According to Ulrich Lehner, president and CEO of Henkel, only socially responsible companies are viable. Henkel, however, experienced that charity begins at home as the advocate of business ethics unveiled that it secretly acquired a minority share in cosmetics company Wella. For years, Henkel courted Wella, but its secret share did not put off competitors: on 18 March, Procter & Gamble announced that it acquired a majority share in Wella.
Elsevier Food International, Vol. 6, Number 2, May 2003
Pascal Kuipers

Ulrich Lehner has a background as a financial controller. He has been astonished by the accounting irregularities at several companies that have recently come to the surface. The Ahold affair and the downfall of this retail giant with a hitherto irreproachable reputation, has especially surprised him. "A controller should have the highest moral standards to do his job properly," he says. "If that is not the case, or if controllers are put under pressure by managers with less developed ethical business standards, problems arise automatically. I still believe that the irregularities we have seen are individual cases. In my view, especially tempting incentive systems triggered such misconduct."

Prof. Dr. Ulrich Lehner (1 May 1946) was educated in business administration and mechanical engineering and became an auditor at KPMG in 1975. In 1981, he switched to Henkel where we worked at the central department of accounting/taxes. After a short period as a controller at the German steel company Krupp, he returned to Henkel in 1986 and five years later he was promoted to president and CEO of Henkel Asia Pacific. In 1995, he returned to Henkel's headquarters in Dusseldorf as executive vice president Finance/Logistics and since May 2000 he is at the helm of the company as president and CEO.

As a controller by origin, you obviously rule this out at Henkel...
"Accounting irregularities at Henkel are absolutely out of the question. We have a moderate bonus system and at all levels within our company we observe an ethical business policy. Henkel's top management sets the right example."

You are at the helm of a listed but family-owned business. How far does the influence of the family members reach and how independent is the Executive Board
"Henkel is an open family company. The Henkel family owns 51 per cent of the voting shares while 49 per cent of the shares are free floating via the stock exchange. The family pooled its voting shares and executes the rights resulting from this. It decided not to be involved in the company's executive management, but to have representatives in the shareholders committee and the supervisory board. All this leads to fast decision-making and a high family involvement in the company's affairs."

So the Executive Board never disagrees with the family?
"The family operates as any other majority shareholder, rational and closely tied to the company.
Fundamentally, the firm has priority over the family. The family rationally supports far-reaching decisions like the divestment of the chemical division Cognis and the sale of our share in our joint venture with Ecolab. This changed our company from being a specialist in applied chemistry to a company whose future rests on brands and technologies."

Apart from these divestments, Henkel has announced that they are to slim down the workforce (a reduction of jobs by 2,500 to 3,000 in 2003) and fewer brands (aiming for a 20 per cent reduction of the current number of 741 brands). Does Henkel focus on solely on cost control with its reorganisation process 'Strong for the Future'? Or does this process also entail a vision on future growth?
"It is no cost-cutting operation. In 2001, we started 'Strong for the Future' because we already sensed that the economic rise since the late 1990s had become questionable for the years to come. Against the background of this deteriorating business climate and the European Union which is both expanding and integrating, Henkel needed to change. We sold our chemical operations - Cognis and the Ecolab joint venture - and had to integrate the companies we acquired in recent years, such as Loctite. Globally, we restructured the company from a multidomestic to a transnational organisation.
In practice, this means that a focus on local markets without exchange of knowledge has been traded for an approach with homogeneous markets, Europe-wide production facilities and international marketing. This leads to a clear improvement of performance. So it's all about a new structure which increases efficiency, reduces costs and increases benefits."

It still sounds like a euphemism for cost control. What about value creation? Innovation? R&D?
"The new structure optimised our cost base and increased our competitiveness. That is a prerequisite for value creation. Two years ago we started an R&D strategy to drive future innovation. We increased the R&D budget and this we spend efficiently via collaboration with top researchers from distinguished universities. Every year we grant an award for a product that has in practice proven to be innovative."

In October 2000, you were quoted by the Financial Times Germany stating that Henkel had some US$6 billion up its sleeve for acquisitions. In September 2002, you said in the German publication Manager Magazin that Henkel could easily cough up €7 billion for acquisitions, but it would be very reserved in spending it. Being restrained in spending is a virtue, but isn't growth via M&A activities needed for Henkel to keep up with competitors like P&G, Unilever or L'Oréal?
"Two years ago we decided to drastically reduce our debt. We also have a 'zero cash' policy which means that all funds are invested in the company. We are now in a comfortable financial position with - if needed - quick access to credit. Henkel has a tradition of organic growth, sometimes stimulated by smaller and medium sized acquisitions. I do not comment on our competitors or on possible acquisition targets. That's speculation and I know that it is the favourite play of the press and financial analysts. Such speculation should stop as it creates unwanted and unnecessary rumours."
With this objection to speculation, Lehner is obviously referring to the repeated rumours that were going around at the time that Wella (a leading hair care and cosmetics company with global 2002 sales of US$3.6 billion) was for sale and that Henkel's competitors (Procter & Gamble, Beiersdorf, Unilever and L'Oreal) were the most interested parties to take over Wella. Given Henkel's conservative growth policy and the fact that Wella would be a perfect fit, Henkel is not amused by rumours that force up prices. In September-October 2002, Henkel is said to have made a €4.5 billion bid for Wella that was allegedly turned down. On 10 March, Henkel announced that it had been secretly acquiring shares in Wella for a longer period via a subsidiary company. Henkel now owns a 6.68 per cent stake in Wella (4.99 per cent of the common shares and 10.38 per cent of the preferred non-voting shares). The spokesperson would not disclose which subsidiary company, and which period of time is concerned. He only said that it has been "a longer period of time" and that this transaction offers Henkel "financially interesting strategic options". These options are, according to the spokesperson, "something for outsiders to interpret or speculate on ".
Speculation however did not last long. Procter & Gamble announced on 18 March that it had bought 77.6 per cent of Wella's voting shares (a €6.5 billion deal) and intends to acquire 100 per cent of Wella. Henkel is treated like any other shareholder and received a tender offer for its minority share. "We are evaluating the new situation but Henkel does not intend to participate in a tenderer competition about voting rights at excessive prices, particularly since substantial financial requirements for improvement can be expected due to the very low offer for the preferred shares", the spokesperson stated on 19 March.
After Clairol in May 2001, Wella is the second company to have been snatched away in front of Henkel's very eyes. Nevertheless, Henkel says it continues to live up to its growth strategy as expressed by Ulrich Lehner: "Here at Henkel it's all about organic growth and smaller-sized acquisitions. This policy will remain unchanged in the future."

In the interview in Manager Magazin you expressed your doubts about global branding and the necessity of acquiring global presence. How does Henkel search for a balance between global and local synergies?
"Our industrial business is a global business and Henkel is by far global market leader. We do not assess our consumer goods business as a global business. Consumer goods should be managed locally. In consumer goods Henkel is represented worldwide, but has its strongest position in Europe. Our approach is local. We expanded to several markets by local acquisitions aimed at further organic growth. This is often based on brands with a strong local presence. We are very cautious to replace such strong local brands by global brands. In our reorganisation we are clustering our big brands with global and regional presence, our strong local and regional brands and finally our weak brands that we will dispose of in the near future. We will also endorse our brands with Henkel to make our company name more widely known and we are to develop strong umbrella brands such as Schwarzkopf in hair care and Pattex and Pritt in industrial and stationery adhesives, respectively."

Promoting the public familiarity of the company name also happens via Henkel's Corporate Citizenship programme. How important is this?
"Of utmost importance. Henkel has a tradition of social responsibility, towards its employees, its customers, society and the environment. I believe that this is a prerequisite for a viable company. Every year we publish a sustainability report that provides precise information on safety, health, environment and Corporate Citizenship. All our facilities worldwide are audited to meet strict environmental criteria. We also have a code of conduct regarding the companies that we deal with as we promote ethical business procedures."

In Germany, Henkel takes an active stand against hard discounters and increases its budget to promote its brands. Why?
"We are branded goods suppliers and we are convinced that our brands offer value to consumers and retailers. To do this efficiently we seek collaboration with our retail partners, especially those that position themselves as service and convenience retailers with a broad assortment that pleases customers. In Germany, however, we also have to deal with hard discounters that still sell A-brands and hard discounters like Aldi that sell mostly fancy labels. Every retailer has its own strategy and we will judge whether or not we want to collaborate with them."

Will Henkel go as far as boycott retailers that are overly price aggressive without adding value?
"Up to now this situation has not occurred. I do, however, understand how a boycott could happen. We do not rule out this option. Our products are value products and we want to optimise value."