Case Study:

Clorox

Background (2007)

Clorox had been delivering above average shareholder returns relative to peers, driven by:

> In the five years prior to Mr. Knauss’ 2006 appointment as CEO, Clorox had delivered above average shareholder returns vs. peers driven by leading brand equities in profitable market niches, a disciplined approach to cost and capital management, and recent share repurchases at a discount

> However, the company’s top line growth had slowed and senior management was not satisfied with the profit growth in their base case forecast in the existing management plan

> Mr. Knauss, who had recently reinvigorated the growth of Coca-Cola’s North American business began applying the same, value-focused approach to improving profitable growth and shareholder value at Clorox

Our Relationship and Approach

> Help senior management communicate to the organization an unwavering commitment to maximizing share owner returns; Clorox needed to change its measure of success to economic profit and push this down into the Business Units, given that years of SG&A centralization in order to improve scale economies had resulted in a misalignment of accountability and control

> Pilot a new, more granular approach to strategy development within select Business Units, that was then rolled out across the organization

> Conduct training sessions with senior management, line management, and key contributors in each business – focused on the requirements and necessary capabilities to successfully manage for maximizing shareholder value growth

> Participate in performance management meetings to ensure the concepts were integrated with “the way we run the business” at Clorox

Granular Understanding of Sources and Drivers of Value
Double Value Goal
Clorox Double Value Goal

Performance Requirements
Clorox Performance Requirements

Actions

> Established the corporate goal of sustaining superior shareholder returns relative to peers and began measuring all brands and businesses on economic profit growth with line-of-sight between internal economic profit growth and investor expectations, what Mr. Knauss calls “True North”

> Identified where the profitable growth potential was concentrated across the Clorox portfolio, by brand, channel, geographic region and customer to maximize profitable organic growth

Drivers of Product Segment Economic Profits

> Identified profitable adjacent markets where Clorox could leverage its competitive advantage to create profitable inorganic growth

> Improved commercial strategies and marketing investment, at a channel and sometimes individual customer level; some profitable product lines were being “starved” for investment and there was a lack of breakthrough business models being investigated for some chronically unprofitable ones

> Improved internal management decision processes and focused incentives on economic profit growth

Results (subsequent 5-year performance)

> Compounded annual economic profit growth of 13% per year

> Top quartile shareholder returns

Clorox_TSR_CaseStudy