benefit. The No. 1 thing we’re all worried about is carbon dioxide emissions. And [fracking] has got the single biggest impact here in the quickest amount of time of any technology that we know. It’s sort of a miracle.

Second, it’s a huge economic benefit. So you’ve got cheap fuel, very cheap fuel. And for this country, it’s going to be a huge renaissance in manufacturing and production. Already, there’s billions of dollars of investment going into plants that produce plastics and chemicals and all the other stuff you need to make stuff. And none of that money was going to be spent in this country previously. In fact, what we were worried about five years ago was the availability of the products we needed to make our products in North America, because all the investment was going to Asia and the Middle East. But now, with the cheap fuel, it’s roaring back into this country. That’s all good news.

We view fracking as a very favorable thing environmentally and economically, particularly for this country. So we are pro fracking, to start with.

And we believe the argument for pro fracking is a much better argument than anti. The [Obama] administration, which started out anti, has moved pro. A lot of environmentalist groups, when they look at the total impact, move pro fracking, with the important caveat that you’ve got to do it responsibly, so you need smart regulation. And we are for smart regulation in everything we do. The last thing I want to do is be in my industry without any regulation.

So what do you have to regulate? You’ve got to regulate how you sink the pipe, because you’ve got to double-case it; the only time you really contaminate the water is when the pipe breaks at 200 feet, which is where surface or groundwater is, [the water] that we drink.

Then you’ve got to treat the post-frack water. So whatever you put in the frack, about 20 percent of it comes back out the hole. And that water is contaminated, not from the chemicals necessarily, but from all the crud it picks up in the earth. You know, the earth is, quote unquote, contaminated. Where do you think all these chemicals come from? The water at a couple miles deep is highly corrosive, naturally, just if you stuck a pipe down there. So you’ve got to treat and clean that water. When you don’t, what happens is it seeps 200 feet down from the little pools, and that’s what’s contaminating the water. So you’ve got to treat that and do that right.

What do we do? We’re working on additives that reduce the amount of water you need for a frack. We’re going for big reductions. That’s going to have a huge positive impact on the neighborhood where fracking’s occurring.

We then want to treat the water when it comes out, the 20 percent, so they can reuse it in a frack without creating problems, either environmentally and/or in the evacuation of gas or oil, and do that.

The stuff we’re putting into the ground is, in many cases, it’s the same stuff that we treat food with. There’s nothing wrong with it. It turns into vinegar. You know, the principal thing these guys are using is guar [a gel formed from beans].

So why are those guys so afraid to tell people what they’re putting into the ground?

One, it’s obstinacy, in some cases. You know, sometimes industries are just dumb. And we’ve been caught up in that. If we’ve got a listing, like we put ingredients on all of our products in the bottles— what nobody wants to do is give away their formula. But we’re not afraid to give away ingredients. But then they start saying “Give us the formula of what you’re putting in there;” what we would rather say is, “Look, we’re putting in these five substrates at these percentages, you know, the stuff you worry about. But if I’m mixing it with a natural ingredient like sand, I don’t have to tell you how much sand I use. Don’t tell me to give away my trade secrets.” So you get into that fight. That’s a legitimate argument. And that argument has been had and successfully figured out 30 times in the past in other industries. And they come down to saying, "Fine; list your five major ingredients. If we have more questions, we’ll come back after you to ask you." And I think that’s where this thing will sort out.

The other truth is that while there have been some small bad actors, the big players are not putting anything down there that is going to change the face of the Earth.

Let’s switch gears and talk about our community, given your involvement on various civic boards and your role as chairman of Greater MSP Partnership. What your thoughts about the Twin Cities today as a place to attract and retain businesses? What are the top two or three strengths? What are our greatest challenges and how are we tackling them?

The Twin Cities area is, as you know a good place to do business. It’s proven by the number of businesses that have been successful here.

Top things that have probably driven our success include a talented workforce, which comes from a historic commitment to education and a good work ethic. There’s also a strong ethic historically in businesses understanding they have a responsibility to help strengthen the community in a number of ways, meaning it’s not just a “take” mentality. I think it’s a “take and give back” mentality. So I think all those things are great strengths to build on. So what are the watchouts? One is to watch your best strength, which is a talented workforce. We’ve got to have a community where we are able to attract and retain talent. I think some of the infrastructure investments [such as in transportation] here are smart. I think we need to do more, not less. We need to make sure this is a vibrant place that young people are going to be attracted to and create an urban environment that’s going to meet their needs long term.

From an education standpoint, I’d say we have two big watch-outs. One, you’ve got this huge disparity between outcomes for white kids and minority kids. For one, it’s an ethical issue. For another, it’s going to be a huge business and social issue for us, because that community is growing at a faster rate than the rest of the community. As a result, this is a problem that’s going to crush us if we don’t get on top of it.

It’s not simply a money problem. I don’t even know if it’s a money problem at all. I think we are going to have to get after this with very different thinking around how do we educate this group, how do we help this group, and how do we structure education to meet this group’s needs? And I don’t think we’re doing that nearly rigorously enough nor fast enough. So if that was your business problem, it’s your cancer. It could kill you. You’ve got to get after it. And I would not be afraid to break some of the old rules and paradigms. I think we are way too afraid to do that.

What would be one that you think we could break?

How we structure the school day, and how we ask teachers to teach. Having summers off. I’ve had three kids go through the public school system. It’s a good one. But I can’t tell you how much time they got at home from my wife and also from outside tutors when we needed them. So they got a lot of help. Their school day did not end at three o’clock, ever. [But] that’s not the case with a lot of other kids that don’t have the resources we have. Extending the school day, extending the resources available to these kids, so they end up, frankly, with the same help that other kids get, would help.

But the way the day’s structured, the way the school rules are structured, the way the teachers’ rules are structured—none of these things lend themselves to this. And we see clearly, when you get into charter school situations, where they break those rules, spend more time with them, offer more one-on-one, structure the classroom differently, they get very dramatically improved results.

If you looked at Minnesota and said, “OK, what’s our formula for success?” It’s the talented workforce and work ethic I mentioned previously, along with a decent to good infrastructure, including parks and everything else. Even with higher than normal taxes, it all still equals success.

But what we have is declining education at the top and dramatically increasing taxes at the bottom. And that’s going to put pressure on your success formula. To think these things won’t is naïve. It may not be a breaking point. And I’m more worried about education than I am about the taxes. But I think both of them are things we have to be pretty cognizant of.